Audit and control in the not-for-profit sector: an endowed charity case 1739–1853

Abstract

This paper reports on an investigation of an endowed charity, the Lady Elizabeth Hastings Trust, over the period 1739 to 1853. This period pre-dated the establishment of the permanent Board of Charity Commissioners, and was one in which the legal regulatory framework offered the trust's beneficiaries only limited redress against abuse by the managers of the trust. The safeguarding of the beneficiaries' interests depended heavily on the governance and control structures established by the trust's dead benefactress. Examination of the trust's Deed of Settlement, the accounting records and audit statements, show that from its inception this not-for-profit organisation employed a system of separation of powers, internal audit with documentary audit trail, and notably, an independent audit. The paper highlights the ‘progressive’ nature of the auditing mechanism adopted by this not-for- profit organisation, even when compared to the commercial sector of the period. Archival evidence is used to show that the governance system put in place by the foundress of the trust was successful in overcoming agency problems, in detecting abuse by the agents, and in ensuring the compliance of the agents with the wishes of the benefactress for more than a century after the benefactress's death in 1739. It is suggested that examination of the not-for-profit sector, so far largely ignored in the history of audit, can yield valuable insights into the development of auditins in the UK.