Decision

Charity Inquiry: Assyrian Church of the East Relief Organization

Published 31 August 2022

Applies to England and Wales

The Charity

Assyrian Church of the East Relief Organization (‘the charity’) was registered on 16 January 2008. It is governed by a constitution, adopted on 19 September 2007, as amended on 11 January 2008.

The charity’s objects include advancing the Christian religion (in accordance with the beliefs and teachings of the Assyrian Church of the East), the relief of financial hardship and sickness, assisting victims affected by disasters, and the promotion of religious harmony.

The charity’s primary activity is to provide support to Assyrian refugees. In carrying out its objects, the charity operates overseas and in areas which are high risk, including Iraq.

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

Background and Issues under Investigation

On 27 November 2018, the Commission wrote to the charity’s trustees informing them that a regulatory compliance case had been opened into the charity following receipt of information provided by the Metropolitan Police Service (‘the MPS’) which raised regulatory concerns. This followed the MPS opening a criminal investigation into aspects of the charity’s activities following a suspicion of making funds available for the purpose of terrorism (contrary to sections 15-18 of the Terrorism Act 2000).

This suspicion arose from information contained within the trustees’ report and financial statement for the financial year ending 31 July 2016, prepared by the charity’s accountants, which showed a payment of £147,689 referenced as ‘Iraq hostages’.

Further to this, the Commission had become aware of open-source reporting which named two of the charity’s trustees, as being involved in raising donations to secure the release of hostages being held in Syria by the proscribed terrorist organisation, Daesh.

On 19 December 2018, the Commission met with several of the charity’s trustees as part of its regulatory compliance case. The purpose of the meeting was to discuss the MPS’ investigation with the trustees as well as to review, amongst others, the charity’s governance including policies and procedures, and financial records.

Following a review of the information obtained as part of its regulatory compliance case, the Commission identified serious regulatory concerns in respect of the trustees’ administration and management of the charity. This included specific regulatory concerns that:

• Between 2015 and 2016, a charity trustee was involved in securing the release of Assyrian Christians kidnapped by Daesh in Northern Syria. In February 2016, the charity’s website posted a press release, which has since been removed, confirming the trustees’ efforts to secure the release of the hostages. During the Commission’s meeting with the trustees, a trustee confirmed that £147,689 had been transferred to a church in Iraq to support the released hostages. Whilst the church in Iraq acknowledged receipt of the funds, the trustees did not know how the funds were spent by them. In material viewed by the Commission, the Commission saw no supporting evidence to show and explain the end use of the £147,689.
• The charity has a sister organisation registered in the United States of America (‘US’) as a non-profit organisation (‘the NPO’). This is a separate legal entity to the charity. However, four of the charity’s trustees are also trustees of the NPO. The Commission identified that there was, and still is, no written agreement between the two charities. Given that the majority of the trustees (four out of seven) are also trustees of the NPO there was/is the potential for conflicts of interest and/or loyalty to arise relating to decision-making for those trustees who represent both the charity and the NPO. The Commission saw no evidence showing that conflicts of interest and/or loyalty were identified and/or otherwise managed appropriately.
• The charity had one signatory to its UK bank accounts. The Commission’s review of the charity’s bank account statements identified six payments totalling £7,858.80, which were referenced ‘bill payment’ and were traced as being payments to a trustee’s personal credit card. This trustee was the sole signatory to the charity’s bank accounts and as such would have had to have self-authorised these payments. The trustees could not show and explain whether the expenses had been considered as legitimately incurred charitable expenditure. As such, the Commission was concerned as to whether these transactions were for exclusively charitable purposes. The Commission also considered that the trustee self-authorising in this way, was in and of itself, a failure in the charity’s internal financial controls.

On 2 March 2020, the Commission opened a statutory inquiry (‘the inquiry’) into the charity under section 46 of the Charities Act 2011 (‘the Act’).

The scope of the inquiry was to examine a number of issues including:

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

The inquiry’s role was not to investigate whether any crimes had been committed, that was a matter for the MPS and/or other authorities. The Commission’s role as charity regulator is to oversee charity trustees’ compliance with charity law duties and responsibilities.

In May 2021, the inquiry was made aware by the MPS that its investigation had not been proceeded with.

Findings

The administration, governance, and management of the charity by the trustees

The inquiry found that the charity was not properly managed and had little governance infrastructure in place or policies or controls to assist the trustees to manage the charity.

Compliance with the charity’s governing document

The trustees failed to demonstrate that they were acting in accordance with a number of provisions in the governing document.

The inquiry saw insufficient evidence that the charity’s former chair of trustees played an active role in the management and administration of the charity. This is despite a clause in the governing document stipulating that the chair of the board of trustees is in charge of overseeing the whole work of the charity and its related organisations worldwide. The inquiry’s review of the trustees’ meeting minutes from January 2019 to June 2020 showed that the former chair did not attend any trustee meetings in this period. The chair is also required to be a co-signatory to the charity’s bank accounts – this was not the case.

The inquiry also ascertained that the charity at no time has had the required number of trustees as mandated by the governing document.

The trustees’ failure to comply with the governing document constitutes a breach of duty and is evidence of their misconduct and/or mismanagement in the administration of the charity.

Internal policies and trustee meeting minutes

At the time the inquiry was opened, the charity had a ransom payment and vulnerable person’s policy in place. However, the trustees had not implemented other policies or controls to assist the trustees to manage the charity, such as those relating to financial management and/or how to manage conflicts of interest. It is the Commission’s understanding that, to date, the trustees have not implemented any additional policies to those present at the beginning of the inquiry. All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken. A failure to implement internal policies (and follow them) can put assets, beneficiaries, and a charity’s reputation at risk.

The inquiry’s review of the trustees’ meeting minutes showed that they are limited in detail and do not effectively evidence the decisions made, and the decision-making process, 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

The inquiry found that the trustees had a serious disregard for and/or a lack of understanding of the importance of proper financial controls and accountability in respect of the charity’s funds. This related, in part, to the charity’s overseas expenditure.

Overseas expenditure

The inquiry’s review of the charity’s bank statements, found that between 1 January 2015 and 17 July 2018 there was a total of £5,204,868.62 transferred overseas to Iraq out of the charity’s bank accounts. The majority is not supported by evidence to show and explain its end use.

The inquiry found that based on the receipts and invoices, the charity can account for £365,732 of the £5,204,868.62 total expenditure, which is just 7% of the charity’s overseas payments that can be evidenced with suitable receipts and invoices. Of the £365,732 accounted for with receipts, £132,097.94 are receipts which are undated and therefore it is possible that these receipts may fall outside of the financial period under review by the Commission, which would reduce further the funds the charity is able to fully account for.

Only £365,732 expended in Iraq by the charity is supported by receipts or invoices. There are some hand-written records, lists of aid materials with prices and quantities but the inquiry does not consider that these fully or sufficiently evidence the end use of funds once transferred overseas and how these have been spent in line with the charity’s objects. On the basis of the information seen by the inquiry £4,839,137 of expenditure in Iraq, between 1 January 2015 and 17 July 2018 is unaccounted for.

In failing to keep adequate accounting records (in relation to purported overseas expenditure) the trustees are in breach of their legal obligations under the Act (sections 130 and 131). This is misconduct and/or mismanagement in the administration of the charity.

£147,689 reference in the charity’s accounts

During the Commission’s December 2018 meeting, the trustees explained that the £147,689 referenced in the trustees’ report and financial statement for the financial year ending 31 July 2016 as ‘Iraq Hostages’ was an error in wording made by the charity’s accountant. The trustees said that the funds were used to support released hostages and went to a bank account in Iraq belonging to a church. The church acknowledged receipt of the charity’s funds, however, did not provide the trustees with details of how the funds were spent. The £147,689, the Commission was told by the trustees, was given to the charity by another registered charity (‘the partner charity’), for practical assistance for released hostages.

The inquiry sought to understand whether the trustees were able to fully account for £147,689. The inquiry is of the view that whilst the trustees have provided an explanation as to how the £147,689 was used, there was insufficient evidence provided to the inquiry to show how the charitable funds have been expended in furtherance of the purpose for which they were sent overseas.

In regard to monitoring the end use of the £147,689, the inquiry has seen images purportedly of released hostages and lists of names of those hostages released. However, no invoices and/or receipts have been provided.

The Commission expects charities to maintain evidence to demonstrate the end use of funds especially when those funds have been spent in countries where there is a heightened risk of funds being diverted for criminal and/or terrorist purposes. Whilst the inquiry has seen some basic reporting from the charity to the partner charity on how £41,844.21 of the funds were expended. The inquiry has not seen any reporting to show how the remaining £105,844.79 was expended. This is despite compelling the trustees on three occasions, as part of legal directions, to provide such evidence.

Trustees are under a legal duty to ensure funds are used only in furtherance of the charity’s purposes and are legally responsible and accountable for their proper use. Trustees must be able to demonstrate that funds have been used for the purposes for which they were intended. This means they need to take reasonable and proper steps to ensure that any money or resources have reached their intended beneficiaries.

The inquiry has found, from the information available, that the trustees are not able to fully account for the end use of the £147,689, sent to a high-risk country (Iraq) which is misconduct and/or mismanagement in the administration of the charity.

Trustee credit card expenditure

The Commission’s review of the charity’s account statements identified six transfers between 6 January 2015 and 2 December 2015 totalling £7,858.80, which were payments related to a trustee’s personal credit card. The Commission reviewed the trustee’s credit card statement for the corresponding period and was not satisfied that the payments were all for a charitable purpose.

The trustee gave a brief explanation, to the Commission, that these payments were expenses regarding a project of the charity’s, as well as the trustee’s flights and transport to and from the airport. However, no receipts were provided to evidence these payments as charitable expenses and after reviewing the credit card statements for this period, the Commission remains unclear as to whether the payments on the trustee’s personal credit card, for the months in which the charity paid the full balance, were wholly charitable expenses. Therefore, based on the information available, the inquiry is of the view that the trustees have been unable to demonstrate that this £7,858.80 was charitable expenditure.

Furthermore, the inquiry has not seen evidence, such as trustee meeting minutes and/or other records, to show that these payments were discussed and authorised by the trustees before being paid. In addition, for the period set out, the trustee was the sole signatory to the charity’s UK bank accounts and by virtue of this would have self-authorised the payments to themself. The inquiry also ascertained that the charity had no written financial controls or other policies in place to manage the charity in this regard.

The failure to ensure that sufficient financial controls were in place to manage the charity’s expenditure is misconduct and/or mismanagement in the administration of the charity on the part of the trustees.

The charity’s activities and partnerships with the NPO

As set out above, the NPO is registered in the US and is managed by four of the charity’s trustees. The trustees explained that the charity undertakes projects with the NPO for which there is a flow of charitable funds between the two organisations. It was identified as part of the Commission’s regulatory compliance case that there was no memorandum of understanding or other written agreement in place between the two organisations. The Commission advised the trustees, during its December 2018 meeting, that it would be in the best interests of the charity to implement such an agreement. However, the inquiry has not seen any evidence to show that a memorandum of understanding (or other written agreement) has been put in place.

Furthermore, throughout the inquiry, the trustees have not been able to provide a sufficient explanation about the decision-making process and management between the charity and the NPO.

Trustees have a legal duty to act in the best interest of their charity, manage the charity’s resources responsibly and act with reasonable care and skill. Due to the relationship between the charity and the NPO, there is a potential conflict of interest and/or loyalty for those who are trustees of both charities. The inquiry compelled the trustees on a number of occasions to explain and provide documentary evidence which shows how conflicts have been identified, considered, recorded and/or managed appropriately. The trustees failed to fully comply with the inquiry in this regard and as such the inquiry is not satisfied that conflicts of interest and/or loyalty have been managed appropriately. The trustees’ failure to identify and manage conflicts of interests and/or loyalty is misconduct and/or mismanagement in the administration of the charity.

The Commission required the trustees to provide copies of monitoring documentation provided by the NPO to account for the end use of its funds during the period in which the charity’s bank accounts were frozen and the NPO were expending funds on behalf of the charity. The trustees explained, that ‘it would not be the responsibility of the charity to monitor the financial details of another organisation, but the projects continued and were administered and reported online and locally in the areas, which clearly showed that these projects continued’.

The inquiry found that the trustees had a lack of awareness and/or regard for their legal duty to account for charitable funds and are unable to satisfy themselves that charitable funds were expended for the purpose to which they were given. The trustees have also failed to recognise potential conflicts of interest and/or loyalty arising from the dual roles some trustees hold.

Conduct of the trustees

The inquiry found that the conduct of the trustees fell below the standard that the Commission expects of trustees and that there had been misconduct and/or mismanagement in the administration of the charity.

The trustees failed to fully comply with several legal directions, made under section 47 of the Act, both in terms of the specified timeframe for compliance and what was required to be provided. The directions required the trustees to provide information, explanations, and documentation with regards to the trustees’ management of the Charity. The failure to comply with a direction of the Commission is in and of itself evidence of misconduct and/or mismanagement in the administration of the charity.

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

The inquiry found that there was evidence of misconduct and/or mismanagement in the charity’s administration by the trustees. There was evidence of poor management of, and lack of records of the charity’s purported expenditure overseas.

There were wider failings in relation to the trustees’ financial management and overall governance of the charity.

Conclusions

Trustees play a crucial role in the governance of charities and are required to use their skills, knowledge, and experience to run their charity well and in its best interests. This was not the case here.

The Commission has concluded that there was misconduct and/or mismanagement in the charity’s administration by the trustees. This includes a serious disregard for, and/or a lack of understanding of, the importance of proper financial controls and accountability in respect of the charity’s funds.

Regulatory Action Taken

During the inquiry, the Commission liaised with the MPS in relation to their investigation. Information was exchanged between the Commission and the MPS via the statutory gateway under sections 54 and 56 of the Act.

The inquiry exercised the Commission’s regulatory powers under section 47 of the Act on multiple occasions, to obtain further information and copy documents, including from the trustees, its partners and the charity’s banking provider.

On 17 March 2022, the inquiry made an order under section 84 of the Act directing the trustees to take specified actions to address the misconduct and/or mismanagement identified during the inquiry to improve the charity’s governance and financial controls. The trustees have provided some documents already in response to the section 84 order which the Commission will assess in due course. The Commission at the relevant time will monitor the trustees’ compliance with the order.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the Inquiry 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.

Finances

Trustees are under a legal duty to ensure funds are used only in furtherance of the charity’s purposes and they must be able to demonstrate and account for how the charity’s funds have been used for the purposes for which they were intended. Section 130 – 131 of the Charities Act 2011 requires the trustees to maintain and preserve accounting records in respect of the charity which are sufficient to show and explain all the charity’s transactions. Section 130(2) goes on to state that accounting records must in particular contain entries showing from day to day all sums of money received and expended by the charity and the matters in respect of which the receipt and expenditure takes place.

Similarly, where charities use a third party – such as a charity, private business or noncharitable entity – to apply and utilise its funds on its behalf to further the charity’s purposes, trustees must be able to demonstrate that charitable funds have been used appropriately and can be fully accounted for. Monitoring is an important way for trustees to ensure that they are able to account for the proper use of their charity’s funds – the responsibility sits with a charity’s trustees to account for how charitable funds are used.

Monitoring can take a variety of forms and will often vary depending on the nature of a charity’s activities and the associated risks. It will almost always include steps to verify the proper end use of funds.

Governance

Trustees are representatives of the charity they govern or the charitable funds they are responsible for, in the charity sector. Trustees must be aware of and act in accordance with their legal duties. The conduct of trustees can be a key driver of public trust and confidence in the charity sector. When the conduct of trustees falls below the standards expected there can be damage to the reputation of individual trustees, the charity and possibly the wider charity sector.

All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken. A failure to implement internal policies (and follow them) can put assets, beneficiaries, and a charity’s reputation at risk.