Decision

Charity Inquiry: Children Care Centre

Published 25 April 2024

Applies to England and Wales

The Charity

Children Care Centre (‘the charity’) was registered on 16 October 1992. It is governed by a trust deed dated 29 September 1992.

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

The charity’s objects are:

1. To relieve the poverty and sickness of and advance the education of children at the Amod Orphanage in District Bharuch by the provision of facilities and equipment including medicines and food.

2. To relieve poverty and sickness of persons who are victims of earthquake, cyclone or other disaster or war by the provisions of facilities and equipment including food, clothing, medicines and shelter.

Background and Issues under Investigation

On 19 March 2020 the charity was placed into the Commission’s Double Defaulter Class Inquiry (‘DDCI’) because it had failed to submit its annual financial accounts for the financial years ending (‘FYE’) 31 March 2018 and 2019. The DDCI is for those charities that are in default of their legal duty to file accounting information for two or more years in the last five years.

The charity subsequently submitted draft accounts for FYE 31 March 2018 and 2019 on 9 January 2021, however these accounts were not compliant with the Statement of Recommended Practice (‘SORP’). On 19 February 2021, the charity was taken out of the DDCI and the trustees were provided with regulatory advice and guidance regarding the finalisation of their accounts in the correct accounting format. The trustees were also informed that the Commission intended to monitor their actions regarding the filing of the outstanding accounting information.

Despite this guidance, the trustees went on to default on their statutory duty to submit accounting information for FYE 31 March 2020 and FYI 31 March 2021, and the charity was subsequently placed back into the DDCI on 23 September 2021. The charity failed to engage adequately with the Commission during the second DDCI case and failed to submit the outstanding accounts within directed timeframes.

On 8 June 2022, the Commission escalated its engagement with the charity by opening a separate statutory inquiry into the charity under section 46 of the Charities Act 2011 (“the Act”).

The scope of the inquiry was to examine the administration, governance and management of the charity, in particular the extent to which the trustees have:

• failed to comply with their statutory reporting duties including the submission of the charity’s annual reports and accounts to the Commission
• failed to comply with an Order of the Commission under Section 84
• acted in accordance with their legal duties and been responsible for misconduct and/or mismanagement in the administration and management of the charity

The Inquiry closed with the publication of this report.

Findings

Failure to comply with statutory reporting duties including the submission of the charity’s annual reports and accounts to the Commission

The accounts and Trustees’ Annual Report (‘TAR’) for FYE 31 March 2020 were submitted on 16 December 2022, which was 684 days after the statutory deadline. The accounts and TAR for FYE 31 March 2021 were also submitted on 16 December 2022, which was 319 days after the statutory deadline.

The inquiry found that the trustees had received repeated advice and guidance from the Commission regarding their reporting obligations and the Commission had previously agreed extensions to deadlines for the submission of the outstanding accounting information. Despite this, the trustees had still failed to submit the outstanding accounting information on time. The trustees’ failure to ensure that the charity’s statutory accounting information was filed on time was a repeated pattern of behaviour over a sustained period, encompassing two DDCI cases which demonstrated repeated failures of their duty to ensure the charity is accountable. The inquiry found that the accounting information for the FYE 31 March 2022, was the first set the charity had managed to file on time in its previous five financial years.

All charities must maintain accounting records and prepare accounts. A charity’s accounting information must be submitted to the Commission within 10 months of the end of the financial year to which they refer. The failure to submit accounts and accompanying documents to the Commission is a criminal offence and constitutes misconduct and/or mismanagement in the administration of the charity.

During the inquiry, the accounting information for FYE 31 March 2022 and 2023 were submitted on time and the charity is now up to date with its accounting requirements.

Failure to comply with an order of the Commission under section 84 of the Act

The inquiry found that the trustees had failed to comply with two orders issued under section 84 of the Act, which were issued during the Commission’s DDCI prior to the opening of this inquiry.

The charity was first entered into DDCI on 19 March 2020 following the trustees’ failure to submit the accounting information to the Commission for the financial years 31 March 2018 and 31 March 2019. The charity had regularly been sent reminders from the Commission regarding the submission of its accounts. In addition, the Commission wrote to the charity on 20 February 2020 requesting that accounts be provided by 15 March 2020. The charity had therefore failed to comply with its legal requirements despite numerous reminders.

A section 84 order was issued to the trustees on 19 March 2020, which required the trustees to prepare and submit the outstanding accounts for the FYE 31 March 2018 and 2019 by 20 April 2020. On 24 December 2020, the trustees told the Commission that the ongoing delay was due to health issues and the restrictions introduced by the Government to help tackle the Covid-19 pandemic. The trustees failed to comply with the section 84 order deadline and ultimately submitted the accounting information on 15 October 2021. This was after the charity was entered into the DDCI for a second time.

Following the trustees’ subsequent failure to submit the accounting information for FYE 31 March 2020 and FYI 31 March 2021, and the charity entering the DDCI for a second time, a second section 84 order was issued to the charity on 22 September 2021, which required the trustees to prepare and submit the outstanding accounting information for the FYE 31 March 2020 & 2021 by 18 October 2021. The trustees failed to fully submit this accounting information until 16 December 2022, significantly past the required deadline and more than six months after this statutory inquiry was opened.

This failure to comply with orders of the Commission is misconduct and/or mismanagement by the trustees in the administration of the charity.

The extent to which the trustees have acted in accordance with their legal duties and been responsible for misconduct and/or mismanagement in the administration and management of the charity

Since it was established, the charity’s main activity has been to provide grants to Bacho Ka Ghar Amod, an orphanage in Gujarat, India, to support its day to day running costs. In a meeting with the inquiry on 25 July 2022, the trustees explained that the orphanage was, at that time, financially resilient due to other streams of income and therefore did not require money from the charity because it had adequate funds. Due to this, the inquiry found that the trustees had not been directing a significant proportion of its funds to this orphanage in accordance with its first object, as it had done in previous years.

The inquiry found that in 2022 the trustees had undertaken fundraising with misleading materials suggesting that the orphanage was in need of funding and that funds raised would be directed to the orphanage.

Accumulated funds were spent by the charity on the acquisition of 12 residential properties, purchased between May 1995 and October 2018, which are held in the name of the trustees for the benefit of the charity. The trustees explained that “We decided to invest in revenue-making streams such as properties. Bricks and mortar”.

The inquiry found that the properties were rented out at below market rate and that the trustees intended to provide low-cost rental accommodation to benefit individuals in need of such housing. However, when making these property purchases, the inquiry found that the trustees failed to evidence whether they had properly considered whether this was charitable activity in furtherance of the charity’s objects, or investments for the purpose of raising funds for the charity. The trustees did not have an investment policy and had not taken investment advice or followed the other legal requirements as to charity investments. They had also not appreciated that if this was not an investment, and instead they were attempting to further the charity’s purposes directly, this was not authorised because the provision of social housing is not within the charity’s objects.

In addition, the trustees failed to recognise that the funds raised for the orphanage are restricted funds i.e. funds that can only be used for the purposes for which they are given. Therefore, all rental income and profits generated from these properties are also restricted for the use of the orphanage.

However, these restricted funds are not reflected accurately in the filed accounts. The inquiry gave formal regulatory advice and guidance to the trustees under s15(2) of the Act requiring them to take accountancy and legal advice on the issue of restricted/unrestricted funds and have the accounts corrected in the next set of accounts to accurately reflect how the charity’s funds are being held.

The inquiry found that the trustees did not comply with their legal duties in relation to managing the charity’s resources responsibly and acting with reasonable care. There was additional evidence of further governance failings including poor record keeping around decision making, and poor monitoring of end use of funds directed to orphanage. In addition, the inquiry found evidence that the trustees had knowledge that some of the funds directed to the orphanage would be used to build a new mosque and support a different orphanage, both of which fell outside the charity’s objects. This constituted a failure by the trustees of their duty to ensure the charity is carrying out its purposes and is misconduct and/or mismanagement.

Conclusions

The Commission found that there was misconduct and/or mismanagement in the administration, governance and management of the charity as set out above by the trustees in post when the inquiry was opened.

In order to address the identified areas of weakness in the charity’s governance and administration, the inquiry issued an order under section 84 of the Act to the trustees on 21 November 2022 which directed them to take certain specified actions within defined timescales. These actions included reviewing the trustee board, establishing a written investment policy and reviewing the charity’s processes for recording and evidencing the trustees’ decision making. The trustees made good progress against the actions required and kept the inquiry team informed with updates. The trustees requested an extension to fully comply with the section 84 order directions and fully completed all actions on 2 October 2023.

The Commission is satisfied that the trustees have now taken positive steps in completing the directions under the section 84 order and implemented changes to improve the governance of the charity as well as compliance with their legal duties. The trustees have filed the outstanding accounts, reviewed the trustee board, appointed an accountancy firm and a law firm to provide ongoing professional advice.

The Inquiry has now closed. The charity is now on a much stronger footing to deliver its objects and activities effectively and in compliance with its statutory duties.

Regulatory Action Taken

During the Inquiry, orders were made under sections 47 and 52 of the Act to gather relevant information. The Commission directed the trustees to follow an action plan using section 84 of the Act. The Commission gave regulatory advice and guidance under s15(2) of the Act to the trustees in relation to getting their accounts corrected.

Issues for the wider sector

Trustees must ensure that their charity complies with charity law, and with the requirements of the Commission as regulator; in particular ensuring that the charity prepares annual reports and submits accurate and timely accounts as required by law. The Commission will not hesitate to exercise its statutory powers to ensure that a charity’s annual reports, annual accounts and annual returns are submitted to the Commission within the statutory deadlines where trustees persistently fail to comply with their legal duties.

Charity trustees must comply with Orders and Directions 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 take decisions in a way that meets the requirements of charity law and their governing documents. This includes recording decisions properly, so there is no doubt about what was decided and why. Written records should be sufficient to allow someone to understand the issues involved, decisions made and the reasons for them, particularly for important or controversial decisions.

Trustees must act within the specific charitable objects in their charity’s governing document.

When purchasing property, trustees must be clear what power they are using to do this.