Decision

Charity Inquiry: Livingstone House Mother of the Harvest Ministries

Published 7 December 2020

This decision was withdrawn on 6 December 2022

This report has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The charity

Livingstone House Mother of the Harvest Ministries (‘the charity’) is governed by a Declaration of Trust dated 4 February 2004 (’the governing document’) and was registered with the Commission on 24 February 2004.

The objects of the charity are the promotion of the Christian faith and to relieve persons who are in need or hardship or who are sick in particular but not exclusively as a result of substance abuse.

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

The charity’s trustees have changed a number of times since the opening of the inquiry. The charity now has three trustees which will be referred to in this report as the ‘current trustees’. The trustees at the inquiry opening will be referred to as the ‘initial trustees’. The trustees that were appointed after the opening of the inquiry but have since resigned will be referred to as the ‘interim trustees’. The charity’s founder who was a trustee of the charity from 21 April 2017 to 10 January 2019 will be referred to as ‘Trustee A’.

Background

On 2 July 2018, the Commission opened a statutory inquiry (‘the inquiry’) into the charity under section 46 of the Charities Act 2011 (‘the Act’). Before the opening of the inquiry the Commission engaged with the charity in the Double Defaulter Class Inquiry (‘the class inquiry’).

The class inquiry examines charities that repeatedly default on their statutory obligation to file annual accounts and returns (‘accounting information’) with the Commission. The charity was included in the class inquiry on 15 February 2017, for failing to file accounting information for the financial year ending (‘FYE’) 31 December 2014 and 2015. While included in the class inquiry the charity also failed to file its accounting information for FYE 31 December 2016.

Issues under investigation

Due to the charity’s repeated failure to submit accounting information on time and concerns arising from the information submitted, the inquiry was opened to examine the charity’s wider governance and administration. The inquiry closed with the publication of this report.

The scope of the inquiry was to examine the following:

• the extent to which the trustees are complying with their legal duties in respect of their administration, governance and management of the charity and in particular: their compliance with legal obligations for the preparation and filing of the charity’s accounts and other information or returns. As well as the extent to which the trustees ensured that the charity is run in accordance with the provision of its Governing Document, in particular with respect to clause 18 of the Governing Document ^{[footnote 1]}
• the extent to which any failings or weaknesses identified in the administration of the charity during the conduct of the inquiry were a result of misconduct and/or mismanagement by the trustees
• the extent to which the trustees responsibly managed the charity’s resources and financial affairs, in particular with respect to how they have managed conflicts of interest/loyalty in particular in relation to connected party transactions
• the extent to which the trustees have complied with previously issued regulatory guidance

Findings

Unauthorised trustee remuneration

Clause 21 of the Governing Document states that ‘any trustee hereof being an individual may not receive remuneration for his services to the Trust’. In breach of this clause, Trustee A received unauthorised trustee remuneration amounting to £40,645.00 between 1 May 2017 and 10 January 2019.

On 22 November 2018, the inquiry conducted an inspection of the charity’s books and records (‘the inspection’). When questioned about the unauthorised payments, Trustee A stated that they were salary payments for their work in Palestine. The Inquiry advised that the payments are prohibited by the governing document and that they should stop immediately. After the meeting, the inquiry was informed that the payments were not salary payments but a stipend. The payments were nevertheless prohibited under clause 21 of the governing document.

Regarding their role at the charity Trustee A stated that they were no longer a trustee. However, when asked about their resignation no date and no documents could be provided to support the assertion that they had resigned. According to the Commission’s records, Trustee A was a trustee of the charity until 10 January 2019, when they were removed from the Register of Charities.

Following the inspection, contrary to the regulatory advice and guidance provided by the inquiry, the payments to Trustee A continued.

The inquiry found that payments to Trustee A between 1 May 2017 and 10 January 2019 were in breach of the governing document and that regulatory advice and guidance provided by the inquiry in this regard was insufficiently considered. This was misconduct and/or mismanagement in the administration of the charity.

Failure to manage conflicts of interests appropriately

An analysis of the charity’s bank statements shows that between January 2014 and August 2018 the charity paid £295,688.58 to a company called Livingstone Ark Sober Living Houses LTD (‘the company’). According to Companies House records Trustee A has been a director of the company from 13 February 2013 to date. The only other director is the charity’s former manager.

In response to an Order made on 31 July 2018 under section 47 of the Act, the initial trustees informed the inquiry that the company was set up to provide the charity’s beneficiaries with a Christian sober living environment after they completed detoxification at the charity. They further noted that the charity took over all services provided by the company in May 2018. The charity’s bank statements show that the last payments to the company were made in August 2018 and there is no ongoing relationship between the charity and the company.

There was a conflict of interest from April 2017 until August 2018 while Trustee A was both a director of the company and a trustee of the charity. During this period the company received £54,800.00 from the charity but Trustee A did not receive any dividends from the company.

When Trustee A was appointed, their interest in the company should have been declared, recorded and appropriately managed. Trustee A should have absented themselves from any trustee meetings where decisions were taken about the charity’s dealings with the company.

The minutes of the trustee meeting appointing Trustee A do not reflect that any considerations were made with regards to their conflict of interest and the inquiry has not seen documentation showing that Trustee A absented themselves from discussions in relation to the company. Additionally, the inquiry found that there was no written contract or agreement for the provision of services between the charity and the company and the charity’s accounting records did not include evidence to support payments made to the company. The charity also had no conflicts of interest policy.

The inquiry found that the failure to manage this conflict of interest appropriately was misconduct and/or mismanagement in the administration of the charity.

Poor financial management

The charity has repeatedly failed to submit its accounting information on time to the Commission since FYE 31 December 2013 and was included in the class inquiry for failing to file accounting information for FYE 31 December 2014 and 2015. As part of the class inquiry, the charity received regulatory advice and guidance and was made aware of its legal requirements. Nevertheless, the charity again failed to file accounting information on time for FYE 31 December 2016 and 2017.

An analysis of the accounts submitted during the class inquiry and the inquiry shows that they do not fully comply with the Charities SORP (Statement of Recommended Practice). For instance, the accounts for FYE 31 December 2017 do not disclose that related party transactions have taken place although Trustee A received salary payments and the company was a related party.

The charity’s bank statements show that between January 2014 and November 2017, the charity paid £189,426.25 to Addiction Solutions LTD, a company owned by the charity’s former manager. In an interview with the inquiry on 14 March 2019 (‘the interview’) the manager informed the inquiry that they routinely created invoices for Addiction Solutions LTD and Livingstone Ark Sober Living Houses LTD and then solely authorised the payment from the charity’s bank account without the authorisation of trustees or other employees.

The bank statements further show that between March 2014 and November 2018 payments amounting to £57,206.56 were paid to the manager’s personal bank account. The payments range in value from £35.60 to £4,500.00. At the interview the manager explained that some of these payments were salary, bonus and overtime payments that should have been processed through Addiction Solutions LTD and that others were reimbursements of expenses they had incurred on behalf of the charity.

Additionally, the analysis of the charity’s bank statements shows that between 11 October 2018 and 19 July 2019 Trustee A paid £153,458.00 from their personal bank into the charity’s bank account. The payments range in value from £56.00 to £12,351.00. In a meeting on 1 July 2019 two of the current trustees and one of the interim trustees stated that they were unaware of these payments but that they would investigate the matter.

Subsequently, the interim trustee informed the inquiry that the payments were being made as charity income was diverted into Trustee A’s personal account first and then forwarded on to the charity. The trustee stated that Trustee A had been anxious that the charity’s bank account could be frozen but that they instructed Trustee A to immediately cease the arrangement. The trustee also stated that they had investigated the matter and found that no private benefit was received by Trustee A because of the arrangement. The charity’s bank statements show that following the meeting, instead of credits from Trustee A, the charity now receives its income directly.

In order to discharge their legal duty to act in the best interests of their charity and safeguard charity property, trustees must ensure they put proper systems and controls in place and keep appropriate records to be able to monitor and demonstrate the legitimate movement and use of charitable funds. Trustees should where possible use the charity’s banking arrangements to receive, hold and move funds, unless there are exceptional or particular circumstances such as charities working in environments where the use of methods outside formal banking is common. An attempt to subvert any restrictions made by the Commission or the bank on a charity’s bank account does not justify redirecting charitable funds into a private bank account.

The inquiry found that the poor financial controls and oversight exposed the charity to undue risk and that this constituted misconduct and/or mismanagement in the administration of the charity. The late submission of accounting information from the FYE 31 December 2013 to 2017 is also mismanagement and/or misconduct in the administration of the charity. The inquiry also found that in respect of the submission of accounting information, regulatory advice and guidance given during the class inquiry was insufficiently considered.

Trustees acting while inquorate

Clause 18 of the governing document, states that ‘if at any time the number of Trustees … shall fall below three the remaining Trustees shall not exercise any powers … until such time as the number of Trustees shall be raised to three or more’.

The Commission’s register records that from 1 January 2016 there were two trustees and for the period lasting 27 April 2016 to 16 May 2017 only one trustee.

At the inspection one of the initial trustees provided a handwritten list of trustee appointments and resignations. It was further explained that the charity had not been inquorate as there had been a silent/dormant trustee throughout the period in question but that the individual had not been active and had not attended trustee meetings.

The concept of a ‘silent’ or ‘dormant’ trustee, meaning a trustee that is not registered with the Commission, does not actively carry out their role by attending trustee meetings and fulfilling their trustee duties is not one recognised by the Commission.

The inquiry found that records in relation to trustee resignations and appointments had not been kept as required. From the evidence available, the inquiry concluded that between 25 April 2017 and 24 August 2017 there were only two trustees and the charity was inquorate. During this time the initial trustees continued to exercise powers and make unauthorised decisions on behalf of the charity. This constituted misconduct and/or mismanagement in the administration of the charity.

Conclusions

The inquiry concluded that there has been serious misconduct and/or mismanagement in the administration of the charity and that the initial trustees, Trustee A and the former manager, failed to comply with their duties.

The interim and current trustees have implemented significant positive changes at the charity and are aware of their trustee duties and the provisions of the governing document.

Regulatory Action Taken

An Action Plan under section 84 of the Act was issued on 7 November 2019 ordering the one of the interim and two current trustees to improve the charity’s governance and financial management. The Action Plan was fully implemented.

On 13 December 2019 an order was made under section 181A of the Act disqualifying the former manager from being a charity trustee and from holding an office or employment in a charity with senior management functions for 4 years.

On 24 August 2020 Trustee A undertook not to be or act as a charity trustee or trustee of a charity or holding an office or employment in a charity with senior management functions for a period of 6 years.

Issues for the wider sector

All charities must have an effective trustee body to control and administer the charity in accordance with a charity’s own governing document, charity law and Commission guidance. Public trust and confidence depends of the conduct of trustees and how they safeguard charity funds and undertake the objects and activities of the charity.

The law states that trustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self-dealing transactions unless they have the legal authority to do so. This may come from the charity’s governing document or, if there is no such provision in the governing document, the Commission or the Courts. Further information is available from Trustee expenses and payments (CC11).

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. Charity trustees should ensure that they have a conflicts of interest policy in place to ensure that any conflicts that do arise are appropriately managed.

It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. Where a charity trustee has a conflict of interest they should follow the basic checklist set out in the Commission’s guidance on conflicts of interest and where necessary or appropriate take professional advice.

Trustees are under a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects. They must also be able to demonstrate that this is the case in accordance with section 130 of the Act which requires trustees to keep accounting records for their charity. A charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position.

Further can be found in the Commission’s guidance on Internal financial controls for charities (CC8).

1. Clause 18 stipulates that ‘if any time the number of Trustees … shall fall below three the remaining Trustees shall not exercise any of the powers conferred upon the Trustees …’. ↩