Decision

Islamic Trust (Maidenhead)

Published 9 February 2018

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

The Charity

The Islamic Trust (Maidenhead) (‘the Charity’) was registered on 9 March 1994. It is governed by a constitution dated 20 February 1994.

The Charity is established for the advancement of the Islamic religion and the education of the general public in the Islamic faith, including its teachings, the Holy Quran and Islamic history.

In practice the Charity furthers its object through the provision of a mosque and religious education.

More details about the Charity can be found on the register of charities.

Background

On 20 September 2013, the Charity Commission (‘the Commission’) opened a statutory class inquiry (‘the class inquiry’) into charities whose trustees were in default of their statutory obligations to meet reporting requirements by failing to submit their annual documents for two or more years in the last five years and met certain other criteria.

Having failed to submit its annual documents to the Commission for the financial year ending 31 March 2014 and 2015, the Charity became part of the class inquiry on 15 September 2016.

On submission of the outstanding annual documents, the Charity ceased to be part of the class inquiry on 24 September 2016. The Commission published a statement of the results of the class inquiry into the Charity on 22 December 2016.

Issues under Investigation

The deadline for the Charity to submit its annual documents to the Commission for the financial year ending 31 March 2016 was midnight on 31 January 2017.

Despite having been sent a number of reminders from the Commission to submit its annual documents ahead of the deadline, and the fact that the charity had previously been subject to the class inquiry, the Charity’s trustees defaulted on their statutory obligations by failing to submit the required annual documents to the Commission by its due date. In doing so, the trustees also failed to comply with the Charity’s governing document.

Consequently, on 19 April 2017, the Commission opened a statutory inquiry into the Charity under section 46 of the Charities Act 2011 (‘the Act’) to examine the following issues:

(i) the administration, governance and management of the charity by the trustees

(ii) the financial controls and management of the charity

(iii) whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law and the conduct of the trustees

The inquiry closed with the publication of this report.

Findings

The administration, governance and management of the charity by the trustees

Trustees of charities with an income of £25,000 or over are under a legal duty to submit annual documents to the Commission as the regulator of charities. Failure to adhere to these obligations is a criminal offence and mismanagement and/or misconduct in the administration of a charity. Trustees are also accountable for their charity’s resources and should be able to demonstrate that their charity is complying with the law, is well run and effective.

The trustees’ failure to meet their legal obligations to submit accounting information with the Commission for the financial year ending 31 March 2016 before the deadline of 31 January 2017 resulted in an order under section 84 of the Act being issued to the trustees directing them to prepare and submit the outstanding annual documentation, and explain what steps had been taken to prepare and submit the 2016 annual documentation.

The trustees complied in full with the section 84 order and the outstanding documents were submitted on 8 May 2017.

The trustees were fully aware of their legal obligations to submit annual documents, as they were explicitly made aware of this whilst the Charity was in the class inquiry and failed to comply with their legal obligations, this was mismanagement and/or misconduct in the administration of the Charity.

The financial controls and management of the charity

Trustee must manage their charity’s resources responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Prudence is about exercising sound judgment and trustees must ensure that the charity’s assets are only used to support or carry out its purposes, and avoid exposing the charity’s assets, beneficiaries’ or reputation to undue risk.

A Commission accountant considered the accounts submitted for the financial year ending 31 March 2016, and identified that they were deficient and did not comply with the requirements of the Statement of Recommended Practice (‘SORP’). Most notably the accounts failed to show restricted funds separately and wrongly categorised costs as governance whereas they were charitable or support costs.

On 25 May 2017, the inquiry met with the trustees in order to examine the administration, governance and management of the charity, particularly with regards to the trustees accounting obligations. In addition to this, the inquiry also conducted a books and records inspection of the charity’s financial and other records. The trustees explained that the reasons for the annual documentation not being submitted on time was due to delays with the charity’s accountants. At the meeting, the trustees also provided explanations about the charity’s financial controls and management, the following deficiencies in the charity’s governance were identified:

• the trustees produced to the Commission an amended governing document which was adopted on 26 January 2014. Clause U of the charity’s governing document allows the trustees to amend certain clauses but specifically sets out that the trustees should promptly send to the Commission a copy of any amendment. The amendments made were not submitted to the Commission therefore the trustees failed to comply with this clause

• no records are kept of the due diligence carried out in respect of the Charity’s partners, including those who speak at the Charity’s events

• the mandate to the Charity’s main bank account shows that there are four signatories to the account. The Commission’s records shows that only one of those listed is a current serving trustee with the other three leaving the Charity in 2014 and 2016 respectively. This contradicted the assurances given by the trustees that there were three trustees on the Charity’s bank mandate

• no records are kept as to the location of the Charity’s collection boxes which are situated in a number of shops in the Maidenhead area. The charity’s financial controls policies recommends that such records are kept and the Commission would support this

• the donation page under the charity’s website failed to comply with section 39 of the Act. Section 39 of the Act sets out that where a registered charity solicits funds, and has an annual income of £10,000 or more, it must state in legible characters that the charity is registered. It is a criminal offence, pursuant to section 41 of the Act, to fail to comply with the section 39 requirement

Trustees have a duty to manage their charity’s resources responsibly and to comply with the charity’s governing document and the law.

Clause N of the charity’s governing document states that the trustees must:

“comply with their obligations under the Charities Act 1992 (or any statutory re-enactment or modification of that Act) with regard to: 4) the transmission of the statements of account of the charity to the commissioners.”

The trustees have also failed to comply with clauses O and P of the charity’s governing document which states the trustees must prepare and transmit the charity’s annual report and annual return to the Commission. The trustees’ failure to adhere to the charity’s governing document is evidence of their mismanagement and/or misconduct in the administration of the charity.

A review of the charity’s financial controls and expenses policy shows that they are comprehensive and the inquiry considers the provisions, if properly followed, provide a good amount of protection. However, like all policies and procedures, these should be reviewed and updated where necessary on a regular basis and are only effective if adhered to.

Whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law and the conduct of the trustees

Trustees have ultimate responsibility for directing the affairs of a charity, and ensuring that it is solvent, well-run, and delivering the charitable outcomes for the benefit of the public for which it has been setup. The commission’s guidance The essential trustee: what you need to know, what you need to do (CC3) explains that as part of their core duties trustees must:

• act in the charity’s best interests

• apply the charity’s income and property only for the purposes set out in the governing document

• ensure that the charity does not breach any of the requirements or rules set out in its governing document and that it remains true to the charitable purposes and objects set out there

• comply with the requirements of other legislation and other regulations (if any) which govern the activities of the charity

• use reasonable care and skill, making use of their skills and experience and taking advice when necessary

On 31 October 2016, in connection with the class inquiry, the trustees informed the Commission that they were “confident that in future our accounts will not be submitted late”. The trustees’ failure to adhere to their assurances, and to follow the regulatory advice and guidance issued by the Commission as part of the class inquiry, raised serious regulatory concerns with the Commission and prompted the need to intervene and taken action in the form of opening the inquiry and issuing the section 84 order.

Whilst the trustees demonstrated a commitment and willingness to put matters right in respect of the charity’s future filing obligations, the inquiry found there was evidence of misconduct and/or mismanagement in the charity’s administration by the trustees. There were failings relating to the trustees financial management, to follow basic requirements in the governing document and in the overall governance of the charity. As a result, the inquiry found that the trustees had not complied with or fulfilled their duties as trustees under charity law.

Conclusions

The Commission concluded that there was evidence of poor financial management and governance in the charity. There was evidence of misconduct and/or mismanagement in the charity’s administration by the trustees, including in particular, the trustees:

• failed to comply with the terms of the charity’s governing document and under charity law in respect of the submission of the charity’s annual documents. The failure to submit is a repeated pattern of behaviour on the part of the trustees

• failure to ensure the charity’s accounts comply with the SORP

• did not properly discharge their legal duties as trustees under charity law – they failed to act in the best interests of the charity or with reasonable care and skill. The Commission acknowledges that the trustees co-operated with the inquiry throughout, as they are expected to do. They responded responsibly to the Commission’s regulatory concerns and its criticism of them.

Regulatory action taken

The Commission used its information gathering powers under section 47 of the Act to obtain copies of the Charity’s bank statements. They were used in connection with the Commission’s scrutiny of the charity’s financial records.

On 20 April 2017, the inquiry exercised the Commission’s power under section 84 of the Act to direct the trustees to prepare and complete the relevant missing annual documents for the charity for financial year ending 31 March 2016 and provide copies of these to the Commission.

The default in submitting the Charity’s annual documents for 2014, 2015 and 2016 has only been remedied as a result of direct intervention by the Commission. As a result, on 8 December 2017, the inquiry exercised the Commission’s power to issue the charity with an official warning under section 75A(1) of the Act.

Prior to the issuing of the official warning, the trustees were afforded with an opportunity to make representations regarding the proposed use of the power. No representations were received.

The official warning was issued to the Charity in respect of the trustees’ failure to ensure that they comply with charity law and the charity’s governing document in respect of the submission of the Charity’s annual report and annual return. The official warning sets out that the trustees must take all reasonable steps to ensure that future statutory returns are submitted on time, in accordance with charity law and the charity’s governing document.

The inquiry notes that the Charity’s annual documents for financial year end 31 March 2017, were submitted within the statutory timeframe. These were filed with the Commission on 8 November 2017.

A copy of the official warning can be viewed on the Charity’s entry on the register.

Under section 15(2) of the Act, the Commission provided regulatory advice and guidance to the trustees in respect of SORP compliance and other governance failures.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the commission’s assessment of the issues raised publicly that may have relevance for other charities. It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report, but is included because of their wider applicability and interest to the charity sector.

Trustees of charities with an income of over £25,000 are under a legal duty as charity trustees to submit annual returns, annual reports and accounting documents to the commission as the regulator of charities. Even if the charity’s annual income is not greater than £25,000 trustees are under a legal duty to prepare annual accounts and reports and should be able to provide these on request. All charities with an income over £10,000 must submit an annual return.

Failure to submit accounts and accompanying documents to the commission is a criminal offence. The commission also regards it as mismanagement and misconduct in the administration of the charity.

Trustees must ensure that their charity has adequate financial controls in place, It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities. In this case there was no clear audit trail of cash donations from donor to bank, or to expenditure.

The commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on the commission’s website. There is also a self check-list for trustees which has been produced to enable trustees to evaluate their charity’s performance against the legal requirements and good practice recommendations set out in Internal Financial Controls for Charities.

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. In this case there were no records of either trustees meetings or decisions taken in relation to the charity. Such records ensure that trustees can demonstrate 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 are jointly and equally responsible for the management of their charity. To be effective and to meet their statutory duties as charity trustees they must contribute to the management of the charity and ensure that it is managed in accordance with its governing document and general law. All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken. Trustees should ensure that these policies are implemented and reviewed at appropriate junctures. A failure to implement internal policy documents could be evidence of mismanagement in the administration of the charity and can put assets, beneficiaries and a charity’s reputation at risk.