Decision

Charity Inquiry: Kamyabi

Published 29 October 2020

This decision was withdrawn on 1 November 2022

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

Applies to England and Wales

The charity

The charity is a charitable company incorporated on 28 July 2006 and registered with the Commission on 29 July 2008. It is governed by a memorandum and articles of association dated 14 June 2006 as amended by a special resolution dated 19 June 2008 (‘the governing document’).

The charity’s objects are the relief of primarily Asian women in the county of Nottinghamshire in particular but without limitation by:

• the relief of poverty
• the preservation and protection of good health
• the advancement of education and training
• the promotion of equality and diversity and the elimination of discrimination
• developing the capacity and skills of the members of the Asian community in such a way that they are better able to identify, and help meet, their needs and to participate more fully in society

The charity employs beneficiaries to produce small side dishes for a catering company. The charity also runs a workshop (‘the workshop’) locally every Friday where it provides advice and guidance on employment matters and benefit applications free of charge.

Since 26 July 2008 the charity had three trustees Trustee A, Trustee B and Trustee C. Trustee A and B are connected. Shortly before the publishing of the report, two new trustees were appointed and Trustee B and C resigned.

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

Issues under Investigation

The Commission opened a proactive case into the charity in August 2019 as it identified irregularities between the financial information submitted to the Commission by the charity and the activities in the charity’s bank account.

In September 2019 the Commission conducted a visit at the charity’s premises. As a result of the information obtained, it opened a statutory inquiry (‘the inquiry’) under section 46 of the Act into the Charity on 20 November 2019.

The scope of the inquiry was to examine how the charity is meeting its charitable objectives and the public benefit requirement, in particular by examining:

• whether the charity’s bank account is used for private business
• the charity’s transactions with the trustees and companies related to the trustees
• the charity’s management and administration by the trustees in accordance with the charity’s Governing Document and charity law

The inquiry closed with the publication of this report.

Findings

The charity’s management and administration by the trustees in accordance with the charity’s Governing Document and charity law

Provision of incorrect accounting information to the Commission

The inquiry found that the charity’s trustees were unclear on how to correctly account for their charity’s activities which ultimately resulted in incorrect financial information being supplied to the Commission. It also found that the charity did not keep accounting records for the required period or to sufficiently account for the charity’s income and expenditure.

Analysis by the inquiry of the charity’s bank statements from 11 October 2016 to 25 November 2019 showed that debit and credit postings in the charity’s bank accounts were higher than the income and expenditure disclosed by the charity in the annual returns (AR) submitted to the Commission.

At a books and records visit (‘the visit’) conducted by the inquiry at the charity’s premises on 28 January 2020, Trustee A confirmed that the charity’s bank account is solely used for the charity’s activities. Trustee A also explained that she manages the charity’s finances herself but without having undergone any accounting or bookkeeping training. Trustee A outlined that she believed that the charity’s entry on Companies House and the charity’s entry on the Register of Charities (‘the Register’) represented two different legal entities. It appears the misreporting was due to a misunderstanding by a Trustee A, which was clarified.

At the visit, only limited financial records could be provided for the charity. Trustee A explained that the charity had moved premises several times in the past and most records had been lost in the process. The trustees appeared committed to improve their record keeping and the inquiry has seen evidence of more robust record keeping from mid-2019 onwards.

In response to an Action Plan issued to the trustees under section 84 of the Act on 28 April 2020 (‘the Action Plan’) the charity appointed a qualified accountant to produce the charity’s yearly accounts and submitted accounts to the inquiry for the financial year ending 30 September 2019. These accounts included a restatement of the previous financial year. The charity further adopted a policy on financial management and accounting and has plans to implement an electronic accounting software to further strengthen its financial controls.

Poor governance

The inquiry found the charity held no trustee meetings or Annual General Meetings and that decisions were being made ad hoc by Trustee A. Trustee A stated that the other two trustees, Trustee B and Trustee C trusted her to make the right decisions. The trustees assured the inquiry that they would continue to seek out additional trustees that they have already identified two willing individuals who are expected to join the trustee board soon.

The Inquiry found that the trustees were not jointly managing the charity in accordance with its governing document and general law. The trustees were not keeping a written record of their decisions in accordance with clause 42 of the charity’s governing document. The trustees were also in breach of clause 5(2) of the governing document, which requires the charity to have an Annual General Meeting every year. A breach of a charity’s governing document is misconduct and/or mismanagement in the administration of a charity.

As part of the Action Plan, the inquiry provided extensive advice and guidance on good practice and general governance and the trustees have familiarised themselves with a number of key Commission guidance documents. The inquiry has seen evidence that trustee meetings have taken place and adequate minutes were drawn up.

The charity’s transactions with the trustees and companies related to the trustees and the use of the charity’s bank account

Failure to manage conflicts of interests appropriately

The inquiry found that Trustee A and Trustee B were connected parties as they are married. Clause 9(2) of the charity’s governing document requires a quorum of three trustees to make valid decisions.

Since 26 July 2008 the charity had three trustees. The inquiry found Trustee A and B did not absent themselves from any meetings where decisions were taken regarding any transactions between themselves and the charity and decisions in relation to either or both of them or companies connected to them.

It would not have been possible to make a valid decision as there was only one unconflicted trustee (Trustee C) and as such a quorum could not be formed. This was evidence of misconduct and/or mismanagement in the administration of the charity.

The conflict of interest was not identified, recorded or managed at the time the charity ran a clothing recycling business together with Your Local Recycle Shop Limited (company no. 7183629) (‘YLRS’) and Recycle Clothes Shoes Limited (company no. 9344671) (‘RCS’). Both companies are now dissolved.

Companies House records show that Trustee A was a director of RCS from 15 August 2016 until it was dissolved on 3 July 2018. And that Trustee B was a director of YLRS from 1 June 2018 until it was dissolved on 29 January 2019. The exact arrangement between the companies and the charity remains unclear and no documents or records were provided. However, the inquiry found that the charity’s bank statements from 11 October 2016 to 25 November 2019 show regular transactions with YLRS (credits from YLRS during the period totalled £101,811 and debits £5,671) and that debits to individuals with the reference “salary” or “wage” totalled £34,216. The trustees explained that the salaries and wages were paid to individuals for sorting and repairing recycled clothes some of which had been donated by YLRS. The trustees also explained that after having repaired some of these clothes the charity sold them to YLRS.

Following the Action Plan, the trustees resolved that Trustee B will step down as soon as additional independent trustees are appointed. The trustees have also adopted a dedicated conflicts of interest policy and are actively recruiting more new trustees to ensure that going forward the charity is able to manage conflicts of interest in line with the governing document.

Analysis of the charity’s bank statements from 11 October 2016 to 25 November 2019 by the inquiry showed multiple transactions with Trustee A and companies connected to her and Trustee B. There were debits in the bank statements totalling £32,520 and credits totalling £28,770 which Trustee A confirmed relate to reimbursements for costs she incurred on behalf of the charity and that others relate to loans she gave to the charity to ease cash flow.

No documentation relating to the loans could be provided and Trustee A confirmed that no such documentation exists. The inquiry found that the trustees failed to record the decisions relating to the loans and to formalise the terms and conditions of the loans in writing. As such they were unable to show that the decisions were in the best interests of the charity and if the conflicts of interest were identified, recorded and managed. This is misconduct and/or mismanagement by the trustees in the administration of the charity.

Use of the charity’s bank account

The trustees confirmed that the charity’s bank account is solely used for the charity’s activities. Their confusion in the past – demonstrated by the incorrect accounting information provided to the Commission – has now been resolved with the benefit of professional accountancy advice, as mentioned above.

However, the inquiry found that the only signatory to the charity’s bank account is an individual who is not a trustee and connected to Trustee A and B.

The Action Plan required the trustees to take adequate steps to manage the charity’s financial affairs appropriately in line with their legal duties and ensure that they have adequate oversight of and safeguard charity funds.

During the inquiry the trustees have failed to gain control of the charity’s bank account and the individual connected to Trustee A and B remains the sole signatory. The trustees were asked to rectify this matter as soon as possible and a monitoring case has been opened to ensure the charity continues to implement the Action Plan in this respect.

The inquiry found that the trustees were unable to demonstrate that they were sufficiently overseeing and safeguarding the charity’s funds, which is evidence of misconduct and/or mismanagement.

Conclusions

As a result of the inquiry, the trustees have taken a number of positive steps to strengthen the charity’s financial controls and overall governance. The trustees have also co-operated with the inquiry and shown a willingness to address the regulatory concerns.

However, the trustees failed to fully comply with the Action Plan. Most importantly, they have yet to take adequate action to ensure they have appropriate control of the charity’s bank account. Shortly before the publishing of the report, two new trustees were appointed and Trustees B and C resigned. In order to ensure the charity continues to improve and resolves any outstanding issues of non-compliance, a monitoring case has been opened.

Regulatory Action Taken

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

On 28 April 2020, the Commission made an order under section 84 of the Act to direct the trustees to take specified action considered to be expedient in the interests of the charity. The specified action was provided in the form of an Action Plan.

Issues for the wider sector

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. The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity.

Internal Financial Controls for Charities (CC8) is available on GOV.UK.

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.

Further guidance and advice on conflicts of interest can be found on GOV.UK.

There are legal requirements for charities to submit yearly financial information to the Commission. What sort of information charities must submit depends on a charity’s legal structure and income. Charitable companies and unincorporated organisations with an income under £10,000 must only submit an Annual Return to the Commission detailing their income and spending. The requirements become increasingly rigorous the larger a charity is. All charities that have an income of more than £25,000 must have their accounts externally scrutinised (by independent examination or audit) and charities that have:

• an income of more than £1,000,000; or
• assets worth more than £3,260,000 and an income of more than £250,000

must have their annual accounts audited by an auditor, whose name appears on the Register of Statutory Auditors.