Decision

Charity Inquiry: ANO

Published 11 March 2020

This decision was withdrawn on 16 March 2022

This Inquiry has been archived as it is over 2 years old.

The charity

ANO (‘the charity) was registered by the Commission on 23 December 2013. It is governed by constitution adopted 17 July 2013 as amended on 25 May 2015.

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

Background

The Commission had previously conducted a Compliance Visit and Inspection (“Compliance visit”) to the Charity on 24 April 2014. Following this Compliance visit the Commission issued an Action Plan to the then trustees of the Charity for compliance by 31 December 2014. The then trustees of the Charity failed to comply with the Commission’s Action Plan and it was then reissued on 20 March 2015. By August 2015 the then trustees demonstrated compliance with the Action Plan and the Commission closed its case.

There have been changes in trusteeship prior to the opening of the Inquiry, during the Inquiry and the current makeup of the trustees. One trustee, Mr Abraham Soloman (“Trustee A”) served from the Charity’s existence until their resignation on 7 January 2019.

Three new trustees were appointed between February and April 2019, (“the current trustees”). The current trustees are independent from the previous trustees and, unless specified, our findings do not relate to their conduct.

On 3 April 2017 the Commission opened a statutory inquiry into the charity under section 46 of the Charities Act 2011 (‘the Act’).

The inquiry closed with the publication of this report.

On 23 December 2016 the Commission received information from Police that a trustee (now former trustee) of the charity had been stopped at Manchester Airport and questioned by Ports Officers that day. This trustee (Trustee A) was returning to the UK from Turkey and was in possession if £19,300 in cash (“the funds”). Trustee A stated that the funds belonged to the Charity broken down as:

• £18,300 to purchase ‘aid’ in Turkey for distribution to those affected by the war in Syria
• £1,000 expenses for Trustee A

Ports Officers were not satisfied with the source of the funds and seized them under Proceeds of Crime Act 2002 (“POCA”). On 6 January 2017 Trustee A submitted a Serious Incident Report (“RSI”) to the Commission.

The Commission engaged with the then trustees of the Charity, including Trustee A, between January and April 2017 and identified, in addition to the seizure of cash, the following regulatory concerns:

• cash couriering on two occasions
• failure to declare cash in excess of €10,000 (or equivalent) to HMRC when leaving the EU, on the part of Trustee A
• insufficient records in respect of cash couriering
• insufficient risk assessment, due diligence and monitoring relating to projects overseas in high risk areas
• transfers to the personal bank accounts of a Trustee A which appeared to be without explanation
• transfers to other connected parties which appeared to be without explanation
• possible unidentified and unmanaged conflicts of interest
• failure to act upon advice and guidance previously issued by the Commission

Issues under Investigation

Due to the seriousness of the regulatory concerns and the fact that the Charity had already been subject to a Compliance Visit in 2014 a Statutory Inquiry was opened under section 46 of the Act on 3 April 2017.

The scope of the Inquiry was to examine several issues including:

• administration, governance and management of the Charity by the trustees
• financial controls and management of the Charity and whether its funds have been properly expended solely for exclusively charitable purposes and can be accounted for
• conduct of the trustees
• whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law

Findings

Administration, governance and management of the Charity by the (former) trustees

The Inquiry found that the Charity was poorly managed and not properly administered by those who served as trustees prior to February 2019. In practice, Trustee A was responsible for much of its work overseas. Those who served as trustees prior to February 2019 failed to demonstrate that they were acting in accordance with provisions of the Charity’s governing document, the Charity’s own policies and procedures, or exclusively in the best interests of the Charity.

Due diligence, risk assessment and monitoring end use of funds

The Inquiry investigated two projects undertaken by the Charity, Trustee A was involved in both. The Charity intended to undertake a project with a Turkish partner to distribute aid to those affected by the war in Syria. This project was to take place in a high-risk area on the Turkey/Syria border in late 2016. It was for this project the funds, which were seized, were intended.

The Inquiry reviewed documents showing the due diligence undertaken on the Turkish partner prior to Trustee A travelling to Turkey. The Inquiry found that a single due diligence report was relied upon, which had been created by another registered charity at least two years prior. The Charity obtained this report from a third-party company, and not directly from the Charity which created it. When questioned by the Inquiry on 21 September 2017 the former trustees stated they had contacted other registered charities known to work with the Turkish partner as a form of reference. However, no supporting documentation was provided.

The Inquiry investigated the Charity’s planning and risk assessment for the trip to Turkey undertaken by Trustee A. The Inquiry found that there was little in terms of a documented plan by the then trustees for the purchasing and distribution of aid with the Turkish partner. At the time of travel there was no agreement in place between the charity and the Turkish partner, nor was there a request for funds from the charity been made by the partner. The risk assessment provided to the Inquiry did not appear to reflect the seriousness or rapidly evolving nature of the situation near Turkey/Syria border; nor was it adequate to assess the risks to the person travelling or the Charity’s assets.

In September/October 2015, the Charity undertook a project in Somalia with a Somali based partner (“Somali partner”), distributing £6,000 in cash directly to beneficiaries. The Somali partner was a company established by an individual known to Trustee A and who had helped to establish the Charity in 2013. The Inquiry examined a due diligence document, a memorandum of understanding (“MOU”) and other records relating to the Somali partner and the cash distribution project. The Inquiry found the due diligence undertaken by the then trustees on the Somali partner was insufficient. Further, the Inquiry found limited evidence that the trustees had collectively discussed the results of this limited due diligence.

The Inquiry examined the Charity’s planning and found the then trustees had no credible plan for the distribution of cash and there were no measures in place to protect the Charity’s assets from loss or theft. There was no needs assessment provided to the Inquiry as part of the accompanying paperwork, as the Commission would have expected to see for this type of activity. There were no records of how beneficiaries were identified or how much money they should receive.

The Inquiry examined the Charity’s monitoring of the Somalia cash distribution and found that this was inadequate. The former trustees relied upon video footage and pictures from the Somali partner. These showed the Somali partner meeting with unidentified individuals in the presence of unidentified ‘local leaders’. This was accompanied by a ‘delivery note’ which specified 50 families received between $150-$200 USD each. The Inquiry found that the then trustees could not demonstrate that the Charity’s funds had been used exclusively for charitable purposes.

In November 2019, as part of a Tribunal Hearing, (on 1 April 2019 Trustee A filed an appeal in the First-tier Tribunal, General Regulatory Chamber (Charity) against a Commission Order ) Trustee A provided a redacted spreadsheet of signatories, said to be beneficiaries in Somalia. There is no evidence that this document was provided to the then trustees at the time, or that they considered it. The Inquiry cannot be certain of the provenance of this document. Further information about the Tribunal Hearing can be found in ‘regulatory action taken’

In 2014 and 2015 the then trustees were directed to specific advice and guidance in respect of due diligence and monitoring. The Action Plan required the trustees implement this advice and guidance by reviewing existing or creating new policies and procedures. The then trustees submitted to the Commission updated and new policies of the Charity including those in respect of due diligence and monitoring. The Inquiry found that trustees, at the relevant times, had disregarded these improved and more robust due diligence and monitoring policies and procedures in favour of less detailed ones. The Inquiry was presented with no good explanation for this action.

The Inquiry found that the due diligence, risk assessments and monitoring end use of funds were inadequate. The trustees at the time, including Trustee A were responsible for this and had acted recklessly and without proper regard for legal duties.

Failure to undertake and evidence due diligence is misconduct and/or mismanagement in the administration of the charity by the trustees at the times. The Tribunal determined that there was inadequate due diligence on the people and organisations the Charity were going to work with in this case.

Failure to undertake and evidence monitoring end use of funds in misconduct and/or mismanagement in the administration of the Charity by the then trustees at the times. The Tribunal determined that there was inadequate monitoring of the end use of funds.

Action Plan

On 1 July 2014 the Commission issued the then trustees, including Trustee A, with an Action Plan under section 15(2) of the Act. This was re-issued in 20 March 2015 to the then trustees after the Commission identified that the former trustees had failed to comply with it by the deadline. By August 2015 the trustees demonstrated, to the Commission’s satisfaction, that they had complied with the Action Plan.

The Action Plan required improvements to due diligence, risk assessment and monitoring end use of funds amongst other things. The former trustees submitted evidence to the Commission that they had complied with the Action Plan including improved policies and procedures.

The Commission also made clear to the trustees at the time that in terms of monitoring, there should be written reports and other evidence (in addition to pictures and videos).

The Inquiry found that from 2015 the former trustees had never used the due diligence template form submitted to the Commission on 19 May 2015, as part of evidence of compliance with the Action Plan by the trustees who were issued it. The Inquiry found a simplified version of this due diligence template had been used. The Inquiry saw no evidence of a decision to adopt new policies or deviate from the charity’s existing policies. The Inquiry reviewed a completed copy of this template and found it to be inferior to that previously submitted to the Commission. The former trustees could not provide the Inquiry with a good explanation for this regression.

The Inquiry also found, that the trustees at the time had relied upon pictures and video as evidence of monitoring end use of the application of the Charity’s funds (Somalia project). Only one basic document, a ‘delivery note’, was provided which the Inquiry found was insufficient.

The Inquiry found that the Trustee A (as a trustee at the time of the Action Plans and until January 2019) did not act meaningfully on the advice and guidance contained in the Action Plan issued under section 15(2) of the Act and this is further misconduct and/or mismanagement in the administration of the Charity.

Breaches of governing document

The Charity’s Governing Document sets out the limited circumstances in which a trustee may receive benefit or payment from the Charity. The Governing Document states that no trustee may be employed or receive any remuneration unless authorised by the Commission or the court. However, a trustee may be paid for services provided to the Charity in certain circumstances (the Governing Document refers to section 185 of the Act).

Trustee A received £691.20 from the Charity for the provision of ‘services’ under a contract signed in December 2016. The Inquiry considered this contract and found that it had characteristics of a contract of employment, which is expressly prohibited by the Charity’s Governing Document unless authorised by the Commission or the court, and accordingly, the Commission could not find that the contract was a proper agreement to provide services. No further payments were made to Trustee A under this agreement.

After the Inquiry raised concerns with the then trustees regarding payments to Trustee A, a second contract for ‘services; (July 2017) was provided but again the Inquiry found that this had the hallmarks of a contract of employment, rather than a proper agreement to provide services. The Inquiry found that the trustees at the time had breached the Charity’s Governing Document by authorising payments to Trustee A without appropriate authorisation (and Trustee A received payments from the Charity in breach of the Governing Document), and that this is misconduct and/or mismanagement in the administration of the Charity.

Trustee A repaid the £691.20 to the Charity between November 2017 and May 2018. This was evidenced to the Inquiry in January 2019.

Failure to comply with the clauses of the governing document is a breach of trust and is misconduct and/or mismanagement in the administration of the Charity

Unmanaged conflicts of interest

During the Commission’s engagement with the former trustees, between January and April 2017, it was established that three of the trustees were connected. Two of the then trustees of the Charity were connected to Trustee A. At the time of opening of the Inquiry Trustee A and the connected persons were the only signatories to the Charity’s bank account.

The Inquiry found that, between March 2015 and April 2017, a significant amount of the Charity’s funds had been transferred into the personal bank accounts of Trustee A and a person connected to Trustee A who was also, at that time, a trustee. The purpose of the transfers was to facilitate overseas transfers.

No evidence was provided to the Inquiry to show that the trustees at the time, including Trustee A, had identified or managed these conflicts of interests and/or interests as they are required to. Also, Trustee A transferred funds from the Charity’s bank account to their own personal bank accounts in order to facilitate overseas transfers. The Inquiry found that this was a breach of those trustees’ duties in the administration of the Charity to act in the best interests of the Charity.

The Inquiry found that the Charity had purchased a vehicle from a business in February 2017 which a then trustee had an interest. The Inquiry found that the former trustee in question was listed as one of the three trustees that made the decision to purchase the van. The former trustees did not identify or manage the conflict of loyalty, or apparent conflict of loyalty, and a benefit was potentially incurred by that trustee’s association with that business.

The Inquiry found multiple instances in which the former trustees failed to identify and manage conflicts of interest and/or loyalty as they are required to do so. This shows a lack of regard for basic legal duties and that the former trustees had acted recklessly. This is misconduct and/or mismanagement in the administration of the Charity by the former trustees.

Financial controls and management of the Charity and whether its funds have been properly expended solely for exclusively charitable purposes and can be accounted for

Cash couriering

The Inquiry found two instances of cash couriering by the Charity, in November and December 2016. £11,425 was couriered to Togo by a then trustee. In December 2016 Trustee A attempted to courier £19,300 to Turkey which was subsequently seized by Police.

The Commission strongly advises against cash couriering as a method to transfer charitable funds due to the risks involved. Cash couriering is known to be used by criminal and terrorist organisations to move money and is at risk of seizure by Police or Ports Officers. Carrying a significant mount of cash can make the person carrying it a target for criminals risking both the loss of the charity’s funds and the safety of the person carrying it. Cash couriering is also difficult to audit and have adequate records and evidence of expenditure.

The Inquiry investigated the reasons given by Trustee A for couriering cash to Turkey in December 2016 and these can be summarised as:

• difficulty transferring funds bank to bank to Turkey
• costs associated with money transfers were too high (estimated £400)
• better exchange rate was available in Turkey
• cheaper to purchase aid directly in Turkey
• wish to ‘cut out’ intermediaries

The Inquiry did not find the rational provided by Trustee A compelling particularly as there was at that time no agreement in place with the proposed partner in Turkey and/or a request for funds from them. No evidence was provided of the quoted £400 costs to send funds to Turkey via money transfer company. The Inquiry found that paying £400 to transfer the funds to Turkey would have saved the Charity at least £600, as £1,000 was taken as ‘expenses’ for the trip.

There was little evidence of ‘difficulty’ transferring funds to Turkey. No evidence was provided to the Inquiry to show the former trustees had properly explored possible options to transfer the funds through the regulated banking system or money transfer service options before dismissing them in favour of cash couriering. The Inquiry found the former trustees were too quick to dismiss other, safer ways to transfer the funds.

The Tribunal concluded that Trustee A had taken the Charity’s money into his account, withdrawn it in cash and taken it overseas without taking any steps to safeguard the Charity’s funds or reputation at any of these stages.

The Inquiry acknowledged the intention of the trustees to minimise administrative costs incurred by the Charity and increase the proportion of charitable funds expended directly on aid. However, the cheapest option is not always the best and the trustees at the time took reckless and unnecessary risks in order to reduce costs by a small margin, if at all. Additionally, there was little consideration of the risks the funds were exposed to by couriering them in cash – one of which was the possibility that they may be seized by the Police or Ports Officers under counter-terrorism legislation or POCA as occurred in this case. The Inquiry found no exceptional circumstances for cash to be couriered to Turkey in December 2016.

The Charity had previously used money transfer service to transfer funds to Togo, prior to November 2016. The Inquiry found there was no supporting explanation or documentation to suggest cash couriering was necessary, appropriate or risk assessed. There was regulated money transfer service options for Togo however the trustees at the time, rejected this option without any serious consideration. The Inquiry found no exceptional circumstances for cash to be couriered to Togo in November 2016.

The Inquiry found that the former trustees placed the Charity’s funds at unjustifiable risks by couriering £30,725 in cash within a two-month period. Ultimately the Charity’s funds were not lost (as they were returned to the Charity), although £19,300 was seized and otherwise not accessible to the trustees to apply for the Charity’s purposes, for over a year. This action was misconduct and/or mismanagement in the administration of the Charity by the trustees at those times.

The Tribunal concluded the decision to send funds to Togo by means of an individual trustee carrying a large quantity of cash was unsupported by any explanation of why this was appropriate and how the risks were to be managed. The Tribunal stated that the availability of regulated payment transfer agencies between the UK and Togo appears to have been rejected without serious consideration.

Transferring charitable funds

The Inquiry found that in excess of £100,000 was transferred from the Charity’s bank accounts to that of trustees, employees and volunteers between March 2015 and April 2017. The Inquiry found that the trustees had, for some time, been transferring charitable funds to the bank accounts of trustees, employees and volunteers which were then withdrawn in cash and taken to money transfer companies and transferred to the Charity’s partners overseas. The Inquiry was able to account for all of the funds transferred to personal accounts after considerable effort reviewing documentation (see financial record keeping).

The former trustees stated that they had encountered problems making bank to bank transfers to partners and further problems withdrawing cash from the Charity’s bank account. It was for these reasons that the trustees transferred funds to personal accounts and then withdrew cash. The Inquiry found limited documentation to support the trustees’ argument that transferring funds to personal bank accounts was in the best interests of the Charity. The Inquiry found no evidence of control measures to protect the Charity’s funds after they were transferred to personal bank accounts and/or withdrawn in cash.

The Commission considers that the risks of such practices over a lengthy period should have been obvious to the former trustees as it should be to any reasonable trustee. The trustees at the time of the bank transfers acted with reckless disregard for their legal duties including to act in the best interests of the Charity.

The Commission concludes it was misconduct and/or mismanagement in the administration of the charity to unjustifiably transfer charitable funds to personal bank accounts.

The Tribunal concluded that transferring charitable funds to the personal accounts of Trustee A and those of other trustees was misconduct and/or mismanagement in the administration of the Charity. The Tribunal also concluded that the risk of such actions in terms of the loss or misuse of charitable funds and the risk of damage to the Charity’s reputation should have been obvious, as it would be to any reasonable individual acting as a trustee of a charity was clear in this case that there was a risk of loss or misuse of charitable funds, and a risk of damage to the Charity’s reputation in transferring funds to the personal bank account of a trustee and other individuals.

Financial record keeping

Charity trustees are required by law to keep accounts sufficient to show and explain their charity’s financial position under section 130 of the Act. The Inquiry found the Charity’s financial records convoluted and difficult to decipher. The former trustees relied upon cash for the majority of the Charity’s financial transactions which made reconciling expenditure to bank statements very difficult. The reliance on cash was one reason the Commission chose to restrict the financial transactions under section 76(3)(f) of the Act – see ‘regulatory action taken’ for more information.

The Inquiry reviewed statements from the Charity’s two bank accounts for the period March 2015 to July 2017 and two PayPal accounts for the period October 2018 to March 2019. There were numerous transactions, particularly cash withdrawals and transfers to personal accounts that were without obvious explanation. The Inquiry issued multiple directions to the former trustees to obtain sufficient information to assess that these were for legitimate charitable activities, and that charitable funds could be accounted for. The Inquiry found that the Charity’s funds could be accounted it but remains unanswered if all the funds were expended on exclusively charitable activities due to inadequate monitoring of end use of funds. It is difficult to see how the Charity’s then trustees had fulfilled their duty to maintain financial records which gave an accurate view of the Charity’s financial position due to the paucity of records available.

The Inquiry sought to understand the financial relationship between the Charity and a personal business of Trustee A (“the Business”). The Business advertised its services on the Charity’s website, social media and on printed leaflets. There was a verbal agreement that the Charity would receive all of the Businesses profits, as a donation, in exchange for the advertising. Trustee A estimated the charity would receive between £20 and £60 per month. The Inquiry sought to confirm that donations due to the Charity under this, verbal agreement had been made by Trustee A at the times stated.

Trustees A stated, in an Interview with the Inquiry on 21 September 2017, they donated a varying percentage of profits, between 10% and 30% at their discretion.

The Inquiry obtained copies of bank statements and internal financial records pertaining to donations made by the Business to the Charity. A review of the Charity’s bank statements identified some deposits purportedly from the Business but the dates of the deposits and the amounts did not match information provide by Trustee A. The Inquiry had several rounds of correspondence with Trustee A on this issue but could not form a conclusion because of the poor accounting records for both the Charity and the Business.

The Inquiry found that ‘donations’ from the Business were recorded as being made on an internal account management spreadsheet, weeks or sometimes months, before there was a corresponding deposit into the Charity’s bank account. Further compounding the problem, the donations were made in cash and usually as part of a larger bulk cash deposit. The Inquiry has been unable to confirm that the Charity received all of the profits from the Business as it was owed under the verbal agreement or confirm what percentage was donated.

The Inquiry found that the verbal agreement was insufficient and lacked necessary detail. The trustees that agreed to enter the verbal agreement gave partial consideration to the conflict of interest and/or loyalty. The relationship between the Charity and the Business was not transparent and the financial record keeping was below what was necessary in this situation. The agreement ended in September 2017.

Conduct of the trustees

The Inquiry found that former trustees of the Charity, particularly Trustee A who was the longest serving trustee of the Charity, acted recklessly and without due regard for their duties as trustees. The Inquiry was sufficiently concerned by the conduct of Trustee A that on 21 September 2018 it issued notice of its intention to disqualify them from acting as a charity trustee or trustee for a charity in all charities (and from senior management functions) under section 181A of the Act. The Inquiry also suspended Trustee A from acting as a charity trustee or trustee for a charity under section 181B(4) of the Act pending their disqualification. Representations were made to the Commission by Trustee A and this is explained in the Regulatory action taken section below.

The Inquiry also found that there had been a breach of its Order under section 76(3)(f) varied on 12 February 2018, restricting transactions which the trustees could enter without the Commission’s prior consent. This Order was made to protect the Charity’s assets (its funds) during the Inquiry.

The Inquiry found that £180 had been paid from the Charity to the Business of Trustee A on 8 November 2018, without the Commission’s consent, as reimbursement for a payment they had made for repairs to one of the Charity’s vehicles. Trustee A had asked for the payment to be made via PayPal. Meeting minutes were provided to the Inquiry in respect of this decision by current trustees (Trustee A was not involved as he was suspended from acting as a trustee at that time).

At the time the Order under section 76(3)(f) specifically restricted any payment to Trustee A and any connected party (including the Business). On 2 May 2019 the Inquiry sought information from the three former trustees of the Charity who were involved in this decision via direction under section 47 of the Act. No response was received from the former trustees. A further direction amended, under section 338 of the Act, was made on 5 June 2019 but again no response was received.

The Inquiry found that:

• three former trustees, who made the above decision, breached the Commission’s Order under section 76(3)(f) given the payment to Trustee A/their Business without the prior consent of the Commission; which they knew, or ought to have known, breached the Order
• former trustees of the Charity who made the decision in November 2018 did not comply with Directions of the Commission under section 47(a) and (b) of the Act

The former trustees in post at November 2018 who made the decision and failed to comply with the Order and Directions were responsible for misconduct and/or mismanagement in the administration of the Charity, pursuant to section 76 of the Act, by failing to comply with an Order and Directions of the Commission.

Whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law.

As set out above there have been numerous failures by those who served as trustees of the Charity from August 2015 to February 2019, when a new group of trustees were appointed. The narrative above sets out these failures which are summarised as failure to:

• act in the best interests of the Charity
• ensure the Charity’s assets, including its reputation, are sufficiently protected
• abide by the terms of the governing document
• keep sufficient accounting records to give an accurate reflection of the Charity’s financial position
• act on advice and guidance provided under section15(2) of the Act
• comply with Orders and Directions of the Commission

Conclusions

The Commission concluded that former trustees of the Charity have been responsible for misconduct and/or mismanagement in the administration of the Charity over a period of years. Trustee A received advice and guidance from the Commission under section 15(2) of the Act but acted recklessly and without due regard for their legal duties. The Charity’s assets and reputation were placed at significant risk, including the risk of loss in high-risk areas where criminal and terrorist groups operate.

The conduct of certain former trustees fell below the behaviours and standards expected of trustees which placed the Charity and its assets at risk.

Regulatory Action Taken

During the Inquiry the Commission exercised its powers under section 47 of the Act on multiple occasions to obtain further information and copy documents from trustees and former trustees.

On 5 April 2017 the Inquiry exercised the Commission’s power under section 76(3)(f) of the Act to restrict the financial transactions into which the trustees could enter. This Order was varied three times using the Commission’s power under section 337 of the Act. The Order under section 76(3)(f) was discharged on 9 August 2019.

On 21 September 2018 the Inquiry gave notice of the Commission’s intention to disqualify Trustee A under section 181A of the Act, from acting as a trustee of (and trustee for) the Charity, any and all charities and senior management functions for a period of 10 years. Trustee A provided representations in response which were dealt with internally through the Commission’s Decision Review procedures.

On 21 September 2018 the Inquiry exercised the Commission’s power under section 181B suspending Trustee A from acting as a trustee of the Charity, any and all charities pending their disqualification under section 181A of the Act. This Order was discharged on 16 August 2019.

On 14 February 2019 the Decision Review concluded that the grounds for disqualification were met however the length of disqualification was reduced to 3 years.

On 19 February 2019 the Inquiry exercised the Commission’s power under section 181A of the Act to disqualify Trustee A from acting as a trustee of (and trustee for) the Charity, all charities in England and Wales and from senior management functions for a period of 3 years. This decision was appealed by Trustee A to the First-tier Tribunal, General Regulatory Chamber (Charity) (“the Tribunal”) on 1 April 2019; the case was heard on 12 November 2019. The Tribunal dismissed the appeal thereby upholding the Commission’s decision and on 31 December 2019 the Commission’s Order under section 181A disqualifying Trustee A came into effect.

In accordance with section 182 of the Act Trustee A was entered onto the Commission’s Register of removed trustees

The Inquiry met with the trustees on 2 occasions, including a meeting on 1 August 2019 with newly appointed trustees – these individuals are the current trustees of the Charity. During that meeting the trustees acknowledged that the way things had been done previously had caused problems and confirmed to the Inquiry their decision to temporarily suspend the Charity’s activities whilst they sought to address these. Although the current trustees are not culpable for the conduct of their predecessors, the Inquiry considered that there are a number of actions that must be completed to ensure that the Charity is operating effectively, and the trustees can demonstrate that they are discharging their legal duties. Therefore, on 20 November the Inquiry exercised the Commission’s power under section 84 of the Act to direct specified action to be taken by the trustees. The Commission will monitor the progress of the trustees against this Order.

Issues for the wider sector

Cash couriering and moving charitable funds

Charity trustees are legally responsible for ensuring the charity’s money is used properly for legitimate charitable purposes and safeguarded from loss. Trustees must always act to protect charity property. Ensuring strong financial management procedures and proper internal controls, and applying a common-sense approach, will help trustees meet their duties. They also need to promote the transparency and accountability of their charity, particularly as regards its finances, which is so important for public trust and confidence in charities.

The Commissions position in respect of cash couriering is clear – The Commission strongly advises charities against the use of cash couriering as a method to transfer charitable funds due to the risks involved. These are set out in the Commission’s regulatory alert on the use of cash couriers published in February 2017.

In most cases charities should use the regulated banking sector when transferring charitable funds. It is difficult to see, where regulated banking services are available, how trustees could show they discharged their legal duties if they do not use the regulated banking sector in order to secure the charity’s funds.

Charities must have robust financial controls in order to protect the charity’s funds. Charitable funds should not be transferred via personal bank accounts save for exceptional circumstances. There are significant risks to charitable funds if they are held in personal bank account, even were control measures are in place. This practice is not transparent or easily accountable.

The Commission has issued guidance for charities in respect of internal financial controls and holding, moving and transferring funds safely.

Due diligence and monitoring end use of funds

Charity trustees are legally responsible for ensuring charitable funds are used properly for legitimate charitable purposes and not misused for financial crime, terrorist or other criminal purposes. Trustees are publicly accountable and have duties and responsibilities under charity law to safeguard their charity, its funds, property and beneficiaries.

Due diligence is an important part of trustee duties and is essential in order to be assured of the provenance of charitable funds and confident that they know the people and organisations the charity works with and can identify and manage associated risks. It is vital that trustees have robust due diligence processes and ensure that these are consistently implemented.

Monitoring is a vital step in ensuring that a charity’s funds or property reach their proper destination and are used how the charity intended. The type and depth of monitoring may vary depending on the type of project, the location and the sums of money involved. It is vital that trustees have robust monitoring process in place including documentation (reports, receipts invoices) in addition to photographs and video.

The Commission has published guidance for trustees in respect of due diligence and monitoring end use of charitable funds.

Governance

Trustees are jointly and severally liable for the decision they make. Trustees must act collectively. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties.

Trustees must act in accordance with the Charity’s governing document. Trustees should be familiar with their governing document.

Trustees must always act in the best interests of the Charity. Conflicts of interest or loyalty can lead to decision which are not in the best interests of the Charity and can lead to difficulties and damage to the reputation of the charity. Trustees must recognise and manage conflicts of interest and loyalty as they arise. Trustees must be mindful of mixing their role with the charity and their private business affairs, particularly when a benefit may be inferred to that business or the trustee directly. Trustees must follow any conflict of interest or loyalty provision in their governing document.

The Commission has published guidance for trustees in respect of conflicts of interests and loyalty.

Trustee conduct

Charity trustees must comply with Orders and Direction of the Commission. In some circumstances it may be a criminal offence (or contempt of court) for a charity or a trustee to not comply with an order or direction of the Commission.

Trustees must act upon advice and guidance issued by the Commission under section 15(2) of the Act.