Decision

The Veterans Charity

Published 10 September 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This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.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 charity was originally established in 2008 as Project 65 to further charitable purposes connected with the 65th anniversary of the Normandy landings during the Second World War. Following its formation, the charity initially raised funds for two purposes. Firstly, the charity provided funds to a number of other charities providing direct support and care to serving and former members of the armed forces. Secondly, the charity raised funds to establish and maintain memorials to personnel who took part in operations to capture bridges in Normandy during the D-Day operations, thereby maintaining public recognition of the sacrifice made by those personnel and to educate the public in the history of these operations.

The charity is a company limited by guarantee and is governed by a Memorandum and Articles of Association. It was incorporated on 28 January 2008 as Project 65.The charity formally amended its name to The Veterans Charity on 8 July 2011. The charity’s objects are:

• to promote the military efficiency of the armed forces and to foster good citizenship for the benefit of the public at large, in particular by providing and maintaining a memorial or memorials to those service personnel who took part in the operation to capture vital bridges in Normandy, France, as a prelude to D-Day in June 1944 and thereby encouraging and maintaining public recognition of the sacrifice made by such persons

• to educate the public in the history of the operation to capture vital bridges in Normandy, France, as a prelude to D-Day in June 1944

• to provide relief for serving and former serving personnel and their dependents who may be in condition of need, hardship or distress in such manner as the trustees think fit. The charity adopted this third object on 30 October 2015 during the course of the inquiry

The charity primarily furthers its third purpose by providing direct and immediate needs support to military veterans for essential items such as food, clothing, household goods and furniture.

Further details about the charity are available on the register of charities.

Background

The Charity Commission (‘the Commission’) first engaged with the charity in October 2014. A regulatory compliance case was opened as a result of various regulatory concerns related to the charity’s governance, fundraising activities, trustee remuneration and the application of funds for purposes which were not permitted by the governing document.

During its regulatory compliance case, the Commission identified serious weaknesses in the charity’s governance and management, as the charity had no written policies or procedures in place, particularly in respect to financial controls or how it conducted its fundraising activities. The trustees were therefore unable to provide adequate assurance to the Commission that the charity’s finances were being appropriately managed and safeguarded or that their fundraising activities were being conducted in accordance with relevant legal and best practice standards. As a result of the Commission’s engagement in January 2015, the trustees implemented a financial controls policy.

In February 2015, the Commission was informed by the police that the trustee (“Trustee A”) responsible for the charity’s fundraising activities, together with the charity’s CEO and two volunteer fundraisers, had been arrested due to concerns regarding the charity’s fundraising activities. These concerns included collectors operating alone, failures to maintain accurate records, allowing public fundraising collections to occur in unsealed and un-numbered buckets and the banking of collected funds into the personal bank account of Trustee A, following the issuing of a cheque to the charity.

On 14 April 2015, based on information gathered through the regulatory compliance case and information provided by the police (through the statutory information sharing gateway), the Commission opened an inquiry into the charity under section 46 of the Charities Act 2011 (‘the Act’).

The Commission liaised closely with the police during the course of both its regulatory compliance case and its statutory inquiry. However, as the Commission is a civil regulator and is not a prosecuting authority, the Commission’s focus was to examine if the trustees were in effective control of the charity and to what extent they were adequately fulfilling their duties and responsibilities under charity law.

Issues under Investigation

The scope of the inquiry was to:

• investigate the administration, governance and management of the charity by the trustees, including whether they were:

  • exercising reasonable care and prudence in connection with the charity’s fundraising activities
  • taking steps to ensure compliance with relevant legislation and the charity’s governing document
  • taking steps to ensure the charity’s procedures and controls were sufficient to properly regulate the charity’s activities and that they are complied with
  • discharging their duties to safeguard and account for the charity’s property including its funds

• whether and to what extent charity funds have been misappropriated or misapplied or are at risk of being misappropriated or misapplied

• whether and to what extent there has been misconduct or mismanagement in the administration of the charity by the trustees

In practice the extent of misappropriation/misapplication and misconduct/mismanagement were considered as part of the various investigation strands into the charity’s management. To avoid unnecessary duplication these matters are therefore covered in the findings under the relevant investigation strands but are not separately reported on.

The inquiry closed on xxx with the publication of this report.

Conduct of the inquiry and reconstruction of the charity

The Commission’s statement of the results of this inquiry was significantly delayed due to the police investigation and subsequent criminal trial involving the charity’s CEO. Following the arrest of the CEO in February 2015, he was eventually summonsed in April 2017 with charges of theft and fraud by abuse of position against the charity. These charges related to purchases made by the CEO on the charity’s account. In April 2018, the CEO’s trial was heard at Blackfriars Crown Court. Midway through the trial, the sitting judge directed the jury to acquit the CEO due to a lack of evidence against him. The outcome of the trial has provided the trustees with the necessary assurance that it is appropriate for the CEO to continue his role at the charity.

During the course of the inquiry, the inquiry took steps to ensure the charity’s property was adequately protected whilst the police investigation was conducted. Upon opening its statutory inquiry, the Commission took swift action to freeze the charity’s bank account through the use of its regulatory powers. This freezing order, made under section 76(3)(d), was kept in place until February 2016. During the intervening period, the Commission monitored and authorised all of the charity’s expenditure, ensuring that each transaction was necessary and a proper application of the charity’s funds. This allowed the charity to continue its operation, although the charity did suspend its direct charitable support to beneficiaries for a period, whilst the trustees took steps to address the weaknesses in the charity’s governance. The inquiry also issued the charity with a direction under section 84 of the Act in May 2015. This direction was issued prior to an annual fundraising event called the ‘Forces March’, which the charity conducts each year in May. The direction required the trustees to meet certain conditions in respect of fundraising collections at the event and ensured that public collections were managed appropriately and that effective protective oversight of charitable funds was maintained throughout the event.

The Commission liaised with a leading charity law firm in 2015 to secure volunteers from the charity sector who would be willing to assist in the reconstruction of charities, as a potential alternative to an interim manager, and where there were limited charity funds available to support reconstruction. As a result of this liaison work two volunteers were subsequently appointed by the charity in July 2015. The appointment of these individuals, a solicitor specialising in charity law and Vaughan Kent-Payne, a director of another military charity, significantly enhanced the range of skills and experience within the charity’s board of trustees and signalled the beginning of the regularisation of the charity’s governance and administration. At this time, Trustee A resigned from the board of trustees. The new trustee board then set about addressing the charity’s governance issues, which included the removal of the CEO as a signatory on the charity’s bank account, the amendment of the charity’s governing document (which included the expansion of the charity’s objects), the formulation and drafting of new governance and fundraising policies and procedures and the implementation of strategies to enable the charity to continue operating.

During the inquiry the Commission considered the positions of the original trustees, including whether it was necessary to exercise the Commission’s removal/disqualification powers. The original trustees and the CEO actively co-operated with the inquiry to address the management issues identified by the inquiry. Trustee A temporarily resigned whilst the investigation was underway. The inquiry found that both the original trustees had acted in good faith and that Trustee A had worked hard in a voluntary capacity conducting fundraising activities for the charity. This work provided the charity with a source of income that allowed it to carry out charitable purposes. Following the strengthening of the charity’s governance and implementation of adequate financial controls the inquiry was satisfied that the original trustees continued involvement in the charity was appropriate. The inquiry was also satisfied that the trustees had properly considered the CEO’s continued involvement in the charity.

At the end of October 2015, one of the new trustees resigned. They were replaced as a trustee by Iain Henderson, who is an armed forces veteran and a trained counter fraud specialist. Mr Henderson and Mr Kent-Payne remain as trustees of the charity at the time of writing. The Commission would like to thank both of these individuals, as well as the resigning trustee, for their willingness to serve on the charity’s board during a difficult period in the charity’s life and their dedication and hard work in regularising the charity’s governance and operation. Without these individuals volunteering their time to the charity, it is unlikely that the charity would have survived and the vital service it provides would no longer be available to the charity’s beneficiaries.

In November 2015, the charity adopted new policies on fundraising, financial controls and the provision of direct support to the charity’s beneficiaries. These policies introduced new processes and procedures which allowed the trustees to exercise proper oversight of the charity’s finances and governance and provided the Commission with assurance that the previously identified weaknesses had been adequately addressed.

In January 2016, the mandate on the charity’s bank account was amended. This amendment was required by the Commission in order to remove the freezing order on the charity’s bank account whilst the police continued their investigation into the charity. The freezing order was subsequently removed on 22 February 2016. Around this time, the charity recommenced its fundraising collection activities and reappointed trustee A, who remains a trustee at the time of writing. In March 2016, the charity restarted its welfare support to its beneficiaries.

On 18 August 2016, the inquiry team conducted a visit to the CEO to review the charity’s books and records and to assess the charity’s compliance with its new polices and processes. This review concluded that the charity had made a significant improvement in its financial controls and put in place systems which greatly assisted the trustees in their management of the day to day running of the charity and its finances. At this visit, the inquiry team also noted that all transactions checked were supported by the appropriate invoices and paperwork and significant improvements had been made to the charity’s recordkeeping. Later in August 2016, the inquiry team met with trustees Mr Kent-Payne and Mr Henderson to discuss the inquiry team’s findings from their review of the charity’s books and records and the future of the charity. Following this meeting, the trustees reviewed and regularised the charity’s arrangements with the CEO, particularly around use of the charity’s vehicle, utilities and expense claims. The trustees took professional advice on the remuneration arrangements with the CEO and satisfied themselves that the charity was not exposed to any liabilities as a result of these arrangements.

Findings

Whether the trustees were exercising reasonable care and prudence in connection with the charity’s fundraising activities

Following the opening of the inquiry, a books and records inspection was conducted in May 2015, which found that the charity was not complying with its recently adopted financial controls policy and that, in any case, these controls were inadequate as they were not tailored to the actual financial activities of the charity. The inquiry also found that the charity’s fundraising policies and practices were not compliant with relevant fundraising regulations and exposed the charity’s funds to undue risk of misappropriation.

The inquiry obtained further information from the charity in respect of its procedures and processes for raising funds from the public. These processes, which were formalised into the financial controls policy in January 2015, were overseen by one of the trustees. The inquiry found that Trustee A counted all raised funds alone, then issued a cheque for the counted amount to the charity before paying the raised funds into his personal bank account. Whilst the inquiry did not identify any misappropriation on the part of Trustee A, the procedures for banking and handling the raised funds was found to be inadequate and exposed the charity’s funds to undue risk. The inquiry also identified that Trustee A also paid “volunteers” collecting money for the charity at a daily rate of £40 to cover their expenses. These funds were paid out of Trustee A’s personal finances and then subsequently claimed for and reimbursed by the charity. The inquiry was unable to conclude that the individuals collecting on behalf of the charity were volunteers, given that they received a day rate from the charity rather than reimbursement of reasonable expenses incurred. The inquiry did not accept the trustees’ explanation that, because those individuals collecting for the charity were veterans themselves, that the payments benefited these individuals in furtherance of the charity’s purposes. The inquiry found that the trustees had given insufficient consideration to the potential tax implications of this practice, as well as insufficient consideration to fundraising regulations relating to the payment of fundraisers.

The charity’s fundraising processes were inconsistent with the Code of Fundraising Practice and fell below the standards expected by the Commission. The Commission’s guidance Internal financial controls for charities (CC8) requires charities that undertake public collections and fundraising events to ensure that they have as much control as possible over what could be a widespread network of fundraising efforts. Charities must comply with the legal requirements on public collections and working with external fundraisers.

There were also regulatory concerns in relation to the counting of cash by a single individual, meaning there was no independent verification of cash counting or recording. The inquiry found that the charity had inadequate safeguards to protect the charity’s funds from misappropriation and to ensure that all funds were properly audited and accounted for. However, no evidence of misappropriation was found by the inquiry.

The charity informed the inquiry that the process used by Trustee A to bank cash into his personal account was necessary due to the unavailability of local branches of the charity’s bank. The inquiry found the charity’s fundraising processes posed significant risks to the charity’s funds and found no evidence that the trustees had considered or taken action to address the evident risks within the processes. However, following analysis of the charity’s fundraising records which were compiled and retained by Trustee A, the inquiry was able to satisfy itself that the charity had received the recorded fundraising income and that no concerns were identified in respect of actual misappropriation by the trustee overseeing the charity’s fundraising. This individual was not charged by the police following their arrest, nor were the two volunteers referred to above.

The inquiry found that the trustees had collectively failed to exercise reasonable care and prudence in relation to the charity’s fundraising processes and management of the funds raised, which exposed the charity to undue risks of misappropriation of its funds. The Commission considered this to be mismanagement by the original trustees.

Whether the trustees were taking steps to ensure compliance with relevant legislation and the charity’s governing document

The inquiry found that the charity was, and had been since 2011, operating outside of its objects. The charity was (and still is to date) providing support and relief to veterans of the armed services who found themselves in need, providing urgent food and domestic items whilst individuals awaited support from other sources (such as Government support or assistance from other charities). The charity confirmed in writing during the inquiry that it was providing benevolence support directly to individuals, which was also detailed within the charity’s accounts and annual returns. The provision of direct support to individuals was not permitted by the charity’s original objects and the trustees were therefore not complying with their legal duties to ensure the charity was operating in accordance with its governing document and its funds were applied only in furtherance of the charity’s purposes. The inquiry found that the charity had no assurance processes in place to ensure that the charity was operating in compliance with either its governing document or relevant legislation.

At the time the inquiry was opened, the charity did not have the number of trustees required by its governing document. The charity’s governing document stipulated a minimum of three trustees and a requirement for three trustees to form a quorum for decision making. Historically, the charity’s CEO had been a trustee but their trusteeship was terminated upon their appointment as CEO, and no replacement was recruited. The inquiry found that the CEO was listed at Companies House as a director of the charity from the date of its incorporation until January 2015, when the matter was brought to the attention of the charity by the Commission. The directors of a charitable company are also its charity trustees and therefore whilst the CEO remained a director they could also be considered to be a charity trustee. The inquiry found that the trustees were unaware of this which demonstrated a lack of understanding about charity governance and a lack of care in the administration of the charity. The inquiry found that the charity was inquorate and therefore incapable of making valid decisions prior to the appointment of the new trustees.

The inquiry conducted an examination of the charity’s books and records in May 2015 which identified that the charity had not preserved accounting records for the financial year ending 31 December 2013, or for the financial years prior to this. It is a statutory requirement, under the Act, for the trustees to have accounting records (section 130 of the Act) and preserve accounting records (section 131 of the Act). As the charity is a company it is also required to retain its financial records for the previous six financial years under company law, which the charity had failed to comply with. In addition, the charity could only produce a limited number of receipts and invoices to support and explain expenditure in the financial year ending 31 December 2014. The CEO’s explanation as to the missing documentation was that a box of receipts had gone missing during a recent office move. The inquiry found that the trustees were in breach of their statutory obligations under charity law and company law. In order to show compliance with their legal duties, trustees must maintain and preserve records which provide 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. The inquiry found that the charity had inadequate accounting records to adequately explain all of the charity’s transactions.

During its examination of the charity’s books and records, the inquiry identified that the charity’s financial records (excluding the charity’s fundraising records) were under the control of the CEO. The inquiry found that the standard of the charity’s record keeping prior its reconstruction was poor, with some invoices and receipts missing. The inquiry found limited evidence of proper or effective oversight by the charity’s trustees of the CEO in respect of the charity’s record keeping.

The inquiry found that, prior to March 2015, when one of the trustees was added as a signatory on the charity’s account, the charity’s CEO had sole control of the charity’s bank account, including the charity’s cheque book, debit card and online banking facility. The inquiry found that prior to March 2015, there were inadequate financial controls or safeguards in place regarding the charity’s expenditure by the CEO. For example, the charity’s cheques could be signed by the CEO with no limit and there were no spending limits or restrictions on the types of goods and services that could be purchased on the charity’s debit card. The charity had no formal systems in place for the trustees to approve or check expenditure incurred on the charity’s debit card.

The inquiry found that, prior to the reforms, the trustees did not undertake checks or reconcile bank statements, although the inquiry did find evidence that the CEO provided regular written financial performance updates to the trustees. The inquiry found that no written agreement or contract existed setting out the CEO’s duties or the arrangements for the CEO’s use of the charity’s vehicle. The inquiry found that the arrangements between the charity and the CEO were irregular and found no evidence that the trustees had taken reasonable steps to ascertain whether the charity was subject to tax or pension liabilities in respect of the CEO’s position, which could have impacted adversely on the charity’s financial viability. Prior to the implementation of a written financial controls policy in January 2015, the charity had no written financial controls policy and therefore had no procedures and controls which were sufficient to properly regulate the charity’s activities. By extension, the charity also had no assurance processes in place by which the trustees could ensure safeguards and controls were effective and sufficient to protect the charity’s property. The inquiry found this was mismanagement by the trustees.

Whether the trustees were discharging their duties to safeguard and account for the charity’s property including its funds

The inquiry found that nearly £38,000 of the charity’s expenditure had been withdrawn as cash during the period between January 2010 and May 2015, equating to over £500 each month. The CEO informed the inquiry that the invoices for expenditure before 2013 were lost and that most of the cash withdrawals during this period were either not supported by invoices or it was not possible to show or demonstrate exactly how these funds had been used. The CEO explained that cash withdrawals were used to repay subsistence claims for expenditure on charity business (for instance meals while attending fundraising activities and accommodation when return travel was impossible) for himself and accompanying volunteers. Furthermore, these withdrawals covered fuel costs, event costs such as the purchase of stock in addition to significant support to vulnerable beneficiaries. However, there was very little supporting documentary evidence to demonstrate this or confirm how these charitable funds had been applied. Even where the cash machine receipt slips existed, there was no supporting documentary evidence to explain what the cash had actually been spent on. The inquiry found no evidence of any written policies in respect of cash expenditure or the claiming or authorisation of expenses by the CEO. The inquiry also found no documentary evidence which detailed the trustees’ authorisation of the CEO’s expenditure during this period.

Additionally, the inquiry reviewed a sample of other expenditure. The charity was unable to provide supporting receipts or documentation to evidence that some of this expenditure was properly applied in furtherance of the charity’s purposes.

Notwithstanding these concerns, the inquiry was satisfied as a result of its investigative work that the charity was undertaking work to provide urgent short term support for veterans in need. It therefore sought volunteers from the charity sector to assist in the charity’s reconstruction. This is referred to in more detail in previous section titled ‘Conduct of the inquiry and reconstruction of the charity’.

Conclusions

The Commission concluded that there was mismanagement in the administration of the charity prior to its reconstruction because:

• there was evidence of both poor governance and poor financial management of the charity and its affairs
• the standard of the charity’s record keeping was very poor, and the charity had not retained its financial records for the required period
• the original trustees failed to exercise reasonable care and prudence in relation to some of the charity’s fundraising activities which exposed the charity to undue risks, including misappropriation of its funds
• the original trustees did not exercise sufficient oversight or control over the charity’s expenditure incurred by the CEO and were unable to demonstrate that all of the charity’s expenditure was a proper application of the charity’s funds in furtherance of its charitable purposes

The Commission considered and discounted removal and disqualification of the original trustees because of mitigating factors in this particular case. The original trustees and the CEO actively co-operated with the inquiry to address the Commission’s regulatory concerns. Following the strengthening of the charity’s governance and implementation of adequate financial controls the inquiry was satisfied that the original trustees continued involvement in the charity was appropriate. The inquiry was also satisfied that the trustees had properly considered the CEO’s continued involvement in the charity.

The Commission is very grateful to the trustees that voluntarily joined the charity during the inquiry, and who have implemented and overseen the significant and necessary changes to the charity’s policies, procedures and processes. They have remained with the charity during a difficult period. The Commission’s previous regulatory concerns have now been addressed through the strengthened governance and the improvements to the charity’s financial controls.

As a result of the Commission’s intervention and engagement of new trustees, the charity’s governance and administration has now been successfully regularised. This has enabled the charity to continue performing its specialist role providing immediate and vital support to veterans in need and distress, often whilst individuals are waiting for other means of assistance and have nowhere else to turn.

Issues for the wider sector

It is legitimate for trustees to delegate the day to day management of a charity to staff and others. However, charity trustees always retain the ultimate responsibility for running the charity and should ensure that robust reporting procedures are in place to enable them to make reasonable decisions. Responsibility for ensuring they have sufficient information and are adequately informed in order to make decisions rests with the charity trustees.

Every charity needs an effective trustee body which has control over the administration of the charity and acts as a whole, especially because all trustees are equal in responsibility. 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.

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. 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, due to the nature of the charity, its work, location and /or set up 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. In this way, system failures or issues can be identified at an early stage.