The Charity Commission (‘the Commission’) today published a report of its inquiry into All Wales Ethnic Minority Association (AWEMA) (former registered charity number 1108479) (‘the charity’). On 7 May 2014, the charity was removed from the Commission’s register of charities as it had ceased to exist.
The Commission opened a statutory inquiry into the charity on 9 February 2012. This followed the receipt of serious incident reports from the charity and the publication of a report by funders of the charity, the Welsh Government and the Big Lottery Fund which found poor governance and financial mismanagement.
The Commission’s investigation was put on hold as the charity’s chief executive (CEO) stood trial for fraud related to alleged misconduct during his employment at the charity. The CEO was subsequently found not guilty of 2 counts of fraud, and the jury was unable to reach a verdict on a third count of fraud - see Note 1 to editors. The Crown Prosecution Service requested that the Commission did not interview the CEO until the conclusion of the criminal trial.
Additionally, in June 2014, 5 former trustees of the charity were disqualified from taking company director roles under section 6 of the Company Directors Disqualification Act 1986. Only once these proceedings had concluded was the Commission’s inquiry able to continue and conclude.
The Commission’s inquiry focussed on investigating concerns about poor financial management and governance, potential unauthorised trustee benefits and unmanaged conflicts of interest. The regulator found that conflicts of interest were not identified or dealt with properly within the charity.
When a staff member complained about the conduct of the CEO, the CEO did not follow the charity’s written policy on staff complaints that clearly stated that any complaint against the CEO should be immediately referred to the trustees for consideration, instead the CEO suspended the staff member before consulting the trustees. The inquiry also found that the trustees did not always take adequate steps to manage the conflicts of interest relating to the positions held within the charity by the CEO’s family members, with 2 family members having significant control within the charity.
The trustees failed to comply with their duty to manage the charity’s resources responsibly. The staff members spent charity resources on expensive hotels and staff meals, sporting events and on one occasion to pay a parking fine. The trustees exercised a lack of oversight and scrutiny of the charity’s finances. This meant that they were unaware of the inappropriate use of the charity’s resources. The failure of the trustees to put appropriate safeguards in place left the charity vulnerable to its resources being misused.
The inquiry concluded that the trustees failed to act in the charity’s best interests and had little or no oversight of the charity’s management. Trustee meetings were held at irregular and infrequent intervals, and there were inadequate reporting arrangements. This ultimately resulted in insufficient oversight of the management of the charity, and resulted in the actions of senior staff members not being properly supervised or scrutinised on key matters, including in matters where potential conflicts of interest existed.
The trustees also failed comply with the charity’s governing document as regards holding meetings and failed to submit 2 years of annual accounts to the Commission as legally required to do so.
The Commission concluded that the trustees failed to properly discharge their legal duties and responsibilities as trustees. The Commission also found that these failings were a significant contributory factor to the termination of the charity’s core funding, which resulted in it entering liquidation soon after. The charity was subsequently subject to an intense public spotlight over its affairs.
Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission, said:
This report shows what can happen where trustees don’t have a grip of their key trustee duties and fail to understand what their responsibilities are. Trustees have a duty to safeguard their charity’s funds and prevent its misuse. Trustees must ensure that there is appropriate oversight of the charity’s finances and sufficient reporting and scrutiny of expenditure, including appropriate reports at trustee meetings, recognising that the format of the financial information may vary according to the size and complexity of a charity’s operations.
Failure to comply with these duties can have serious consequences for trustees, their charity and their beneficiaries. In this case, the charity’s funding was withdrawn due to governance failures and financial mismanagement. Without funding, the charity was unable to continue to operate and entered into liquidation.
It is important that trustees adopt and set the right ‘tone at the top’ - a culture ensuring a prudent use of funds and of appropriate controls embedded in the operations of a charity. This culture is created by the trustees and senior management, who should lead by example in adhering to the charity’s internal financial controls and good practice.
Further guidance about the obligations and responsibilities of trustees can be found in The essential trustee: what you need to know, what you need to do (CC3) which can be found on GOV.UK. Further guidance on Internal financial controls for charities (CC8) is also available.
The full report is available on GOV.UK.
Notes to editors
- On 29 August 2014, at Swansea Crown Court. On 5 September 2014, the CPS decided not to pursue a retrial in relation to the third count of fraud.
- The Charity Commission is the independent regulator of charities in England and Wales. To find out more about our work, see our annual report.
- Search for charities on our online register.
- Details of how the Commission reports on its regulatory work can be found on GOV.UK.
- As a result of the disqualification under company law they are prohibited from acting as trustees of a charity, without a waiver from the Commission.