Decision

Charity Inquiry: The Moss Side and Hulme Community Development Trust

Published 27 November 2020

This decision was withdrawn on 29 November 2022

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

Applies to England and Wales

The charity

The Moss Side and Hulme Community Development Trust (‘the charity’) was registered with the Commission on 29 August 2002.

In summary he charity’s objects are the promotion for the public benefit of urban or rural regeneration in areas of social and economic deprivation, in particular, Moss Side, Hulme and adjacent areas of Manchester. Further information about the charity can be found on the register of charities.

Background

On 2 October 2017, the charity became part of the Commission’s ‘Double Defaulters’ class inquiry, which examines charities which have defaulted on their statutory filing obligations with the Commission on two or more occasions in the last 5 years. The charity had failed to submit annual accounts for the financial year ending (‘FYE’) 31 August 2015 and 31 August 2016. The charity eventually filed its outstanding accounting information and was removed from that inquiry on 29 March 2018. However, the charity defaulted again in respect of the accounts for FYE 31 August 2017.

The Commission reviewed the charity’s accounts for FYE 2013, 2014 and 2015 and found that the following payments had been paid to trustee A for acting in the role as CEO of the charity:

• FYE 31 August 2013 - £17,500
• FYE 31 August 2014 - £18,500
• FYE 31 August 2015 - £20,000

The charity’s governing document prohibits payments of this nature without the prior approval of the Commission and no such approval had been obtained.

Issues under investigation

The Commission opened a Statutory Inquiry, under section 46 of the Act (‘the inquiry’), on 28 August 2018.

The inquiry examined 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:

• the trustees’ compliance with their legal obligations for the preparation and filing of the charity’s accounts and other information or returns
• the extent to which there has been any unauthorised trustee remuneration
• the extent to which the trustees have complied with previously issued regulatory guidance

Findings

The Trustees

The charity’s governing document states there must be a minimum of four and a maximum of 17 trustees. According to the charity’s accounts, the charity has only had three trustees serving since at least October 2009.

The Charity’s governing document also requires a minimum of three trustees to form a quorum to make valid decisions. At the time of the opening of the inquiry the Commission’s Register of Charities (‘the register’) listed the charity as having three trustees (trustees A, B and C). The inquiry was informed in October 2018 that trustee C, who had served as a trustee since at least October 2009, had recently been removed as a trustee by trustees A and B. Charity trustees have access to the register, and it is their responsibility to keep their charity’s information up to date. The register was updated by trustee A in November 2019 to reflect the removal of trustee C. Trustee C considers they were improperly removed from the register and that they remain a trustee of the charity.

The inquiry found that only trustees A and B have been actively involved in the administration of the charity since October 2018 or earlier. Therefore, they could not make quorate decisions in accordance with the charity’s governing document. Trustees have a duty to maintain a quorum as required by their governing document so that the charity operates lawfully.

The inquiry first informed trustees A and B of the need to recruit additional trustees in October 2018. They have confirmed their intention to recruit additional trustees to the Commission on multiple occasions. However, the trustees have failed to demonstrate that adequate steps have been taken to address this urgent requirement since it was first highlighted to them.

The Commission considers the trustees’ failure to ensure that the charity operates in accordance with its governing document demonstrates misconduct and/or mismanagement in the administration of the charity. On 9 July 2020 the inquiry directed trustees A and B, by making an order under section 84 of the Act (‘the action plan’), to pursue the recruitment of new trustees and to keep detailed records of their attempts to do so.

Failure to ensure the charity is accountable

When the inquiry was opened on 28 August 2018, the charity was in default in respect of submitting its annual accounts for the FYE 31 August 2017. The accounts were eventually filed on 13 September 2018 after the Commission had directed the charity to do so under section 84 of the Charities Act 2011.

The trustees subsequently failed to file annual accounts for the FYE 31 August 2018 by the due date of 30 June 2019. In response, the Commission ordered the trustees of the charity to file the outstanding accounts by 13 November 2019. The trustees failed to meet the deadline of this order, with the accounts not being filed until 15 November 2019.

The inquiry found that the trustees have consistently failed to comply with their duty to ensure the charity is accountable to the public and its benefactors, as they have failed to file all of the charity’s annual accounts on time since August 2014. This is misconduct and/or mismanagement in the administration of the charity. In addition, a failure to submit accounts to the Commission is a criminal offence under section 173 of the Act.

The charity’s accounts for the FYE 30 August 2019 were due on 29 June 2020. However, the charity’s auditor had contacted the Commission on 8 April 2020 before the deadline for submission requesting an extension due to difficulties resulting from covid-19. This request was granted.

The section 84 order issued to Trustee A and B on 9 July 2020 required them to review the charity’s processes to ensure compliance with their statutory responsibilities to file accounts on time.

Unauthorised trustee remuneration

The Commission’s records show that on 17 May 2013, trustee B had written to the Commission on behalf of the trustees advising that ‘a provision is made for trustee A’s director fee of £17,500’, and that he had received payments in previous years for his/her role as ‘chief officer’.

The Commission responded to trustee B by email on 17 June 2013, advising that the charity’s governing document did not provide any power to make the payments to trustee A, and that the trustees would need to submit an application to the Commission to do so. The Commission also advised that trustee A may be liable to repay the funds he had received.

The Inquiry obtained from the charity’s auditor a copy of a letter dated 29 August 2018, that they had received from the trustees which advised that they had ‘approved the remuneration of [trustee A] and historically obtained consent from the Charity Commission to make payments to a trustee’. The Commission has never provided any consent to the charity to make payments to any of the trustees. Furthermore, the charity’s governing document explicitly prohibits trustee remuneration for the supply of work or goods to the charity.

The Inquiry carried out a books and records inspection at the charity’s premises on 24 September 2018 (‘the inspection’). During the inspection, the Commission found that in addition to the remuneration to trustee A, trustee C had received a salary payment of £902 (gross) from the charity in June 2018.

The Inquiry directed the trustees to provide information concerning trustee A and trustee C’s remuneration. In their written response, trustee A and B said that the charity’s accountant at that time, advised that the charity had received the Commission’s approval for trustee A’s remuneration. Trustees A and B did not provide any records evidencing this exchange. With respect to trustee C’s approval, trustee A and B said that he/she had successfully applied for the position of part time receptionist on a 12-month contract.

The Inquiry found that both trustees A and C had been providing services to the charity, for which they were paid and this amounted to unauthorised trustee remuneration. This constitutes misconduct and/or mismanagement in the administration of the charity. The section 84 order issued to trustees A and B on 9 July 2020 requires them to review policies and procedures that ensure conflicts of interest are avoided and managed; and to ensure that there is no further unauthorised remuneration.

When commenting on the draft report Trustee C stated that they had already been removed as a trustee prior to commencing their employment. The same principles regarding unauthorised trustee remuneration apply to trustees who resign to take up a post. Furthermore, the Commission noted that Trustee C has consistently maintained that they remained a trustee throughout the substantive phase of the inquiry.

Failure to ensure the charity is carrying out its purposes for the public benefit

Correspondence provided by trustee A and trustee B to the inquiry regarding the charity’s ITC Learning Centre (‘the centre’) provided an inconsistent account of the charitable activities undertaken when contrasted with the annual reports they had submitted to the Commission. The charity’s annual reports from FYE 31 August 2014 to FYE 31 August 2018 all reference the need to upgrade the centre. The annual report for FYE 31 August 2015 describes how the centre had assisted over 400 local people at a cost in excess of £60,000 per annum.

During a telephone conversation with the Commission on 31 August 2018, trustee A advised that the charity had been providing training from the centre. However, during the inspection on 24 September 2018, trustee A stated that the centre had been closed for several months due to the need to reinvest. When asked to produce records of training from the centre at the inspection, trustee A was only able to produce attendance records for 2012.

The Commission interviewed trustee B on 26 October 2018, who advised that the centre may have been closed since 2015. During an interview with trustee A on 25 April 2019, trustee A confirmed that the centre had not been used since 2015 or 2016. Trustees A and B were not able to evidence the £60,000 expenditure for the centre.

On 1 March 2019 the inquiry directed Trustees A and B to provide a statement explaining what records they held to demonstrate the charity’s activities. They failed to comply with the direction; in their response of 30 March 2019, trustee A advised that he would attempt to provide the inquiry with paper-based records, however, no such records were received by the inquiry.

The Commission wrote to trustees A and B in April 2019 advising that it had reached the view that the charity held no records to evidence its charitable activities, and received no reply.

The trustees failed to demonstrate that its activities were intended to further or support its purposes in line with the charity’s objects as outlined in the governing document. The trustees also failed to keep adequate records to demonstrate charitable expenditure. This was misconduct and/or mismanagement in the administration of the charity. The section 84 order issued to the trustees on 9 July 2020 requires trustees A and B to review the charity’s activities and to ensure that all charitable activities are supported by records.

Conclusions

Accounting regulations are designed to provide transparency and are a way of holding trustees to account for the management of their charity. In this instance the trustees consistently failed in their statutory duty to submit accounts on time and a closer inspection of the charity’s activities identified further governance failings. The Commission concluded the trustees had further mismanaged the charity by allowing the unauthorised remuneration of two trustees and failing to maintain the quorum required by the charity’s governing document.

Furthermore, the Commission concluded that the trustees had failed to ensure that the charity is adequately carrying out its purposes for the public benefit and have not maintained adequate records to demonstrate the work that it does.

The trustees were responsible for misconduct and/or mismanagement in the administration of the charity and trustees A and B have been ordered to take action to remedy the governance shortcomings at the charity and the Commission will hold them to account on the delivery of the required actions, including the consideration of further regulatory action.

Regulatory Action Taken

The inquiry used its information gathering powers under section 47 of the Act to direct the trustees, the charity’s auditor and the charity’s bank to provide information and documents to the inquiry.

On 3 September 2018, the inquiry directed the trustees by making an order under section 84 of the Act, to file the charity’s outstanding financial information for FYE 31 August 2017.

On 16 October 2019, the inquiry directed the trustees, by making an order under section 84 of the Act, to file the charity’s outstanding financial information for FYE 31 August 2018.

On 9 July 2020, the inquiry issued an order made under Section 84 of the Act to Trustees A and B, requiring them to:

• pursue recruitment of new trustees
• advertise and hold an annual general meeting
• review the charity’s decision-making procedures
• review the charity’s processes to ensure compliance with statutory responsibilities concerning the timely submission of the charity’s accounts
• produce new policies and procedures that ensure conflicts of interest are avoided and managed
• review the charity’s activities
• ensure that there is no further unauthorised trustee remuneration

The Commission has opened a separate case to monitor the trustees’ compliance with this order and will consider further regulatory action if the trustees fail to complete all the actions required.

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.

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).

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.

In order to show that trustees are complying with their legal duties, they must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the Charity’s purposes for the benefit of the public.