Decision

The Islamic Educational Society of Blackburn

Published 4 July 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.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 Educational Society of Blackburn (‘the charity’) was registered on 3 June 1969, and is an unincorporated charity governed by declaration of trust dated 18 March 1969 (‘the governing document’).

The charity’s objectives are the advancement of education in the Islamic community of Blackburn. Its activities include running a mosque and madrassa.

The charity’s details can be found on the register of charities.

Background

On 20 September 2013, the Charity Commission (‘the Commission’) opened a statutory class inquiry, under section 46 of the Charities Act 2011 (‘the Act’) into charities in default of their statutory obligations to submit their accounts and related documentation for 2 or more years in the last 5 years and met certain other criteria (‘the double defaulters class inquiry’).

Having failed to submit its accounts and related documentation for the financial years ending (‘FYE’) 31 December 2014 and 31 December 2015 the charity became part of the double defaulter’s class inquiry on 15 February 2017.

On submission of the outstanding accounts and related documentation on 11 May 2017, the charity ceased to be part of the double defaulter’s class inquiry on the same day. The results formed part of the Commission’s report Accounts monitoring: double default class inquiry 2016-17.

However, despite receiving regulatory advice and being reminded to meet their legal duties the trustees again failed to file the charity’s statutory accounting information on time for the FYE 31 December 2016. The charity’s trustees were issued with a default notice on 27 November 2017.

Issues under Investigation

On 26 February 2018, the Commission opened a statutory inquiry into the charity under section 46 of the Act (‘the inquiry’).

The inquiry investigated serious regulatory concerns in relation to:

• the extent to which the trustees were 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
• the charity’s governance and in particular policies and practices with regard to safeguarding
• the charity’s financial management, including its financial controls, and the extent to which funds have been applied in accordance with its objectives
• the extent to which the trustees have complied with previously issued regulatory guidance The inquiry closed with the publication of this report

Findings

The extent to which the trustees were 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.

The inquiry found the trustees failed to comply with their statutory obligations, under the Act, to submit accounts and related documentation for the FYE 31 December 2016, to the Commission, before the deadline of 31 October 2017.

Failure to supply certain documents is a criminal offence, under section 173(1) of the Act.

The inquiry issued an order in accordance with section 84 of the Act, on 12 March 2018, directing the trustees to prepare and submit the outstanding accounts and related documentation by the deadline set out in the order.

The trustees complied with the section 84 order and the outstanding accounts and related documentation were submitted on 30 March 2018.

Charity’s financial management, including its financial controls, and the extent to which funds have been applied in accordance with its objectives

The inquiry found that there were a number of failings in the charity’s financial controls which resulted in the charity’s funds being applied for purposes other than those for which they were raised.

The inquiry found the FYE 31 December 2016 accounts did not comply with the requirements of the Statement of Recommended Practice (‘SORP’). Most notably the accounts failed to show restricted funds separately from unrestricted funds.

A Books and Records Inspection (‘B&RI’) was conducted by the inquiry on 10 July 2018 and found that the donations received were not separated into restricted or unrestricted funds.

The inquiry also found that none of the trustees were signatories on the mandate for the charity’s main bank account, and only the treasurer has access to on-line banking. The inquiry found that the trustees had inadequate oversight and control of the charity’s financial activities.

The Commission was informed by Greater Manchester Police (‘GMP’) that they had seized approximately £7,737 in cash from an individual, who was at the time associated with the charity. It was established that £6,555 of this cash was the charity’s property and the individual associated with the charity was on the way to the bank to deposit the money on behalf of the charity.

The inquiry found this was a breach of the charity’s cash handling policy, which required at least two people to make cash deposits. The inquiry was informed that after the charity had confirmed that the cash was charitable property, it was returned to the charity by GMP on 22 February 2018.

In May 2009, following a complaint, the Commission became aware that the charity was involved in funding the construction of a mosque which had begun a year earlier. The Commission requested an explanation as to how the construction of a mosque furthered the charity’s educational objectives as set out in its governing document.

The trustees of the charity responded by letter dated 3 September 2009 stating they considered that the construction of a mosque fell within its charitable objective, but also that they were aware of a need to review their governing document but had not prioritised doing so due to other commitments.

The charity submitted a new constitution to the Commission on 21 May 2013 which appeared to be a replacement for the original governing document. The Commission acknowledges, at the time, it did not substantively respond to the charity’s correspondence.

However, the trustees were required to amend the objects of the charity with formal consent from the Commission and follow the appropriate procedure to amend the governing document as set out in the guidance How to write your charity’s governing document (CC22b).

The inquiry found that building the mosque, which is a place of worship, does not fall within the scope of the advancement of education and is therefore not within the current objects of the charity.

The trustees should have been aware that their attempt to change the charity’s governing document had not been successfully completed and should have taken further action to rectify this issue. This remains an outstanding regulatory concern which needs to be addressed by the trustees.

It is the trustee’s responsibility to ensure the charity operates within its aims and objectives as set in its governing document and to ensure the charity is carrying out its purposes for the public benefit.

Charity’s governance and in particular policies and practices with regard to safeguarding

Safeguarding

On 18 January 2018, the Commission provided the charity with regulatory advice and guidance on how to submit a Report of a Serious Incident (‘RSI’), following an incident (unconnected to the charity’s work or premises) involving an individual who at the time was associated with the Charity, which gave rise to potential safeguarding concerns.

The charity did not submit an RSI and the inquiry sent a further e-mail on 5 February 2018, reiterating the regulatory advice and guidance. There was no response from the trustees.

The inquiry found that the trustees had failed to act in accordance with their trustee duties by failing to submit an RSI. However, the inquiry does accept that failure was mitigated by the trustees, to some extent, by other action taken including the notification of their beneficiaries by publishing a statement on the mosques website (the statement has subsequently been removed).

Following a review the trustees have taken steps to ensure there is now an adequate safeguarding policy in place.

Extent to which the trustees have complied with previously issued regulatory guidance

Prior to opening the inquiry the Commission had engaged with the trustees and provided regulatory guidance, which included complying with their statutory obligation to file accounts and related documents. They were made aware of their statutory obligation prior to the double defaulter’s inquiry, during the course of the double defaulters inquiry and prior to the opening of this inquiry.

Conclusions

The inquiry concluded that there was evidence of misconduct and/or mismanagement in the administration of the charity due to the poor financial management and governance in the charity. In particular the trustees:

• failed to submit the charity’s annual accounts and related documentation within the statutory deadlines for three consecutive years
• failed to ensure accounts and financial returns correctly identified restricted and unrestricted funds
• failed to manage the charity’s property in accordance with financial controls, including the bank mandate and cash handling procedure
• failed to comply with previously issued regulatory advice in relation to submission of the accounts and relevant documents and an RSI
• were acting outside of the charity’s original objective and failed to take appropriate steps to obtain consent from the Commission and follow the appropriate procedure to amend the governing document

Due to the misconduct and/or mismanagement in the administration of the charity an Official Warning has been issued to rectify the regulatory concerns found during the inquiry.

Regulatory action taken

On 12 March 2018, the inquiry issued an order, under section 84 of the Act, to direct the trustees to prepare, complete and submit the relevant missing accounts and related documentation for the FYE 31 December 2016.

During the inquiry, information was exchanged with GMP, in accordance with the statutory gateway, under section 54-56 of the Act.

On 11 September 2018, the inquiry used its information gathering powers, under section 47 of the Act, to obtain copies of the charity’s bank statements.

On 20 September 2018, the inquiry used its information gathering powers, under section 47 of the Act, to obtain copies of further documents and specific information, which was not available during the BR&I on 10 July 2018.

The Inquiry issued an Official Warning under section 75A(1)(a) of the Act to the trustees. The trustees are expected to undertake the outlined actions, within the specified timescales, as set out in the Official Warning, to rectify the regulatory concerns.

The Official Warning was published on the Commission’s website, and will remain for a period of 1 year. It can also be viewed on the charity’s entry on the register.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the inquiry 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 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 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.

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 the guidance.

Trustees are equally responsible for the overall management and administration of the charity. Trustees should ensure that financial controls are not only adequate but provide sufficient information to satisfy the trustees that the controls are being observed.

If 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.

The Commission requires charities to report serious incidents. If a serious incident takes place within a charity, it is important that there is prompt, full and frank disclosure to the Commission. Charities need to report what happened and, importantly, let the Commission know how they are dealing with it, even if it has also been reported to the police, donors or another regulator.

Further information can be found in the Commission’s guidance How to report a serious incident in your charity.