Decision

Grove Mountain (formerly a registered charity)

Published 20 September 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

Applies to England and Wales

The charity

Grove Mountain (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 16 July 2015. It was governed by a constitution adopted 20 May 2015, as amended 12 July 2015. The charity’s objects were to advance the education of the public, particularly but not exclusively, by providing books for the purposes of education to schools in the Caribbean.

The charity was removed by the Commission from the register of charities (‘the register’) on 24 June 2019 as it had ceased to exist.

Further details about the charity can be found on the register of charities.

Trustees

Aaron Hanson (‘Trustee A’) became a trustee of the charity in July 2015 and Chimezie Emenike (‘Trustee B’) became a trustee in May 2015. Trustees A and B remained trustees until they were removed by the Commission, by order under section 79(4) of the Charities Act 2011 (‘the Act’), on 10 December 2018.

Trustee C became a trustee in May 2015 and resigned on 1 November 2017.

Trustee D became a trustee in September 2018. The misconduct and/or mismanagement prior to their appointment was not attributable to Trustee D, and during the course of their trusteeship Trustee D was not responsible for misconduct and/or mismanagement in the administration of the charity. Shortly after Trustee D’s appointment, the Commission appointed an Interim Manager to the exclusion of the trustees.

The terms misconduct and mismanagement are taken from section 76 of the Act. Misconduct includes any act (or failure to act) in the administration of the charity which the person committing it knew (or ought to have known) was criminal, unlawful or improper. Mismanagement includes any act (or failure to act) in the administration of the charity that may result in significant charitable resources being misused or the people who benefit from the charity being put at risk. A charity’s reputation may be regarded as property of the charity.

Background and issues under investigation

The Commission examined the charity’s accounts for the financial year ending (‘FYE’) 1 April 2016 after concerns regarding the charity’s finances were raised by a third party. The Commission found that the majority of the charity’s income for the year was withdrawn in cash and that there was a pattern of large cash withdrawals being made shortly after donations of identical amounts had been deposited. This raised regulatory concerns for the Commission regarding the charity’s financial controls and whether the cash withdrawals had been spent on meeting the charity’s objects. The Commission opened a statutory inquiry (‘the inquiry’) into the charity under section 46 of the Act on 11 August 2017 to examine whether:

• the charity has been operating for exclusively charitable purposes for the public benefit in furtherance of its charitable objects
• the financial controls of the charity are adequate and its funds have been properly expended
• the trustees have complied with their legal duties in respect of the administration, governance and management of the charity

The inquiry was closed with the publication of this report.

Findings

Whether or not the charity has been operating for exclusively charitable purposes for the public benefit in furtherance of its charitable objects

The trustees who were in office at the time the inquiry was opened (‘the trustees’) failed to maintain satisfactory records. This resulted in them being unable to properly account for the charity’s funds and property. The charity’s website stated that the charity had ‘built a non-profit system that’s serving thousands across the island [of Jamaica]’ and claimed that it shipped books for libraries and computer equipment for primary schools in Jamaica. Such claims were also reported within a Trustee’s Annual Report that was submitted to the Commission on 2 February 2017. The charity’s Facebook page claimed that the charity was building a bathroom facility and an ICT suite for an unnamed school, or schools, in Jamaica. However, the inquiry established that the trustees had no records of any beneficiaries of the charity and there was a lack of evidence that any of these activities had actually been undertaken. Whilst the charity had purchased a quantity of used computer equipment, none of this equipment had been distributed to beneficiaries. The trustees failed to demonstrate to the inquiry how the charity had been achieving its charitable objects and how charitable funds were applied for the public benefit. The inquiry found that it could not be satisfied that any charitable activity had taken place despite considerable expenditure of the charity’s funds in cash transactions.

During the course of the inquiry, the Commission protected the property of the charity by making an order under section 76(3)(d) of the Act, to the charity’s bank, not to part with the charity’s property without the approval of the Commission. Trustee A requested that the inquiry authorise the payment of rent arrears from one of the charity’s bank accounts that had been frozen by the order. The inquiry took steps to verify the information the trustee had provided in relation to this request and established that the rent arrears in question were a personal liability of Trustee A. The inquiry refused to authorise this payment because it would have constituted an improper application of the charity’s funds and conferred a personal benefit on Trustee A. The inquiry found that, in seeking a personal benefit that was not in the interests of the charity, the conduct of Trustee A during this course of events amounted to misconduct and/or mismanagement in the administration of the charity.

Whether or not the financial controls of the charity are adequate and its funds have been properly expended

The charity’s accounts for FYE February 2017 recorded a total income of £92,261 of which £85,188 was recorded as being withdrawn in cash. Some of the charity’s income was raised from collection boxes left at various locations where members of the public were invited to donate to the charity by placing cash in a collection box. The inquiry was informed by Trustee A that a large proportion of cash funds donated by the public in this way were not deposited into the charity’s bank accounts and were instead spent in cash transactions by the trustees. The inquiry found that the trustees exposed the charity’s property to undue risk by failing to deposit cash donations into the charity’s bank account and by expending such a large quantity of the charity’s income in cash.

The inquiry also found evidence that a small proportion of the charity’s funds had been spent in fast food chains and high street clothing retailers in the UK. The inquiry found there was a lack of evidence that these transactions represented proper charitable expenditure by the trustees.

During the period between 16 May 2016 and 9 October 2017 the trustees paid an individual a total of £110,015 in cash. The charity’s records state that this expenditure was for the purchase of second hand computer equipment. The invoices lacked details regarding whom the charity had purchased the equipment from. They contained the name of an individual and a mobile phone number but lacked an address for the seller and did not name the charity as the purchaser. Due to the lack of proper record keeping by the trustees in relation to these transactions the inquiry was unable to verify that these charitable funds were expended for the purposes recorded in the invoice and applied for the purpose of achieving the objects of the charity. In March 2018 Commission staff attended a storage unit in London at which the charity was storing computer equipment. A number of items of used computer equipment were found to be held in storage by the charity. The Interim Manager, who was subsequently appointed by the inquiry, had the equipment professionally valued in November 2018 and established that it had no value. The inquiry found that, in expending a considerable amount of the charity’s funds on computer equipment between May 2016 and October 2017, which by November 2018 had no value, the trustees failed to properly expend the charity’s funds.

During the period between 29 December 2015 and 30 December 2016 the trustees paid an individual a total of £1,601.20 in cash. The trustees informed the inquiry that this expenditure related to the shipping of second hand computers to Jamaica. The invoices pertaining to these transactions lack sufficient detail regarding the service being paid for or an address or contact details of the individual being paid. As a result, the inquiry was unable to verify that these charitable funds were used to meet shipping costs. The inquiry was unable to confirm whether computers had been shipped or had reached the intended destination and the intended beneficiaries. The trustees did not have tracking information and could not confirm the current location of any assets shipped overseas.

In relation to these transactions the trustees failed to ensure the charity was accountable and exposed the charity’s property to undue risk. This is evidence of misconduct and/or mismanagement in the administration of the charity by the trustees in post at the time.

Whether or not the trustees have complied with their legal duties in respect of the administration, governance and management of the charity

The trustees failed to keep adequate records of the charity’s income and expenditure to evidence that charitable funds had been properly applied in furtherance of the charity’s objects. Furthermore they had no financial control policies in place and no inventory listing the assets of the charity.

The inquiry found that, in this regard, they failed to manage the charity’s resources responsibly or ensure the charity was accountable. These failings represented a breach of duty by the trustees and that this was misconduct and/or mismanagement in the administration of the charity.

Furthermore, the trustees did not submit an annual return, accounts, or an annual report to the Commission for FYE 1 April 2017. By not complying with the statutory duty to file accounts and annual returns, and the reporting requirements, the trustees failed to demonstrate that the charity is complying with the law, well run and effective. Failure to submit accounts and accompanying documents to the Commission when required for the requisite accounting period is a criminal offence, under section 173 of the Act. It also undermines trust and confidence in the charity. The inquiry found that this was misconduct and/or mismanagement in the administration of the charity by the trustees in post at the time.

The inquiry used its information gathering powers under section 47 of the Act to direct Trustee A and Trustee B to provide information and documents to the inquiry. Trustees A and B failed to comply with such directions, which amounts to misconduct and/or mismanagement.

Conclusions

The Commission concluded that there was a concerning lack of evidence that the charity had been operating for exclusively charitable purposes for the public benefit in furtherance of its charitable objects. The financial controls of the charity were inadequate. The charity’s records were not sufficient to demonstrate that funds have been properly expended. Trustees A, B and C did not comply with their legal duties in respect of the administration, governance and management of the charity and this amounted to misconduct and/or mismanagement in the administration of the charity. In addition the Commission also concluded that Trustees A and B were responsible for such serious misconduct and/or management in the administration of the charity that they were permanently removed from being trustees under section 79(4) of the Act.

Regulatory action taken

The inquiry completed an inspection of the charity’s books and records and interviewed the trustees.

The inquiry used its information gathering powers under section 47 of the Act to direct two of the trustees to provide information and documents to the inquiry.

The inquiry used a range of its temporary protective powers to:

• order the charity’s bank, which held property on behalf of the charity, not to part with the property without the approval of the Commission (which essentially froze the bank accounts), under section 76(3)(d) of the Act
• order the trustees not to part with property they held on behalf of the charity, without the approval of the Commission, under section 76(3)(d) of the Act
• to restrict the transactions the trustees could enter into in the administration of the charity, under section 76(3)(f) of the Act (the inquiry issued the orders under section 76(3)(d) and 76(3)(f) of the Act with regard to the trustees who were in office at time they were issued – these orders were later varied to include trustee D who was subsequently appointed)
• appoint an interim manager under section 76(3)(g) of the Act, to manage the affairs of the charity to the exclusion of the trustees

On 10 December 2018 the inquiry used its permanent protective powers under section 79(4) of the Act to remove Trustee A and Trustee B from office, having found that their conduct amounted to misconduct and/or mismanagement in the administration of the charity, and that it was necessary or desirable to do so to protect charity property. Consequently, under the provision of section 178 of the Act, these trustees are disqualified from acting as a trustee for any other charity. They are also disqualified from holding an office or employment with senior management functions in a charity.

The Commission used the statutory gateway, under sections 54 to 56 of the Act, to share information with relevant public authorities.

Appointment of an Interim Manager

On 19 October 2018 the inquiry used its temporary protective powers under section 76(3)(g) of the Act to appoint Adam Stephens of Smith & Williamson LLP as Interim Manager of the charity (‘the IM’). The IM was appointed to address specific issues within the charity under the oversight of the inquiry, which included securing its assets and making a balanced and informed decision about its future. The IM concluded that the charity did not have a viable future and reached a decision to wind up its affairs.

On the winding up of the charity’s affairs the IM applied the charity’s remaining funds, which amounted to £4,076.07 to The Jamaica Basic Schools Foundation (UK) (1057624), to whom he presented a cheque on 31 May 2019.

The IM also applied the other assets of the charity to The Jamaica Basic Schools Foundation (UK) such as collection boxes, books and stationary.

The IM submitted a request to the Commission for the charity to be removed from the register. In accordance with section 34(1)(b) of the Act the charity was removed from the register on the basis that it had ceased to exist. The IM appointment was discharged on 21 August 2019.

The costs of the IM’s appointment were met out of the charity’s funds. The total cost of the IM appointment was £10,045.56 (inclusive of VAT). Of this amount, the IM’s fee for the work was £8,000, and disbursements were £2045.56. The work completed by the IM included:

• securing the charity’s property
• valuing the computer equipment held in storage by the charity and, having established it had no value, ensuring its secure destruction
• correspondence with trustees and a meeting with a former trustee;
• correspondence with HMRC
• reporting to the Commission in accordance with The Charities (Receiver and Manager) Regulations 1992
• liaison with the charity’s bank
• reviewing the administration, governance and management of the charity and ascertaining where the charity had a viable future
• concluding the affairs of the charity

Issues for the wider sector

All charities must be for the public benefit. Public benefit is essential to a charity’s accountability. Trustees must be able to explain how their charity’s activities are, or have been, for the public benefit.

Trustees must ensure that their charity has adequate financial and administrative controls in place, and that the funds of their charity are applied in furtherance of its objects and for the public benefit. 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. Charities should have effective processes for handling money, to help avoid poor decisions and accidental errors, as well as theft and fraud. Failure to do so is likely to result in a breach of trustee duty.

The Commission recommends that payments in cash should be kept to a minimum due to the greater risk that handling cash presents and difficulties that can arise in establishing correctness and control over significant cash transactions. A list or register should be maintained of all assets of a charity. Further information for trustees is available within the Commission’s guidance, Internal financial controls for charities (CC8).

Failure by trustees to comply in full with, and within the deadline of, any Order or Direction of the Commission is evidence of misconduct and/or mismanagement in the administration of the charity. Section 76(1)(a) of the Charities Act 2011 as amended by section 2(1) and (2) of the Charities (Protection and Social Investment) Act 2016.

The Commission’s guidance The essential trustee: what you need to know, what you need to do (CC3) explains the key legal duties of charity trustees. This, along with other publications and guidance, are available from the Commission’s website.