Decision

Busoga Association (UK), formerly a registered charity

Published 14 June 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

A statement of the results of an inquiry into Busoga Association (UK) (former registered charity number 1081149) (‘the charity’).

The charity

The charity was registered on 15 June 2000. It was governed by a constitution adopted on 16 January 2000 as amended on 3 December 2006. The charity was removed by the Commission from the register of charities (’the register’) on 6 October 2015 as it had ceased to operate.

Background

On 25 April 2013 the Charity Commission (‘the Commission’) opened a compliance case into the charity following receipt of a complaint from a grant giving charity (‘the grant funder’).

The grant funder informed the Commission that during a review of funding provided to the charity between 2008 and 2012, it had identified concerns that financial records provided were of poor quality, incomplete and consequently did not demonstrate that the £767,000 in funding given to the charity had been properly applied for the purposes outlined in the grant applications by the charity.

The Commission arranged to meet with the three trustees named on the register on 28 August 2013 at the charity’s premises, but this was only attended by the charity’s correspondent who was also the charity’s Chief Executive Officer (‘CEO’). The CEO explained that the trustees were unable to attend due to unforeseen circumstances.

During the meeting all of the charity’s available books and records were inspected. The inspection, as previously identified by the grant funder, demonstrated that the records maintained by the charity were insufficient to account for all of the charity’s expenditure and activities.

Issues under Investigation

Due to the Commission’s concerns regarding the charity’s financial management, on 25 October 2013 a statutory inquiry was opened into the charity under section 46 of the Charities Act 2011 (‘the act’).

The issues under investigation were:

• whether charitable funds had been misapplied or misappropriated, specifically those restricted charitable funds received by the charity from a grant funder
• whether the general and financial management of the charity was adequate; with specific regard to accounting for the application of charitable funds and the charity’s activities
• whether there had been mismanagement and/or misconduct by the trustees in the administration of the charity
• whether the trustees complied with and fulfilled their legal duties and responsibilities as trustees under charity law

The inquiry closed with the publication of this report.

Findings

Whether charitable funds had been misapplied or misappropriated, specifically those restricted charitable funds received by the charity from a grant funder

Whether the general and financial management of the charity was adequate; with specific regard to accounting for the application of charitable funds and the charity’s activities

Having obtained the charity’s bank statements under section 52 of the act for the period August 2008 to November 2013, which covers the period the grant funding was received and subsequently applied by the charity (‘the relevant period’), the inquiry conducted an analysis of the statements to determine how the grant funding had been applied by the charity.

The inquiry’s analysis showed that the charity had received £672,170 from the grant funder between 6 August 2008 and 11 April 2012 for three specific purposes, and that this funding had been split; £642,270 being attributed to two specific projects in Uganda, and £29,900 to develop the charity in the UK.

The analysis also showed that between 8 September 2009 and 4 November 2013, £559,547 of the funds set aside for the Ugandan projects was transferred from the charity’s bank account into overseas bank accounts in the names of the projects, not in the name of the charity’s partners for the two nominated projects, leaving £82,723 unaccounted for.

A report by the grant funder stated that £50,000 which had been paid by the charity to a Ugandan consultancy firm was in all probability part of this amount, leaving an amount of £32,723 unaccounted for.

Trustees are able to delegate day to day activities to a particular individual, but in doing so trustees should set out in writing the limits of any delegated authority, and put clear reporting in place to ensure that such authority is not subject to the potential for abuse.

Whilst delegation can help trustees to govern their charity more effectively, they cannot delegate their overall responsibility. Trustees ultimately remain collectively and severally responsible for all decisions that are made, and actions which are taken with their authority.

Directions were issued by the Commission under section 47(2)(c) of the act compelling the three trustees named on the register to meet with the inquiry. As the trustees failed to respond to those directions the inquiry issued a second tranche of directions officially served on them. One of those contacted responded and attended a meeting on 8 April 2014.

At the meeting the inquiry was informed by the individual that this person was a member from 2011 but had no knowledge that they had been appointed as a trustee at the Annual General Meeting (‘AGM’) held by the charity on 20 June 2012, or knew the two other individuals who were listed as trustees on the register, and who were professed to have been appointed at the same AGM.

Given the details provided regarding the other two individuals the inquiry decided not to engage with them any further.

To establish whether there had been active trustees in place during the relevant period, who had been responsible for the transfer of the funds overseas, had verified the end use of the funds and had oversight of the role of the CEO; the inquiry issued section 47 directions (five in total) to other individuals who were identified from Commission records as being the former trustees of the charity: the inquiry received four written responses to the directions.

Two of the responses received stated that they had been trustees during the relevant period, but that the CEO had been responsible for the transfer of funds overseas, and had also visited Uganda to verify the end use of funds. Both of these individuals also advised that they were not involved in the decision to engage a Ugandan consultancy company.

The third respondent stated that that they had been appointed as a trustee in 2011, and had been removed in 2012 without their knowledge. They also stated that they had no knowledge of the transfer of funds to Uganda, and were not involved in the decision to engage the consultancy company. That individual advised that they had contacted the CEO in November 2013 following an article published about the charity in August 2013, but had no contact since then.

The fourth respondent advised that they had been a trustee for a seven month period during 2008, but also had no knowledge of the operation of the charity, and that it had been the lack of information being shared regarding the charity’s operation which had caused their resignation.

Having directed the CEO under section 47(2)(c) of the act on 13 May 2014, a meeting with him took place on 28 May 2014 (‘the meeting’). During the meeting the CEO informed the inquiry that the day to day running of the charity was undertaken by him and had been since 2002.

He informed the inquiry that he had previously done this in an unpaid capacity, but that when he began to make grant funding applications for the charity, which was a decision he had made, the trustees at the time had agreed that he would receive commission of 10%, paid as a salary. The CEO stated he had subsequently set his own salary to ensure that the charity stayed within budget, and without any consultation or approval from the trustees.

The inquiry did not see, nor was it provided with, any evidence of the decision to pay the CEO being made by the trustees. Neither did the inquiry see any evidence that the trustees were consulted about, or agreed any changes to the CEO’s salary.

The CEO informed the inquiry during the meeting that he had been responsible for the completion and submission of all the grant applications to the grant funder during the relevant period and had travelled to Uganda to verify the end use of funds but was unable to specify the dates he had done so.

The inquiry was also informed that initially, trustees’ meetings were held quarterly but from 2008 onwards, the only meeting held by the charity was the yearly AGM. The inquiry saw evidence of four sets of minutes from Executive Committee meetings from January and June 2007 and 2008, and minutes from the AGM held on 20 June 2012.

This indicated not only a clear lack of decision making by the trustees of the charity, but also a lack of oversight of the CEO’s role and remit from June 2008 onwards.

On the basis of the information provided to the inquiry by the CEO during the meeting, the records examined and the interviews with former trustees conducted by the inquiry, and in the absence of any documentation which identified that the CEO had acted with the delegated authority of the trustees, the inquiry formed the view that the CEO was acting in the capacity of a de facto trustee.

The CEO was informed of this at the meeting, and made aware that in that capacity he was bound by the same duties, responsibilities, and legal requirements as trustees.

The inquiry took possession of all the charity’s records from the CEO on 29 July 2014 and obtained copy cheques under section 52 of the act for the charity’s bank accounts during the relevant period.

Due to some of the dates of the information requested being more than six years prior, the inquiry did not receive all the cheques requested, and some cheques were unreadable; these accounted for £13,922 of expenditure by the charity. The inquiry was unable to distinguish whether this related to grant funding expenditure or general charitable expenditure, as whilst the majority of income was in the form of grants during the relevant period, a small proportion was voluntary income.

The information was considered by the inquiry in conjunction with the charity’s records, and the initial financial analysis conducted by the inquiry.

Application of funds overseas

Trustees are responsible for their charity’s management and administration, and must only use their charity’s funds in furtherance of its charitable objects. The identification and selection of beneficiaries in order to achieve their purposes are important decisions for trustees to take.

Trustees must make decisions which are legally valid and to make sure that they exercise their discretion properly, they must avoid undertaking activities that might place the charity’s funds, assets or reputation at undue risk. To assist in managing risk to assets trustees must carry out appropriate and proper due diligence on any individuals and/or organisations that they intend to work in partnership with, whether domestic or overseas, to ensure those individuals or organisations are appropriate for them to work with.

Trustees must also be able to demonstrate that they have monitored funds to ensure that not only have they been transferred from a charity’s bank account to the relevant beneficiary, but also that once they have reached the intended destination, their end use was verified to ensure that those funds had been used for the purposes for which they were intended.

The inquiry had already established that £559,547 of grant funding had been transferred by the charity to the two Ugandan overseas projects during the relevant period. The nine annual reports provided by the charity to the grant funder between 2009 and 2012 in relation to the different projects were provided to the Commission under the previous compliance case and considered by the inquiry.

All of these reports had been completed by the CEO. Whilst the reports gave a narrative on these projects, and a breakdown of how funds were applied, the inquiry was not provided with sufficient evidence to validate that funds had been expended as stated within those reports.

After reviewing all the charity’s records as provided by the CEO, the inquiry found insufficient evidence of any decisions having been taken by any named trustees of the charity relating to the applications made to the grant funder or as to how those funds were to be applied overseas.

The only evidence seen by the inquiry of any named trustees involvement was as authorising signatory to payment authorisation / cheque requisition forms and as signatory to cheques, of which the CEO was the second signatory. The inquiry also saw no evidence to demonstrate that adequate internal financial controls were in place within the charity, in particular in relation to partner/beneficiary selection, due diligence and monitoring.

The inquiry also saw no evidence of adequate due diligence being undertaken prior to the transfer of funds overseas, or once transferred, that they had been used for their intended purpose potentially putting the charity’s funds at risk.

The inquiry saw insufficient evidence to be able to verify the end use of funds in relation to the Ugandan projects in order to form a view whether or not they had been properly applied in furtherance of the charity’s objects.

Diversion of Funds

Restricted funds are funds that are to be applied for a specific purpose. In this charity the grant funder had provided funds for a specific purpose, that being for the projects specified in the grant applications submitted, which were in furtherance of the charity’s objects.

Trustees have a duty to ensure that there is no deviation of such funds for another purpose.

The independent review that had previously been commissioned by the grant funder detailed that £50,000 that had been provided for the purposes of a specific project in Uganda had probably been transferred to a Ugandan consultancy company.

The inquiry reviewed the consultancy company project contract dated 23 April 2006 which had been signed by the CEO of the charity. At the meeting with the CEO he confirmed to the inquiry that the £50,000 payment was for development of a project proposal and that this was the only consultancy company approached for a quote.

The CEO further advised that he made the decision to enter into a contract with this company, and that neither the named charity trustees, nor the director of the project in Uganda were consulted in the decision.

Whilst the grant funder’s findings indicated that the £50,000 was likely to have been part of the £82,723 which was unaccounted for; the inquiry was unable to verify this from the evidence seen to be able to reconcile any payment to the consultancy firm from the charity’s UK bank accounts. However, the inquiry did identify a £50,000 payment which was transferred by the charity to the account in the name of the project proposal associated with the consultancy work on 20 August 2008.

Regardless of this fact, the CEO made the decision to divert £50,000 of funds set aside for the Ugandan projects in order to engage a consultancy company. The inquiry considers that this is evidence of misapplication, and misconduct and/or mismanagement in the administration of the charity by the CEO.

Payments to the CEO

The inquiry’s analysis of the charity’s bank statements identified that during the relevant period, the CEO received a total of £78,932.31 in payments. This comprised £41,291.94 (transfers of £1,678.64 and bank payments of £39,613.30), and 57 cheque payments totalling £37,640.37.

The inquiry analysed the financial records available to it in an effort to verify the claims made by the CEO regarding payments due to him.

In relation to the cheque payments, the charity’s records only contained evidence of 14 of the 57 cheque payments being attributable to salary which totalled £12,826.34. However, due to there being evidence of some corresponding amounts within the records, the inquiry was able to reconcile a further 15 cheque payments totalling £11,921.98 as being salary payments. This meant that the inquiry was able to conclude that at least £24,748.32 of the total cheque payments made by the charity were attributable to the CEO’s salary.

In relation to payments made online totalling £41,291.94, the inquiry saw evidence within the charity’s records of £13,880.70 of these payments being attributable to salary, of which the inquiry was only able to reconcile seven payments totalling £6,992.27 against the bank statements, leaving £34,299.67 unable to be reconciled to salary payments.

However, in contrast the inquiry saw evidence of payslips for the CEO for the relevant period which totalled £36,315.81 which were for regular amounts at regular intervals.

The inquiry was not able to reconcile all of these payslips against the charity’s available financial records or bank statements obtained. Due to the fact that the charity’s records were incomplete the inquiry was unable to determine with certainty what proportion of £78,932.31 was attributable to the CEO’s salary and/or payments made relating to project manager expenses to the CEO for his trips to Uganda.

The inquiry did see limited evidence of payments authorised by the CEO and a named trustee in relation to overseas expenses which he had incurred. These were merely a handwritten list of expenses without corresponding receipts.

For example a cheque payment for £1,000 was made on 21 June 2011 with the cheque requisition form being unauthorised but stating:

‘Payments for….Upkeeping in Uganda from 30 June 2011 to 22 July 2011.’

The cheque was signed by a previous trustee but no second signatory. No evidence of receipts were found within the Charity’s records in support of this payment.

In considering the information contained within the 9 annual reports provided by the CEO of the charity to the grant funder between 2009 and 2012, the inquiry saw that some of the grants awarded to the charity had amounts allocated for costs associated to a UK Director or a Finance Manager which totalled £20,082 (£20,191 being noted as the actual spent) for the period.

Five out of the nine reports reflected UK Director Costs, 4 reflected finance officer costs.

In addition, there were also funds allocated for Project Manager costs in all reports totalling £135,053 (£127,925 being noted as the actuals spent) for the same period, although the grant funder’s review stated that a Project Manager had not been recruited until March 2011 and it was unclear as to who had undertaken that role from that time.

Although the inquiry attempted to reconcile this expenditure, there were no records or information within the charity’s records which supported how these funds had been expended and who had received them, in particular whether they had been paid to the CEO.

The record keeping of the charity was so deficient that the inquiry was unable to properly reconcile payments received by the CEO through the charity’s bank accounts against the charity’s records. Payments made to the CEO from the UK charity bank accounts, totalled £78,932.31 which represented 11.74% of the total grant funding awarded during the relevant period, against the 10% the CEO had indicated to the inquiry he had agreed with the trustees would be paid to him.

There was no evidence that any decisions had been taken by non-conflicted trustees in relation to the payments which demonstrated why a CEO was necessary within the charity and that the payments were in the best interests of the charity.

The inquiry also saw no evidence of any job description for the CEO role, or any evidence that the role had been subject to open and fair competition. The CEO had by his own admittance set his own salary and self-authorised payments to himself which should have been undertaken by un-conflicted trustees.

The inquiry informed the CEO that it considered that he had assumed the role of a de facto trustee in the charity, having made key decisions regarding the application of the charity’s funds. In making such decisions the CEO did not discharge the duties of an effective trustee and acted in breach of trust.

Given the Commission’s view that he was acting in the capacity as a de facto trustee, the Commission considers that the CEO in taking a salary was in breach of the provisions in clause J(1) of the charity’s governing document which prohibits trustee remuneration. In any event, the CEO’s decisions in relation to payments to himself could not have been valid, unconflicted decisions in the best interests of the charity.

Payments to another UK charity

Charities can work with other charities to carry out their aims, this can include collaborating to deliver a project or contract, or share facilities.

However, before any decision is taken to collaborate with another charity, trustees should be clear that such an agreement is in accordance with their charity’s governing document, is in the best interests of their charity, is a good way to meet their charity’s purposes, and is an effective use of their resources.

Once a decision has been made to work alongside another charity the trustees should write a formal agreement setting out what has been decided.

The charity’s governing document at provision (D) allowed for the charity to work with other charities, however the inquiry saw no evidence of any trustees’ minutes or written agreements in this regard.

The charity’s governing document at provision D states:

‘(vi) power to co-operate with other charities, voluntary bodies and statutory authorities operating in furtherance of the objects or of similar charitable purposes and to exchange information and advice with them; (vii) power to establish or support any charitable trusts, associations or institutions formed for all or any of the objects.’

The inquiry established that during the relevant period, 11 cheque payments totalling £19,494.87 were made to another UK registered charity. At the meeting with the Commission the CEO advised that both charities benefitted the same community and had carried out a number of joint community events.

The inquiry also established from the records available that both charities had shared the same premises for the period September 2010 and June 2011. This demonstrated that the two charities had some degree of a collaborative relationship.

The inquiry’s scrutiny of the charity records showed evidence of £18,376.00 expended in favour of the other charity between February 2010 and June 2011. There were three payments to cover rent, one salary payment to an individual, one bill payment and three cash payments.

An examination of the charity’s accounts submitted to the Commission for the four financial years ending 31 January 2009 through to 2012 was undertaken and compared against the payments that had been made to the other charity. General donations (outside of restricted grants) totalled £13,131 (£7,480 in 2009, £715 in 2010, £2,291 in 2011, and £2,645 in 2012).

This meant that potentially £5,245 of restricted income had been put at risk of being misapplied, as the income with the exception of general donations was grant funding awarded for a specific purpose. However, due to the lack of charity records, it was not possible to reconcile this any further.

The inquiry saw no evidence of any decisions taken by the trustees to demonstrate that they had acted prudently in the interests of the charity and completed due diligence in order to be satisfied that their charity would benefit from working with the other charity.

The inquiry also saw no evidence of any formal written agreement setting out the terms of the partnership and what that entailed, including any funding agreement.

Payments to connected parties

Trustees have a legal duty to act only in the best interests of their charity and must not put themselves in any position where their duties as trustees may conflict with any personal interest or loyalty they may have.

This also applied to the CEO acting in the Commission’s view as a de facto trustee. Conflicts of interest extend to any transaction between the charity and a connected person. Any conflicts of interest should be declared, and a clear decision making process demonstrated.

The inquiry established that cheque payments had been made during the relevant period, to three parties connected to the CEO totalling £6,319.77. Under section 47 of the act, the inquiry directed one of the individuals who had received over 50% of the funds, being £3,864.94 in total between August 2010 and July 2011, to establish what the payments were in relation to.

In her response the individual stated that she had not personally gained from the charity but had worked as a volunteer and the money had been used to buy materials, food and pay for services in relation to activities for children and young adults, which was in keeping with the charity’s objects. The individual informed the inquiry that she had provided evidence of expenditure to the charity, but the inquiry saw no evidence of this within the charity’s records.

The inquiry did not see, nor was it provided with, any evidence to support the reasons for the connected party payments including who had made that decision (and whether there was a conflict of interest and/or loyalty), and other than the explanation provided by one of the individuals who had received some that funding, how it was in furtherance of the charity’s objects.

In summary in relation to whether the charity’s funds had been misapplied or misappropriated, and whether the general and financial management of the charity were adequate, the inquiry found that not only were the charity’s expenditure records incomplete; and that insufficient invoices and receipts were kept in order to fully account for the charity’s expenditure, but that the charity had extremely limited and inadequate internal financial controls in place.

It is a legal requirement of s130 of the Charities Act 2011 that ‘The charity trustees of a charity must ensure that accounting records are kept in respect of the charity which are sufficient to show and explain all the charity’s transactions.’

The trustees and the CEO, acting in a de facto trustee capacity, could not fully account for the application of all the charity’s funds, and had not taken sufficient steps to protect their charity’s assets and ensure that its resources were properly managed.

Whether there had been mismanagement or misconduct by the trustees in the administration of the charity

Irrespective of whether trustees delegate duties to an employee or not, they are ultimately responsible for the action of that individual, and must maintain oversight of their charity’s operation.

The trustees must be able to demonstrate by way of written decisions discussed at meetings, the reason for appointment is necessary, along with a clear recruitment process through fair and open competition, contract of employment, job description, performance reviews, and demonstration of clear oversight.

Trustees should also be clear on what duties they are not able to delegate, for example signatories to bank accounts.

The inquiry corresponded with four individuals who had previously been listed as trustees on the register, and they confirmed that they had held those roles during the relevant period.

None of the named trustees had oversight of the day to day running of the charity other than one of the trustees being a signatory to two of the charity’s bank accounts. Apart from this, the inquiry saw no evidence to demonstrate that the trustees had appropriately discharged any of their duties in the administration, financial or otherwise, of their charity in accordance with their governing document and charity law.

The charity’s governing document at clause L(1) states that the charity’s bank accounts shall be under the control of the trustees, and all cheques must be signed by at least two trustees. The inquiry established that the CEO was a signatory on two of the accounts from the date they were opened in November 2005 until November 2013 .

The other signatory to these accounts from November 2005, confirmed in an email to the Commission on 26 May 2014, that they resigned as a charity trustee in January 2012. The inquiry only saw evidence of two payments being made post January 2012 by cheque which would have required a second signatory on 14 May 2012 and 17 February 2013, but those cheques were not provided to the inquiry as detailed earlier in this report.

In not operating the charity’s bank accounts in accordance with the charity’s governing document, the trustees failed to sufficiently protect the charity’s assets. It was clear to the inquiry that at least from the start of the relevant period in August 2008 the CEO was in control of the charity’s finances with little oversight from the other named trustees.

The CEO exercised substantial control over the charity, the named trustees failed to take reasonable steps to prevent this. Consequently, due to the lack of oversight exercised by the trustees, the charity’s assets were put at risk as the CEO was able to transfer funds to accounts overseas without any intervention from the other named trustees to ensure that the funds were properly applied in furtherance of the charity’s objects. This amounted to mismanagement and/or misconduct by the trustees in the administration of the charity.

The inquiry considers that the CEO not only exercised significant control over the charity but had autonomy in most aspects of the charity, therefore assuming the role of de facto trustee, and making decisions in isolation from the trustees. In doing so, the CEO was bound by the same duties as a charity trustee, and failed to comply with those duties, he failed to act with reasonable skill and care in the application of charitable funds.

The CEO made decisions in relation to the charity which benefitted himself, including setting his own salary, and received significant financial benefit from that role. Whilst this may have been legitimate if the decision to employ the CEO had been made by the unconflicted trustees, the inquiry found no evidence of such a decision being made.

In any event, given that the CEO had, in the Commission’s view acted in a de facto trustee capacity, as prescribed in the charity’s governing document, any financial benefit he had received taking a salary was in breach of the provisions in clause J(1) of the charity’s governing document. In any event, the CEO’s decisions in relation to payments to himself could not have been valid, unconflicted decisions in the best interests of the charity.

The inquiry considers this to be misconduct and/or mismanagement on the part of the CEO.

Although the charity’s accounts and annual returns had been filed with the Commission in accordance with the statutory requirement to do so, and the accounts appeared to have been independently examined, due to the fact that the inquiry saw very little in the way of documentary evidence to support the charity’s income and expenditure this raised the issue as to whether the charity’s accounts and annual returns were a true reflection of the charity’s activities.

A charity with an income exceeding £25,000 but less than £250,000 require an independent examination of its accounts. The purpose of an independent examination is to provide trustees, funders, beneficiaries, stakeholders and the public with an assurance that the accounts of the charity have been reviewed by an independent person.

Further information on independent examinations can be found in the Commission’s guidance Independent examination of charity accounts: examiners (CC32)

An independent examiner’s (‘IE’) report must be signed by the examiner in their own name – where electronic submissions are made, the Commission allows an image of the original or a copy with a typed signature, but an actual hand signed copy should be retained by the charity.

The inquiry considered that the charity’s accounts submitted for the financial years ending 31 January 2009 to 31 January 2012, were all submitted including an IE’s report with a typed signature. The CEO had informed the inquiry that he had been responsible for the submission of the charity’s accounting information during the financial years ending 31 January 2009 to 31 January 2012.

The inquiry issued a direction to both IEs under section 47 of the act in order to establish if they had completed the independent examinations of the charity’s accounts for these periods.

The first IE who had purportedly completed the examination of the 2009 and 2010 accounts stated to the inquiry: ‘I submitted the draft accounts for the trustees to check, sign and return to me to sign but this never happened and I was not aware that the accounts were filed with the charity commission without any signature’.

The second IE of the 2011 and 2012 accounts stated: ‘I can confirm that we DID NOT prepare the accounts for the charity for FYE 2011 and 2012. The prepared accounts remain unsigned by us because the charity withdrew the books and documents before we could complete out work’.

In submitting the accounts to the Commission with IE reports which had not been signed off but purported to be, the CEO acting, in the Commission’s view as a de facto trustee role, and the trustees, who did not maintain sufficient oversight of his actions were in breach of their statutory duties under section 164 of the act, and provision N(3) of the charity’s governing document which states that: ‘The Executive Committee shall comply with their obligations under the Charities Act 1993 (or any statutory re-enactment or modification of the Act) with regard to: the auditing or independent examination of the statements of account of the charity’.

The Charities Act 2011 consolidates previous charity legislation, including the Charities Act 1993, into a single comprehensive Act.

In doing so this constituted misconduct and/or mismanagement on the CEO’s, part (and misconduct and/or mismanagement on the part of the named trustees at the time for failing to obtain and submit an independent examiner’s report), and a criminal offence may have potentially been committed by the CEO under section 60 of the act.

Whether the trustees complied with and fulfilled their legal duties and responsibilities as trustees under charity law

Trustees of a charity must ensure that their charity carries out its purposes for the public benefit. In order to achieve these purposes trustees must comply with their governing document and the law, act in their charity’s best interests, manage resources responsibly, act with reasonable skill and care, and ensure that their charity is accountable.

Delegation of duties to another individual (in this case the CEO who, in the Commission’s view acted as de facto trustee) does not absolve the named trustees of these duties and responsibilities.

On the basis the inquiry’s findings in relation to the general administration and financial management of the charity, the trustees failed to comply with all of their legal duties and responsibilities, and act in accordance with their governing document. This similarly applied to the CEO, who in the Commission’s view acted as a de facto trustee.

Conclusions

The Commission concluded that:

In accordance with their legal duties and responsibilities, the trustees including the CEO, who in the Commission’s view acted as a de facto trustee, had failed to act prudently and properly administer their charity in accordance with those duties, the charity’s governing document and charity law, resulting in the charity’s assets being put at risk, which is mismanagement and/or misconduct in the administration of the charity.

The charity failed to keep sufficient accounting records in accordance with their statutory duty under charity law, to explain the charity’s transactions in order to demonstrate that the expenditure was in furtherance of its objects, which is mismanagement and/or misconduct in the administration of charity.

The CEO acted in the administration of the charity to the exclusion of the other charity trustees, despite the fact that there were at least two trustees in place during the relevant period, one of whom was a signatory to the charity’s bank accounts who should have been involved in the decisions made.

The CEO exercised control of the charity and its finances, acting in his own self-interests in setting and authorising his own salary and other payments, and applying the charity’s funds as he saw fit including diverting £50,000 of restricted charitable funds. These matters amount to misconduct and/or mismanagement in the administration of the charity.

The CEO had submitted accounts to the Commission which had not been independently examined but purported to be, and therefore potentially false and misleading in a material particular which may be a criminal offence. The CEO’s conduct in relation to the submission of the purported independent examiner’s report to the Commission constitutes a failure to comply with section 164 of the act, which is misconduct and/or mismanagement in the administration of the charity and may constitute a criminal offence.

Collectively the actions and lack of oversight by the trustees and CEO constitutes serious misconduct and/or mismanagement in the administration of the charity. As a result the Commission took regulatory action to disqualify the former CEO from acting as a charity trustee or trustee for a charity for ten years, in addition to securing a signed voluntary undertaking that a former trustee would not act in the capacity of charity trustee or trustee of a charity for a period of five years.

Regulatory action taken

On 4 November 2013 the inquiry made two orders not to part with property under section 76 (3)(d) of the act. These were issued to the charity’s two bank account providers. The effect of these orders was to prevent each bank from releasing any funds without the Commission’s written consent.

On 12 August 2014 the inquiry made two orders using the power in section 76(6)(b) of the act. These were issued to the charity’s two bank account providers and the effect of these orders was to discharge the orders not to part with property. They were discharged because the accounts in question held no funds and the charity had ceased operating.

The inquiry issued 18 directions under section 47(2)(a) and (b) of the act to various parties, including previous trustees to provide information, copies of documents and written answers to questions between 18 December 2013 and 3 August 2015.

The inquiry issued seven directions under section 47(2)(c) of the act between 6 November 2013 and 13 May 2014 to those individuals who were listed as current trustees at the time the inquiry was opened, and the CEO to attend a meeting at the commission’s offices.

The inquiry made nine orders under section 52(1)(b) of the act between 7 November 2013 and 10 June 2015 to the charity’s two bank providers obtain copies of the charity’s bank statements and copy cheques.

On 15 November 2016 the inquiry issued two directions under section 47(2)(a) and (b) of the act to the independent examiners of the charity’s accounts to provide information, copies of documents and written answers to questions in relation to the independent examinations of the charity’s accounts.

The charity had ceased operating at the point where the grant giving charity stopped providing funding in April 2012, and as a result the Commission exercised its legal obligation under section 34(1)(b) of the act to remove the charity from the register on 6 October 2015.

On 22 December 2017 the inquiry obtained a signed voluntary undertaking from a former trustee that they would not act in the capacity of charity trustee or trustee of a charity for a period of five years.

On 13 September 2018 the inquiry made an order under section 181A of the act disqualifying the CEO for 10 years from being a charity trustee or trustee of a charity and from holding any office of employment with senior management functions. The order took effect on 26 October 2018.

Issues for the wider sector

Like any other charity, the trustees of any grant funders must use their charity’s funds and assets in furtherance of the charity’s purposes.

Where grant funders are approached for money, especially large amounts of money it is crucial that they ensure proper due diligence is carried out prior to each decision to release funds. Once funds have been provided adequate monitoring is crucial. This means verifying that charity funds reach their intended destination and are used how the grant funder intended.

Trustees have a legal duty and responsibility to their charity and it is important that individuals take reasonable steps to find out what the role of trustee requires of them.

Trustees must ensure that they devote sufficient time to the role of trustee as required in order to act with reasonable skill and care. Holding the position of trustee in name but failing to fulfil the legal duties and responsibilities of a trustee may amount to misconduct and mismanagement in the administration of a charity.

Every charity needs an effective trustee body which has control over the administration of the charity and acts as a whole. Trustees must ensure that their charity has adequate financial and administrative controls in place, and that the funds of their charity are applied for the benefit of the public for which it has been set up.

It is legitimate for trustees to delegate decisions regarding the day-to-day management of a charity to staff and others. However, where they do so, the trustees must always retain ultimate responsibility and accountability for all decisions that are made.

Trustees must ensure they have established clear and robust reporting procedures and lines of accountability. High risk decisions should not be delegated but considered and authorised by the trustees.

Proper financial controls are a necessary feature of any well-run organisation. Because of the special characteristics of the charitable sector, they play an essential part in helping to show potential donors and beneficiaries that a charity’s property is safeguarded, and that its management is efficient.

Trustees are equally responsible for the overall management and administration of the charity. They should ensure that adequate financial controls are put in place and that sufficient information is reported back at trustee meetings to satisfy them that the controls are being properly implemented.

If, due to the nature of the charity, its work, location and /or set up the trustees delegate supervision of financial arrangements to one or a small number of trustees or employees, they need to ensure that there are arrangements in place for proper reporting back to the whole trustee body. In this way, system failures or issues can be identified at an early stage.

When working overseas, charities often operate through local partners rather than establishing their own delivery infrastructure in the country or region of operation. Working through or with a local partner is often an effective way of delivering significant benefits direct to a local community.

It does not, however, alleviate or shift responsibility for ensuring the proper application of the charity’s funds by a local partner. That responsibility always remains with the charity trustees, forming part of their duties and responsibilities under charity law. The need to implement risk management strategies therefore remains critical.

Charity trustees should ensure that adequate records are kept of their decisions so that they can demonstrate that they have acted in accordance with the governing document and with best practice. From time to time, trustees may have to take decisions with which other people may disagree, or which may come under very close scrutiny. In these circumstances, trustees should be able to demonstrate clearly that they had:

• acted honestly and reasonably in what they judged to be the best interests of the charity
• taken appropriate professional or expert advice where appropriate
• based their decisions on directly relevant considerations

Trustees should familiarise themselves with their charity’s governing document. Trustees are jointly responsible for the overall management and administration of a charity and must make sure that the charity complies with its governing document at all times.

The commission expects charity trustees and any former trustees to engage appropriately with the commission as regulator and to co-operate fully when it is exercising its statutory powers. This is particularly relevant where the commission has opened a statutory inquiry.