Decision

Charity Inquiry: CWM Harry Land Trust Limited

Published 5 October 2020

This decision was withdrawn on 12 October 2022

This Inquiry has been archived as it is over 2 years old.

Applies to England and Wales

The charity

CWM Harry Land Trust Limited (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 26 November 2003. It is governed by a Memorandum and Articles of Association incorporated on 9 September 2003 (‘the governing document’).

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

The charity’s objects are, in summary; to protect and preserve the environment and also include the education and rehabilitation of prisoners and ex-offenders.

During the inquiry, the charity made amendments to its governing document for which it received consent from the Commission. In particular, the charity widened its objects by expanding its group of beneficiaries and added to clause 5 of the governing document to include that the Commission’s consent is required to remunerate a trustee.

Issues under Investigation

Before the opening of the inquiry, the charity was included in the Double Defaulter class inquiry (‘the class inquiry’) which investigates charities which have defaulted on their statutory filing obligations with the Commission on two or more occasions in the last 5 years. The charity became part of the class inquiry on 19 November 2018 as it failed to file annual reports, accounts and returns (‘the financial information’) for the financial year ending (FYE) 31 March 2016 and 2017.

Despite the Commission’s engagement with the charity for almost a year in the class inquiry, the charity failed to file its outstanding financial information and additionally went on to fail to file its financial information for FYE 31 March 2018.

As part of the class inquiry, the Commission issued the charity with regulatory advice and guidance and made the following orders which the charity failed to comply with.

• an order made under section 84 of the Act on 20 November 2018 directing the trustees to prepare and submit the accounting information for the FYE 31 March 2016 and 2017 by 13 December 2018
• an order made under section 47 of the Act on 7 August 2019 directing the trustees to provide the outstanding accounting information for the FYE 31 March 2016, 2017 and 2018 by 6 September 2019

Additionally, the Commission also had concerns over a number of related party transactions, including payments to a trustee.

As a result of the trustees’ failure to comply with the Commission’s Orders and the additional regulatory concerns the Commission opened a statutory inquiry (‘the inquiry’) into the charity under section 46 of the Charities Act 2011 (‘the Act’) on 19 September 2019.

The inquiry examined 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
• the extent to which any failings or weaknesses identified in the administration of the charity during the inquiry were a result of misconduct and/or mismanagement by the trustee
• 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 and/or loyalty

The inquiry closed with the publication of this report.

Findings

Failure to file financial information on time

The charity failed to file financial information on time for four consecutive years as outlined below:

• FYE 31 March 2016 - filed 2 October 2019 (974 days late)
• FYE 31 March 2017 - filed 30 July 2020 (911 days late)
• FYE 31 March 2018 - filed 30 July 2020 (546 days late)
• FYE 30 June 2019 - filed 5 August 2020 (97 days late)

Failure to submit financial information to the Commission on time in line with statutory requirements is a breach of sections 162, 163, 164 and 169 of the Act and constitutes misconduct and/or mismanagement in the administration of the charity. Furthermore, it may also be a criminal offence under section 173 of the Act.

Failure to comply with Commission orders

The inquiry issued the charity with an Official Warning under section 75A of the Act on 25 March 2020 stipulating that the financial information for FYE 31 March 2017 and 2018 and for FYE 30 June 2019 was to be filed by 30 April 2020. The charity failed to comply (partly due to the outbreak of the coronavirus) and the inquiry engaged further with the charity and its accountant with regard to the submission of the overdue financial information.

The inquiry issued a direction under section 47 of the Act on 26 May 2020 directing the trustees to provide all outstanding accounting information by 31 July 2020. The trustees failed to fully comply by the deadline. While the trustees filed the financial information for FYE 31 March 2017 and 2018 by the deadline, the financial information for FYE 30 June 2019 was submitted on 5 August 2020, 5 days after the deadline.

Failure to comply with an order or direction of the Commission is misconduct and/or mismanagement in the administration of a charity, in accordance with section 76(1)(a) of the Act.

Related party transactions

During a meeting with the charity’s trustees on 14 November 2019 (‘the meeting’), the trustees confirmed that a trustee was receiving salary payments in relation to his role as a ‘Project Director’ for the charity. The trustees stated that clause 5(1) of the governing document allows payment in respect of ‘…professional charges for business done by any trustee who is a solicitor, accountant or other person engaged in a profession…’.

However, the inquiry noted that clause 5 of the governing document, states that: ‘… no trustee shall be appointed to any office of the charity paid by salary or fees or receive any remuneration or other benefit in money or money’s worth from the charity’.

Clause 5(1) does not permit the salaried employment of a trustee, which is specifically prohibited by clause 5. Therefore, the inquiry found that the salary payments were made in breach of clause 5 of the governing document, which is misconduct and/or mismanagement in the administration of the charity.

Following the meeting, the trustees suspended the salary payments and sought permission from the Commission to pay the trustee. The Commission authorised the resumption of the salary payments from the date of the decision.

In respect of a loan made from the charity to a company connected to a trustee, the inquiry was informed at the meeting that the loan was an investment. A loan agreement was provided to the inquiry which showed that the loan predated the trustee’s appointment. The loan was settled, and the charity has no ongoing relationship with the company.

The inquiry found that the charity was reliant on cash flow loans from its trustees while awaiting funds awarded to the charity. The charity received a loan from each trustee. Loan agreements were provided to the inquiry.

The inquiry also found that the charity had dealings with a number of related non-charitable entities. While conflicts of interest were appropriately managed, the inquiry found that the trustees had insufficient consideration of the Commission’s guidance for charities with a connection to a non-charity, especially with regards to maintaining the charity’s separate identity .

Conclusions

The Commission concluded that the trustees were responsible for misconduct and/or mismanagement in the administration of the charity and breached their trustee duties which are outlined in the Commission’s guidance CC3 – the essential trustee.

However, the trustees cooperated with the inquiry and submitted the charity’s outstanding accounts. £1,393,043 of charitable income is now accounted for and the trustees are more aware of their legal duties and responsibilities as trustees, the Commission’s filing requirements and the provisions of the charity’s governing document.

Regulatory Action Taken

The Commission’s information gathering powers under section 47 and 52 of the Act were used.

An Official Warning under section 75A was issued to the charity on 23 March 2020.

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 in 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. Further information on managing your charity is available on GOV.UK.

Most of the time charities work effectively with a range of other types of organisations. These connections help them to deliver good outcomes for their beneficiaries. They are not in themselves a cause for concern. A charity’s connection with a non-charity can bring benefits and opportunities but it can also bring new risks. The level of risk to your charity from its connection with a non-charity will depend on:

• the charity’s particular circumstances
• the type of connection you have with the other organisation

Trustees can use the Commission’s guidance on charities with a connection to a non-charity to help them extract the full benefit of the connection for their charity and minimise the risks.