Decision

Charity Inquiry: double defaulter charities between April 2017 – March 2018

Published 14 September 2018

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

Applies to England and Wales

Background

Trustees of registered charities with an annual income of £25,000 or over are under a legal duty to submit annual reports, accounts and returns (the ‘annual documents’) to the Charity Commission (‘the Commission’). Even if the registered charity’s annual income is under £25,000 trustees are under a legal duty to prepare annual accounts and reports and should be able to provide these on request. All charities with an income over £10,000 must submit an annual return to the Commission.

There is public interest in the issue of charities’ non-submission of annual documents, particularly where the non-compliance is over a long period of time. As a result, on 20 September 2013, the Commission opened a statutory class inquiry (‘the inquiry’) into charities that were in default of their statutory obligations to meet reporting requirements by failing to file their annual documents for two or more years in the last five years and met certain criteria, including that:

• the charities were recently (or in the case of charities that would become part of it in due course, would be) given final warnings to comply by a specified date

• on the first working day after the specified date the charities were still in default (partially or otherwise)

Currently charities that met the criteria and have a last known annual income of over £110,000 would become part of the statutory class inquiry.

Pre-Inquiry stage

Work carried out at the pre-inquiry stage by the Commission includes issuing a warning to charities that they will be placed into the inquiry if they fail to submit outstanding accounting document by a given date. A number of charities go on to submit outstanding documents within the Commission’s deadline. The impact of the Commission’s work at the pre-inquiry stage during the reporting period resulted in approximately over £12.5 million of charitable income in respect of 28 charities being accounted for.

Issues under inquiry

The inquiry is confined to dealing with the charity trustees’ mismanagement and/or misconduct and remedying the non-compliance in connection with their failure to submit the required annual documents to the Commission within the statutory deadlines.

The terms misconduct and mismanagement are taken from section 76 of the Charities Act 2011 (‘the Act’). Misconduct includes any act (or failure to act) that the person committing it knew (or ought to have known) was criminal, unlawful or improper. Mismanagement includes any act (or failure to act) that may cause charitable resources to be misused or the people who benefit from the charity to be put at risk. A charity’s reputation may be regarded as property of the charity.

Findings

Summary details of charities which filed outstanding annual documents

28 charities, listed in Annex A, submitted their outstanding annual documents and continue to operate as charities during the inquiry period between April 2017 and March 2018. This resulted in around £12 million of charity income being accounted for.

More details about the charities are available on the register of charities (‘the register’).

The charities gave various reasons for their failure in submitting the required annual documents, which included:

• trustees’ issues – trustees not aware of their statutory accounting duties, trustee illness, and changes to trustees / staff

• accountants’ issues – delays with accountants, and changes to accountants

This does not excuse the failure of the charity trustees to fulfil their statutory obligations.

When the charities’ missing documents were submitted, the accounts were scrutinised. Any regulatory issues arising from that scrutiny have been followed up with the respective charities separately.

Charities which had ceased to operate or exist

Further enquires by the class inquiry established that 24 charities listed in Annex B, were found to have ceased to exist or did not operate and were therefore removed from the register of charities. The trustees had failed to notify the Commission that these charities had wound up.

Cases where additional regulatory concerns arise

Where the class inquiry identifies additional regulatory concerns these are referred for consideration under a separate statutory inquiry. Two examples of charities that were under the class inquiry and later referred to separate inquiry are as follows:

• Cymmer Workmens Hall and Institute - 810098.

  The class inquiry identified issues regarding substantial levels of non-primary purpose trading that the charity had undertaken; accounts not prepared to the required standards; and that there appeared to be only one active trustee operating the charity. See public statement released on 5 February 2018.

• King’s Church Brentwood - 297504.

  The class inquiry identified that there were no properly appointed trustees managing the charity and that over £50,000 funds held in the charity’s account were vulnerable to fraud or theft. The class inquiry safeguarded these charity funds by using its power under s.76(3)(d) of the Act to restrict the use of the account.

Additional enforcement action taken against persistent defaulters

Three charities listed in Annex A which supplied outstanding annual documentation and accounting information to the class inquiry have since defaulted again on their obligations to supply annual accounts to the Commission.

Persistent defaulting, particularly when the trustees have previously been provided with regulatory advice and guidance on their duties is regarded by the Commission as serious mismanagement and/or misconduct which may be a symptom of broader issues in a charity.

Further enforcement action is being taken against these 3 charities which are now subject to separate inquiries into their governance and activities:

• The Great Generation 1120349. See the public statement released on 7 March 2018
• The Dorset Attention Deficit/Hyperactivity Disorder Support Group 1067658
• The Moss Side and Hulme Community Development Trust 1093592

Conclusions

As a result of the pre inquiry and inquiry work, the Commission ensured that those charities that continue to operate complied with their legal obligations to submit their annual accounts/returns documents. Approximately £25 million of charitable income in relation to 56 charities is now accounted for. In addition, the class inquiry protected over £50,000 of charity assets relating to the Kings Church Brentwood charity, 297504.

The Commission also removed 24 charities from the register which it considered had ceased to exist or did not operate.

The trustees of the 28 charities listed in Annex A were in default of their legal obligations to file accounting information. The Commission regards this as mismanagement and/or misconduct in the administration of the charity and a breach of their legal duties.

Charities ceased to be part of the inquiry when they were no longer in default of their accounting obligations and filed the missing documents or the Commission was satisfied that they had ceased to exist or do not operate.

The Commission is taking further enforcement action against 5 of these charities because of additional regulatory concerns and/or persistent default. These are each now subject to separate inquiries into their governance and activities.

Regulatory action taken

The inquiry used the Commission’s information gathering powers 39 times under section 52 of the Act to order and obtain bank records and financial information of the charities relating to the missing years accounts. These were used in connection with the Commission’s examination of the accounts.

The inquiry exercised powers under section 84 of the Act 44 times to direct the trustees to prepare and complete the relevant missing annual documents for the charities and provide copies of these to the Commission.

The inquiry also exercised powers under s.76(3)(d) of the Act to restrict the use of a charity account.

The Commission provided regulatory advice and guidance about the trustees’ duty to file the charities’ annual accounting information.

Issues for the wider sector

Failure by the charity trustees to submit the annual documents to the Commission may be a criminal offence. The Commission also regards it as mismanagement and misconduct in the administration of the charity.

It is important that the financial activities of charities are properly recorded and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to. This is key to ensuring public trust and confidence in charities.

Annex A

The following 28 charities submitted their outstanding annual documents and continue to operate as charities:

• Prospect Hall Limited: 505764

• Eco Learning Ltd: 1072447

• Cylch Meithrin Trelai: 1063165

• Grace Ministries International: 1052708

• The Dorset Attention Deficit/Hyperactivity Disorder Support Group: 1067658

• West Monmouth School: 1065001

• Little Gems Pre-School Basildon: 1028673

• Blunderbus Theatre Company: 1091094 (charity placed into voluntary liquidation on 2 October 2017)

• The Great Generation: 1120349

• Peter Pan Pre-School Bramcote (Mod): 1060518

• Morris Cerullo World Evangelism: 1001361

• Keren Shmuel: 1058334

• Power Praise and Deliverance Ministries International: 1042556

• HQ Hereford Garrison Palud-R-Inn Fund: 1130125

• Bunyan Playgroup: 1038843

• Great Yarmouth Schools and Business Partnership Limited: 1122200

• The Parochial Church Council of the Ecclesiastical Parish of Saint Mark, Kensal Rise: 1132172

• HQ Hereford Garrison PRI Fund: 1130109

• Maidenhall Community Pre-School: 1146512

• Cardiff Central Sports and Recreation Limited: 1143553

• The James Milner Foundation: 1146768

• Afghan Orphans: 1121117 (charity ceased to operate and was removed from the register on 9 June 2018)

• Northwood Day Care Centre: 514092

• Karibu Education Centre Ltd: 1023182

• The Moss Side and Hulme Community Development Trust: 1093592

• Bright Start Pre-School Playgroup: 1033256

• St Gregory’s Pre-School Ltd: 1124184

• Noah’s Ark Preschool: 1022407

Annex B

The following 24 charities were found to have ceased to exist or do not operate and were therefore removed from the register of charities.

• The Greater Manchester Play Resources Unit: 510740

• United Kingdom’s Disabled People’s Council: 1068743

• Royal Naval Association (Birkenhead Branch): 1070165

• Viz-A-Viz: 1031486

• Gardens of Peace Muslim Cemetery Trust: 1072903

• The Redeemed Christian Church of God - Victory House London: 1125723

• Crumbles Castle Adventure Playground: 272345

• Healing Our Past Experiences: 1119389

• Evelyn Coffee Tavern Fund: 255408

• Shield South Yorkshire HIV Support Group: 1119138

• Academia Rossica: 1091022

• International Forum for Rural Transport and Development: 1140889

• The Rugby League Foundation: 328045

• Wykeham House School Trust: 307339

• The Mount School Limited: 312593

• Rudston Preparatory School Trust Ltd: 529438

• Arts for Health Cornwall and Isles of Scilly: 1157219

• Shepherds Hill Preschool: 1033912

• Cool Recovery: 1110955

• The West Somerset Nursery Group: 1067312

• Travellers Aid Trust: 299463

• The Association of Caribbean Families and Friends: 1002676

• Fernwood School Fund: 1042675

• ContInyou: 1097596