Dismissal of trustees when commingling endowment funds: Regulations of the General Authority for Endowments

In a pivotal regulatory step aimed at enhancing transparency and protecting the non-profit sector in Saudi Arabia, the General Authority for Endowments issued a comprehensive reference document entitled “100 Questions and Answers on Endowment Matters.” This document aims to put an end to opaque financial practices, stipulating strict penalties, including immediate dismissal and legal accountability, for trustees involved in serious violations, most notably the commingling of endowment funds with personal funds.

A regulatory framework that aligns with Vision 2030

This decisive move by the General Authority for Endowments aligns with the objectives of the Kingdom's Vision 2030, which places great emphasis on developing the non-profit sector and increasing its contribution to the GDP. Endowments are the cornerstone of this sector's sustainability; therefore, governing the management of endowments and regulating financial transactions is no longer an option, but an urgent necessity to ensure the continuity of endowment assets and maximize their social and economic impact. Since its inception, the Authority has been working to transition the sector from individual efforts to organized institutional work subject to rigorous oversight and clear accounting standards.

Mixing money is a red line that warrants isolation

The new document unequivocally states that mixing endowment funds with the trustee's personal funds, without a documented legal or regulatory justification, constitutes a crime warranting immediate dismissal. The authority went further, emphasizing that such conduct subjects the trustee to prosecution through the appropriate judicial channels. Other grounds for dismissal include the trustee committing any crime involving breach of trust or dishonesty, or refusing to open a separate bank account in the endowment's name, thereby exposing endowment assets to the risk of misappropriation or loss.

Oversight and transparency: Broad powers for inspectors

In the context of strengthening oversight, the regulations emphasized that any attempt to obstruct the work of the General Authority for Endowments' inspectors, whether by preventing them from conducting desk and field inspections or by withholding necessary documents and information, constitutes sufficient grounds for terminating the administrator's term and replacing him. The Authority obligated the dismissed administrator to immediately cease all actions related to the endowment upon the issuance of the decision, deeming any subsequent action absolutely null and void. He is also required to immediately hand over the custodianship and financial records to the replacement administrator to ensure the uninterrupted operation of the endowment.

Protecting assets and updating endowment concepts

The document did not overlook investment and financial aspects, prohibiting trustees from lending endowment funds to others or disposing of assets through sale or exchange except in cases of extreme necessity and with prior judicial authorization. In a significant development keeping pace with modern economic changes, the authority broadened the concept of endowed funds to include stocks, shares in companies, and cash, provided they are invested in secure ways that ensure the preservation of the principal and the continuation of its benefits.

Expected impact: Enhanced trust and sustainability

These stringent measures are expected to bolster the confidence of donors and businesspeople in the Kingdom's endowment legal framework, thereby encouraging the establishment of new and high-quality endowments. Furthermore, enshrining the principle of the endowment's independent legal personality and protecting it from seizure due to the donor's personal debts provides a robust legal guarantee for the continuity of charitable and developmental work, shielding it from the financial difficulties of individuals. This ultimately benefits the national economy and those who utilize the sector's services.