Decision

Charity Inquiry: Chichester and District Dog Rescue Society

Published 16 January 2020

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

The Charity

The charity is governed by a Trust Deed dated 4 April 1968 and a Deed of Variation dated 31 October 1977 (“Governing Document”) and was registered with the Commission on 13 May 1968.

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

At the start of the inquiry there were two trustees – trustee A and trustee B, who were husband and wife (now estranged) (together “the former trustees”). A new board was appointed, in November 2018, consisting of five trustees (“the current board”). Trustee B resigned as a trustee of the charity on 4 November 2018 and trustee A was removed as a trustee of the charity by the new Trustee Board on 5 November 2018.

Issues under Investigation

The objects of the charity are to prevent cruelty to animals and to provide care and support for stray dogs in the areas of East Hampshire and West Sussex. The charity has furthered its objects by operating kennels located in Hambrook, West Sussex, and funded these operations with legacies, donations from the public and the sale proceeds received from two shops that the charity has run in Copnor Road and London Road, Portsmouth.

The Commission received notification from the Independent Examiner in March 2017 that discrepancies had been identified in the charity’s bookkeeping. This was in relation to the charity’s accounts for the Financial Year Ending (“FYE”) 31 March 2015 and FYE 31 March 2016. The Commission’s records showed that the accounts for FYE 31 March 2015 (submitted on 9 October 2015) were not compliant with the Statement of Recommended Practice (“SORP”) and had not been independently examined.

The Commission’s First Contact Team opened a case into the charity and requested outstanding documents in the appropriate format. The charity made no response and, as a consequence of this, the Statutory Inquiry into the charity, under section 46 of the Charities Act 2011 (“the Act”), commenced on 13 September 2017 (“the inquiry”).

The scope of the inquiry was to investigate the following regulatory concerns:

• the administration, governance and management of the charity by the trustees with specific regard to the extent to which the trustees have:
  • responsibly managed the charity’s resources and financial affairs, in particular the adequacy of the charity’s financial controls
  • adequately managed risks to the charity, its property and reputation including risks of misappropriation and misapplication of the charity’s funds
  • avoided or managed conflicts of interest
• the extent to which any failings or weaknesses identified in the administration of the charity during the conduct of the inquiry were a result of misconduct and/or mismanagement by the trustees

The inquiry was closed with the publication of this report.

Findings

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

Responsible management of resources

Between 11 October 2013 and 24 May 2017, £316,120 had been withdrawn, in cash, from the charity’s bank account. There was no documentary evidence to show what this amount had been used for, and when asked for further details, the former trustees were unable to precisely specify what these funds had been applied for. Following a review of the charity’s invoices the inquiry found there were discrepancies in the records and there were funds which were unaccounted for.

The charity had requested a £100 rehoming donation, (which rose to £150 during the course of the inquiry) from individuals who adopted dogs from the charity. No record of these amounts was found by the inquiry, despite the claim that the charity had rehomed at least 100 dogs.

The inquiry found that the former trustees failed to keep accounting records for the charity’s transactions.

The inquiry found that the charity had no financial control procedures. Funds were collected from the charity’s shops and kept in unsecure locations within the former trustees’ home. Banking was not undertaken on a regular basis and there were no reconciliations of shop takings. The charity had a credit card account, with associated card. The card appeared to have been used frequently but both the former trustees denied using the card. The inquiry found the former trustees failed to maintain oversight of the financial matters of the charity and failed to ensure that the charitable property was adequately safeguarded; this is misconduct and/or mismanagement in the administration of the charity.

The former trustees failed in their legal duty to comply with their statutory filing requirements. When the current board took over in November 2018, the Trustees’ Annual Report, accounts and an Annual Return for the FYE 31 March 2016 and FYE 31 March 2017 were outstanding.

Managing risk to charity property and reputation

The inquiry found that the two charity shops were in a state of dilapidation. The former trustees did not take any responsibility for the shops and made no provision for the management and maintenance of them.

The inquiry found that the charity had been in breach of its governing document. At the beginning of the inquiry it became clear that charity funds were used in circumstances where dog owners were unable to pay for veterinary services themselves. The charity’s governing document states clearly that funds should be expended only for the rescuing, boarding and placing in good homes of stray and unwanted dogs. Trustees have a basic duty to act within their charity’s objects and this includes utilising charity funds only on matters that fall within the specific objects of that charity.

The inquiry found that there had been an alleged theft as some funds were missing from the charity which had not been reported to the police. The former trustees had a responsibility to report these to the police that they failed to undertake.

The Commission has referred the matter of the unaccounted for expenditure of £316,120 to the police, and the current trustees are now liaising with the police with regard to this referral.

Misappropriation and mismanagement of funds

The charity owned a property which the former trustees and some of their family members lived in rent free. This was the result of an agreement with the charity that they wold undertake roles within the charity which were commensurate with an amount of rent that would have been payable if they had been tenants. The inquiry found that the former trustees were receiving an unauthorised benefit in breach of their trustee duties.

In October 2016, trustee B, together with other family members, took a holiday which was paid for from the funds of the charity. During this holiday, charity funds were withdrawn from an automated teller machine which both trustees were unable to account for. The inquiry found this to be unauthorised use of charity funds.

The former trustees’ mismanagement of the charity’s resources led to the current board contemplating the closure of the charity. However, the receipt of a substantial legacy to the charity, during the inquiry, ensured that the charity could continue to function.

Conflicts of Interest

The former trustees were a married couple. Conflicts of interest arose because for a period of time they were the only two trustees of the charity. This would have meant that it would have been impossible to manage conflicts of interest when making some decisions.

For example, Trustee A admitted that there was a failure to recognise a conflict of interest in spending £1,455.96 of charity funds on a decorative log burner for the charity’s centrally heated property that both trustees lived in at the time.

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

The inquiry found that neither of the former trustees took full responsibility for anything that occurred in the charity and each blamed the other for the matters that had gone wrong in the charity.

The inquiry found that the former trustees failed to:

• responsibly manage the charity’s resources
• keep the necessary records and comply with their statutory filing requirements
• comply with the charity’s governing document, and
• appropriately manage conflicts of interest

This is misconduct and/or mismanagement in the administration of the charity.

The inquiry found there were a number of transactions undertaken by the former trustees for personal expenditure (purchase of personal items, holidays and trips) which were not in the best interests of the charity, as they did not further the charitable purposes of the charity. This is misconduct and/or mismanagement in the administration of the charity.

The former trustees received funds and personal benefits from the charity as a result of a breach of their duties and in breach of trust. Restitution proceedings by the Commission are not considered to be proportionate but the current trustees can, if they deem it appropriate or the circumstances change, try and recover the money from the former trustees on behalf of the charity.

As a result of the misconduct and/or mismanagement identified, on 18 September 2019 the Commission disqualified the former trustees from acting as a charity trustee or trustee of any charity, and/or from holding an office or employment with a senior management function in charities generally in England and Wales, for a period of 7 years each.

Conclusions

The Commission has concluded that there had been serious mismanagement and/or misconduct in the charity’s governance, management and administration by the former trustees.

The new chairman and current trustee board have co-operated fully with the Commission and during the course of the inquiry have requested guidance and advice from the Commission relating to a significant number of matters. The inquiry visited the charity on 19 September 2019 and found it to be operating effectively. The trustees have appropriately utilised the information requested by them and other relevant guidance available on the Commission’s website.

The charity is now fully compliant with its filing obligations

Regulatory Action Taken

On 19 September 2017 an Order under section 76(3)(d) of the Act, freezing the charity’s bank accounts, was served on the charity’s banks.

On 20 September 2017, an Order under section 76(3)(f) of the Act, which had the effect of restricting transactions, was served on the trustees of the charity.

On 2 November 2018, an Order under section 76(3)(f) of the Act, which had the effect of restricting transactions, was served on the trustees of the charity.

On 18 September 2019, an Order under section 181A of the Act, was served on trustee A, which had the effect of disqualifying them as a charity trustee or trustee of any charity and/or from holding an office or employment with a senior management function in charities generally in England and Wales, for a period of 7 years.

On 18 September 2019, an Order under section 181A of the Act, was served on trustee B, disqualifying them as a charity trustee or trustee of any charity and/or from holding an office or employment with a senior management function in charities generally in England and Wales, for a period of 7 years.

Issues for the Wider Sector

All charities must have an effective trustee body to protect assets, control and administer the charity in accordance with a charity’s own Governing Document, charity law and Commission guidance. Public trust and confidence depends on the conduct of trustees and how they safeguard charity funds and undertake the objects and activities of the charity.

Where trustees are unable to undertake functions and obligations themselves, they must ensure that appropriate advice is taken and followed. In doing this, they must act within their competence and powers, act in good faith and only in the interests of the charity, make sure they are sufficiently informed, take account of all relevant factors, ignore irrelevant factors, manage conflicts of interest and make decisions that are within the range of decisions that a reasonable trustee body could make.

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.

All charity trustees must ensure that, unless specific exemptions apply, an annual report and annual return and annual accounts, in respect of each financial year, are submitted to the regulator of charities.

There should be a clear audit trail of where bank accounts are held, what they are held for and who has access to them. Trustees should not only ensure that financial controls are put in place but also that sufficient information is reported back at trustee meetings to satisfy them that the controls are being property observed. Such systems help prevent financial crime and ensure the charity is reporting accurately to the public and help protect the charity’s reputation.

Trustees are representatives of the charity they govern, and 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.