Decision

Charity Inquiry: Devon Freewheelers

Published 19 July 2024

Applies to England and Wales

The Charity

Devon Freewheelers (‘the charity’) is a Charitable Incorporated Organisation (‘CIO’) and was registered with the Commission on 10 October 2018. Prior to this, the charity was constituted as a charitable trust registered on 9 November 2010 under charity number 1138889.

The charity provides free courier and transport services to NHS establishments, medical surgeries, air ambulance and the community across the Southwest of England.

It is governed by a CIO Foundation Constitution dated 8 October 2018.

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

Trustees

Previous trustees

Trustee A was a trustee between 1 February 2018 and 3 December 2021. Trustee A was also the CEO between 1 February 2018 and 21 December 2021 (‘previous CEO’).

Trustee B was a trustee between 1 December 2020 and 16 March 2023.

Trustee C was a trustee between 1 February 2018 to 25 January 2021.

Trustee D was a trustee between 1 February 2018 to 25 January 2021.

Together trustees A, B, C and D are referred to as the ‘previous trustees’ in this report.

Current trustees

Trustee E was appointed on 2 December 2021.

Trustee F was appointed on 30 November 2021.

Trustee G was appointed on 2 April 2023.

Trustee H was appointed on 1 December 2020 and remained a trustee until 12 April 2024. Trustee H is also the ‘current CEO.’

Together trustees E, F, G and H are referred to as the ‘current trustees’ in this report.

Background and Issues under Investigation

The charity was placed into the Double Defaulter Class Inquiry (‘DDCI’) on 3 March 2023 as it failed to submit its annual report, accounts and return (‘accounting information’) as required for the financial years ending (‘FYE’) 31 October 2020 and 31 October 2021 in line with legal requirements. 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.

Accounting information for the FYE 31 October 2020 was submitted on 28 February 2023, 546 days late. Accounting information for FYE 31 December 2021 was received on 15 March 2023, 196 days late.

Prior to its inclusion in the DDCI, the Commission’s compliance team engaged with the charity in 2021 and 2022 regarding the charity’s financial management and late submission of accounting information. This included the issuing of an Action Plan under section 15(2) of the Act on 5 September 2022 providing the charity with regulatory advice and guidance to file the overdue accounting information for FYE 31 October 2020 and 2021 immediately.

Following the submission of the overdue accounting information for FYE 31 October 2020 and 31 October 2021 a detailed review of the accounts and the bank statements of the charity’s bank account was undertaken. The review found discrepancies between the transactions going through the bank account and the income and expenditure declared in the accounts. Furthermore, the independent audit opinion for the accounts FYE 31 October 2020 was qualified due to uncertainty over the disclosure of related party transactions.

To investigate these concerns fully, a separate statutory inquiry under section 46 of the Charities Act 2011 (‘the Act’) was opened into the charity on 14 September 2023 (‘the inquiry’) to examine the following:

• the charity’s financial management and whether there has been any unauthorised personal benefit and/or breach of trust by any of the current or previous trustees
• whether the trustees have identified and managed conflicts of interest and/or loyalty in accordance with the charity’s governing document and their legal duties
• whether there has been any misconduct or mismanagement in the administration of the charity by the current or previous trustees

Findings

The charity’s financial management and whether there has been any unauthorised personal benefit and/or breach of trust by any of the current or previous trustees

Failure to file accounting information in line with statutory requirements

As outlined in the background section, the charity failed to file its accounting information for FYE 31 October 2020 and 31 October 2021 on time in line with legal requirements.

The inquiry found that the previous CEO filed accounting information for FYE 31 October 2020 first on 8 December 2021 (99 days late) together with a letter outlining that the charity had experienced a temporary increase in income due to the Covid 19 pandemic and providing related response services. The letter further outlined that the services had been transferred to a ‘not for profit company’ and therefore the charity’s accounts should only be required to be independently examined despite the charity’s income exceeding £1million for FYE 31 October 2020. The Commission did not accept the point made in the letter dated 8 December 2021 and advised the charity on 17 December 2021 that a full audit was required. The charity eventually resubmitted audited accounts for FYE 31 October 2020 on 28 February 2023, 546 days late.

The failure by the trustees (in post at the relevant times) to file accounting information on time and in line with legal requirements is misconduct and/or mismanagement in the administration of the charity.

The inquiry issued the charity with comprehensive formal regulatory advice and guidance under section 15(2) of the Act on 6 February 2024 (‘the Action Plan’). This included advice in relation to the charity’s financial controls. The charity acted on the advice and now has procedures in place to ensure accounting information is filed on time and in line with legal requirements going forward.

The charity filed its accounting information for FYE 31 October 2022 and 31 October 2023 on time and in line with legal requirements.

Covid 19 response services

The inquiry found that from March 2020 to July 2020, during the height of the Covid 19 pandemic, the charity provided paid ‘Covid 19 Response Services’ under a Service Level Agreement (‘SLA’) for Royal Devon and Exeter NHS Foundation Trust. This included the provision and running of various Covid 19 testing facilities and PPE changing facilities for doctors and nurses.

To deliver the services, the charity had to hire additional staff and significantly upscale its operations over a short period of time. These upscaled operations fell outside the charity’s declared objects and the previous trustees widened the charity’s objects without first obtaining the required prior written consent of the Commission (as is required by the charity’s constitution). The income from the SLA also meant that the charity’s income exceeded £1 million for the FYE 31 October 2020, whereas in previous years the charity’s income was just under £425,000.

The charity’s previous CEO sought professional advice on the situation and the delivery of the Covid 19 services was handed over to a private limited company (‘the company’), in July and August 2020. Minutes of a trustee meeting held on 20 July 2020 show the consideration of the trustees at the time the company was set up and the services transferred to the company.

At the incorporation of the company, £125,000 was transferred to the company from the charity with the rest of the profits from the contract remaining with the charity at that point. The charity’s previous CEO became the sole director of the company which continued to deliver services under the contract until it ceased trading. The company is currently being wound up by application of HMRC and upon conclusion of the winding up, any remaining assets will be distributed to the charity in line with the articles of association of the company.

The inquiry found that the delivery of Covid 19 response services, even though the charity benefitted, fell within objects of the charity that had been widened without the Commission’s prior consent. The decisions made by the previous trustees to enter the SLA and amend its charitable objects without the consent of the Commission, was misconduct and/or mismanagement in the administration of the charity by the previous trustees.

The inquiry found that the delivery of paid services under the SLA conflicted with the charity’s ethos of delivering its usual blood bike operations free of charge which created confusion to the public over the charity’s operation and ultimately damaged the charity’s reputation.

However, it also found that the charity benefited financially from the arrangement as its rent was paid for 12 months, a new fleet of vehicles was purchased, and a number of other improvements made to the charity’s premises and operations.

Following the transfer of the SLA to the company, from August 2020 onwards, the charity returned its operations to free blood transport services for the NHS and other medical establishments. The inquiry found that outside of the SLA the charity has not charged and does not charge for its services.

Unauthorised trustee payments

The inquiry reviewed the transactions going through the charity’s bank account which showed that two of the trustees were receiving regular payments from the charity.

The inquiry found that Trustee H was later employed by the charity (and is its current CEO) and has received a modest monthly payment for services to the charity However, the charity’s governing document prohibits trustees being employed by or receiving any remuneration from the charity unless specific conditions are met. The inquiry found that none of the special conditions were met to allow these payments and therefore the payments are unauthorised trustee renumeration. Following the issuing of the Action Plan, the trustee concerned stepped down as a trustee and the charity is in the process of regularising the situation. It has sought permission from the Commission to continue to employ trustee H as its CEO following their resignation as a trustee. The request is currently being examined by the Commission.

The inquiry also found evidence of payments made to a current trustee, for servicing the charity’s vehicles. The inquiry carried out a books and records inspection (‘the inspection’) at the charity’s premises on 30 November 2023 and found that the payments made to this trustee were well documented and that all supporting documentation was being kept as required.

The payments were nevertheless a breach of the Act and the charity’s governing document as there was no written contract in place specifying a maximum amount that could be paid to the trustee in question. Following the issuing of the Action Plan, the charity entered into a contract with the current trustee for the provision of goods and services allowing payment of up to £5,000 per year.

The inquiry found that the unauthorised payments being made to the two trustees, were unauthorised trustee remuneration and a breach of the charity’s governing document. It was also misconduct and/or mismanagement in the administration of the charity. It also found that, whilst the payments were not permitted by the governing document, they were reasonable, and the current trustees fully cooperated with the inquiry to ensure they were regularised in a timely manner.

Whether the trustees have identified and managed conflicts of interest and/or loyalty in accordance with the charity’s governing document and their legal duties

The inquiry found that the charity had a conflicts of interest policy and that the trustees in place at the opening of the inquiry were following the policy.

It also found that in relation to the employment of Trustee F and the payments made to another trustee, conflicts of interest were recognised and managed appropriately.

As part of the inquiry, the current trustees were given additional guidance on managing conflicts of interest and have reviewed and updated their conflicts of interest policy.

At the inspection, the current trustees were able to provide explanations and evidence for transactions with related party companies. However, there was no evidence of the previous trustees’ decision making that using the services of such suppliers was in the best interests of the charity or that any conflicts of interests were properly managed.

The inquiry contacted the previous CEO of the charity about the matter and found that no additional documentation or explanation could be provided. In the absence of any evidence to the contrary, the inquiry found that prior to the trustees in post at the opening of the inquiry taking up their position, conflicts of interest were not appropriately manged by the charity.

The inquiry also found that as part of the Covid 19 SLA, the charity hired a number of relatives of the previous CEO. No evidence could be provided showing that resulting conflicts of interest were recognised or managed. This would have been especially important as the then CEO and his wife were both previously trustees of the charity.

The failure by the previous trustees appointed at the relevant times to appropriately manage conflicts of interest was misconduct and/or mismanagement in the administration of the charity.

Whether there has been any misconduct or mismanagement in the administration of the charity by the current or previous trustees.

As outlined above, there has been misconduct and/or mismanagement in the administration of the charity in respect of the filing of accounting information, the paying of unauthorised trustee remuneration, and a failure to manage conflicts of interest by the previous trustees.

Conclusions

The inquiry concluded that there was misconduct and/or mismanagement in the administration of the charity.

However, the current trustees cooperated fully with the inquiry to resolve identified regulatory issues and extensive guidance was provided to help them manage their charity in line with best practice and legal requirements going forward.

Regulatory Action Taken

The inquiry used its information gathering powers under s.47 and s.52 of the Act throughout the inquiry.

An order under section 76(3)(f) of the Act was made to restrict the charity’s transactions on 19 October 2023. The order restricted certain transactions in the administration of the charity without the prior written approval of the Commission. This order was discharged on 4 July 2024.

Comprehensive regulatory advice and guidance under section 15(2) of the Act was issued to the charity on 6 February 2024.

Issues for the wider sector

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.

Trustees must:

• act within their 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 any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

It is important that charity trustees apply these 7 principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction. Further guidance and advice on trustee duties can be found 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. 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.

Charity accounting requirements become increasingly rigorous the larger a charity is. There are legal requirements for charities relating to the preparation of charity accounts and annual reports, the audit or independent examination of accounts and the submission of these to the Commission. Trustees must familiarise themselves with the appropriate requirements.

Registered charities are required by law to provide annual returns and accounts to the Commission. The type of scrutiny required depends on the income and assets of the charity. Broadly speaking, an independent examination is needed if gross income is between £25,000 and £1 million and an audit is needed where the gross income exceeds £1 million. An audit will also be needed if total assets (before liabilities) exceed £3.26 million, and the charity’s gross income is more than £250,000. Further guidance and advice on accounting requirements can be found on GOV.UK.