Decision

Charity Inquiry: Human Appeal

Published 28 October 2021

This decision was withdrawn on 1 November 2023

This has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The charity

Human Appeal (‘the charity’) was registered on 21 October 2013. It is governed by a memorandum and articles of association dated 3 June 2013 as amended by a certificate of incorporation on change of name dated 1 October 2016.

The charity’s previous name was Human Appeal International. During 2013 the charity changed its legal structure from a trust (registered charity number 1005733) to a charitable company ^{[footnote 1]}.

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

Issues under Investigation

On 6 December 2017 the Commission opened a compliance case after the charity’s then CEO sent the Commission a report of a serious incident (‘RSI’). The RSI contained information about two issues: (i) that in April 2017 three of the charity’s trucks, carrying flour, were stopped in Syria and held for several hours by an armed group and (ii) that on 8 October 2017 the charity’s warehouse in Idlib, Syria was seized by Hay’at Tahrir Al-Sham ^{[footnote 2]}, a proscribed terrorist organisation affiliated to Al-Qaeda. The warehouse stored aid and equipment belonging to the charity. In addition to the loss itself, the Commission had regulatory concerns that:

• the trustees had taken almost two months to report so serious an issue to the Commission
• the trustees had not made a report under section 19 of the Terrorism Act 2000 (‘TACT’) to the appropriate body as was their legal duty

As part of the compliance case the Commission met with the then trustees on 9 February 2018 to discuss the two issues. During the compliance case the then trustees advised that the charity had commissioned its then auditors to carry out a review of the charity’s Turkey office. The then auditor’s report to the trustees at the time, dated 22 September 2017, contained several serious concerns, including breaches of Turkish tax regulations, which were identified as having financial implications for the charity. At that meeting the executive presented the trustees with an action plan to implement the recommendations of the report. In response, the charity commissioned a second audit firm on 12 January 2018 to complete a wider review of the administration of the charity and the actions of staff members.

The Commission was provided with copies of the draft reports from the then auditors on 5 March 2018 and the second audit firm on 3 April 2018. The Commission considered the issues raised by the two reports, which included breaches of local laws, inability to accurately account for some of the overseas expenditure and failures to operate within the charity’s then policies and procedures, to be serious and this led to the opening of the inquiry.

Inquiry

On 18 April 2018 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 consider:

• whether or or not the trustees had complied with and fulfilled their duties and responsibilities as trustees under charity law
• the systems and processes in place to ensure that the trustees were informed of matters at the charity and their decision making
• the trustees’ management of relationships and work with other individuals, including donors and organisations and their due diligence leading up to and during such relationships
• the financial controls and management of the charity’s funds and accounting procedures

The Inquiry closed with the publication of this report.

Findings

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

The systems and processes in place to ensure that the trustees were informed of matters at the charity and their decision making

Trustees must make decisions solely in their charity’s interests, and to do so must be sufficiently informed of their charity’s activities. This requirement is elevated when operating in areas/periods of high risk such as the civil war in Syria. Part of a trustee’s role is to critically and objectively review proposals and challenge assumptions in making decisions. No one should be able to direct the trustees or drive decisions through without sufficient consideration. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties.

At the time the Inquiry opened the charity was of a significant size with an income of £36,403,079, expenditure of £35,726,343 ^{[footnote 3]}, operations in 24 countries and the equivalent of 104 full-time staff including six directors and a CEO.

In light of the regulatory concerns leading to the opening of the Inquiry, and the size and risk involved in the charity, the Inquiry examined whether effective reporting from senior staff to the then trustees, and effective oversight from the then trustees, was in place.

The Inquiry found that the then CEO and other directors reported to the trustees at quarterly trustee meetings, where the then trustees had the opportunity to question the executive officers about their roles and on-going matters at the charity. The Inquiry found that although quarterly trustee meetings took place, and minutes were kept, the minutes did not evidence the then trustees being sufficiently inquisitive, with limited evidence of the then trustees probing the information provided by the executive. The Inquiry found that while systems and processes did exist to ensure the then trustees were kept up to date with matters at the charity, the then trustees were too trusting of the executive and were not robust in their questioning of them. This led to a number of instances where the charity was exposed to risk by internal policies and procedures not being adhered to, as set out in more detail throughout this report.

The Inquiry found that some important information, which should have been the subject of prompt action by the then trustees and executive, was withheld from the then trustees and that this prevented the then trustees making informed decisions. One such issue was the serious events set out above, that took place in Syria on 8 October 2017 but the trustee board, other than the Chair at the time, were only made aware at the trustee meeting of 23 November 2017. This is despite the incident resulting in the charity’s aid and equipment, including vehicles, falling into the control, albeit temporarily, of a proscribed terrorist organisation.

Charity officials must comply with the law and with other regulations relevant to their charity. This includes complying with:

• section 19 of TACT, which creates a legal obligation for a person who, during the course of their employment ‘believes’ or ‘suspects’ another person has committed an offence under section 15-18 of TACT ^{[footnote 4]}, which are terrorist financing offences. Such persons must report such matters as soon as is reasonably practicable, along with the relevant information to a ‘constable’
• their duty to report serious incidents to the Commission promptly, which means as soon as it is reasonably possible after an incident happens, or immediately after their charity becomes aware of it

The Inquiry finds that the then trustees had delegated the responsibility of reporting such serious incidents to the CEO or other executive staff, as evidenced by the charity’s own policies which included a requirement for the relevant staff to consult with the chair of trustees and to consider whether the matter in question needed to be reported to the police, the regulator, or other statutory body.

The charity has an Aid Diversion policy which acknowledges the complexities of working in close geographical proximity with proscribed groups, stating ‘Human Appeal takes all steps to ensure that funds and resources do not fall into the hands of proscribed groups’. Further to this, the policy states that it is a mandatory requirement that all incidents of aid diversion or loss of assets and funds shall be reported as a Serious Incident to the Commission.

In relation to the serious events described in paragraph 4 above, the Inquiry finds that the then trustees failed to have sufficient oversight of those employees with delegated responsibility, and the appointed employees failed to follow the requirements of the charity’s policy. This resulted in:

• the trustees (and staff) not complying with their duties under section 19 of TACT in a timely manner ^{[footnote 5]}
• failing to report a serious incident to the Commission promptly

In a large and complex charity, it is normal for the executive to have significant decision making authority, but the trustees must still be willing and able to hold the executive to account with clear and robust reporting procedures and lines of accountability in place. The trustees remain ultimately accountable for everything done by the charity and those representing it.

In this case the Inquiry found that the executive staff’s failure to follow the charity’s policy, and report the events described above, was mismanagement by the executive. The failure to report the incidents in a timely manner to the police and Commission was misconduct and/or mismanagement by the then trustees and was fundamentally caused by the then trustees’ failure to maintain sufficient operational awareness of the charity’s activities.

The Commission subsequently received a detailed report of the actions the charity was taking to resolve the situation, including the engagement with various stakeholders to bring about a resolution. The situation was eventually resolved successfully without a permanent loss of aid. Following on from this incident, the charity advised the Inquiry that it had improved risk mitigation in the area and temporarily stopped its operations.

Following the commencement of the Inquiry, the trustees at the time have made significant improvements in the governance of the charity. This includes changes in key personnel in both the trustee board and the executive, and other improvements in governance. The charity is currently on a firmer footing as a result.

The Inquiry is satisfied that given the increased scrutiny of the executive leadership by the current trustees that the charity is now in a stronger position. These improvements were necessary in order to protect the charity from the on-going risks associated with working internationally, including in areas of high risk.

The trustees’ management of relationships and work with other individuals, including donors and organisations and their due diligence leading up to and during such relationships

Due diligence is an important part of a trustee’s duties and is essential in safeguarding charity assets. Due diligence is the range of practical steps that need to be taken by trustees in order to be assured of the provenance of charitable funds and confident that they know the people and organisations the charity works with, and to identify and manage associated risks.

Due to the nature of the charity’s work and its areas of operation, the then trustees received and transferred large amounts of money to high-risk jurisdictions. The then trustees had a duty to ensure that adequate monitoring of charitable expenditure took place, to verify that funds reached their proper destination.

The then trustees were aware that the charity received high value donations from an individual based in the United Arab Emirates (‘UAE’). The Inquiry saw evidence that in 2016 the UAE donor provided a significant donation of $1.95m for the charity’s Syria Flour Programme. The Inquiry found that the UAE donor provided either funds to the charity, or paid cash directly to the provider of flour to the charity’s Syria Flour Programme. The Inquiry found that no due diligence was completed by the charity on the UAE donor despite the significant sums involved and the direct payments to suppliers. The Inquiry also established that the charity failed to carry out due diligence in respect of the flour supplier in Turkey.

The failure of the trustees at the time to ensure due diligence was carried out in respect of both a significant overseas donor to the charity, and the major flour supplier for the charity’s Syria Flour Programme in a high-risk area of operation, is mismanagement by the then trustees in the administration of the charity. The Inquiry found that although the charity did have due diligence processes and procedures including using screening software, the processes had not been followed in this case as it had relied on a donor partner organisation in the UAE to undertake the required due diligence checks.

The identified instances of poor management of relationships in high-risk jurisdictions also led to the then trustees initially being unable to account for these substantial funds. While the trustees were able to retrospectively account for the funds, this was only after the intervention of the charity’s then auditors, financial investigators, and the Inquiry. The Inquiry finds that there was mismanagement by the then trustees in this respect. The current trustees have now taken action to address these issues and have improved the financial management and controls at the charity as noted further below.

Financial controls and management of the charity’s funds and accounting procedures

Financial controls and management

The Inquiry analysed a number of reports from the charity’s former auditors which highlighted breaches of local tax laws in countries where the charity operated.

One report identified that $753,000 had been paid to employees of the charity based in Turkey which had not been declared to the relevant authorities since the beginning of the charity’s operations in Turkey. The charity avoided sanction or penalty for these breaches from the Turkish government.

Another report identified breaches of Greek tax law by the charity in 2016. The charity couriered cash from the UK to Greece on several occasions with £39,500 couriered between February and June 2016. The Commission strongly advises against the use of cash couriering as a method to transfer charitable funds in all but exceptional circumstances owing to the risks involved, as set out at the time in Chapter 4 of the Compliance Toolkit ^{[footnote 6]}. This position was also supported by the charity’s own policies. The then trustees told the Inquiry that there was no intention to deceive the Greek authorities and cash couriering had been used due to difficulties obtaining a Greek bank account during a banking crisis and difficulties withdrawing cash in Greece, which would have negatively impacted the charity’s work. The then trustees also told the Inquiry that they understood that staff would be responsible for paying their own taxes. Following discussions with the Greek authorities the charity reached an agreement to pay €19,348.08 (approximately £17,000) to cover the unpaid taxes and resulting fines. In addition, the charity incurred significant costs, including professional fees, totalling £41,947.51, in order to reach this agreement.

Trustees should comply with the local laws where their charity operates as well as the laws of England and Wales. It is not acceptable for a charity to carry out activities that are unlawful either in the England and Wales or in another country in which it operates.

By failing to follow local laws and not appropriately managing the charity’s finances, significant losses have been incurred paying fines and obtaining professional advice in order to reach an agreement with the Greek authorities. This is evidence of misconduct and/or mismanagement in the administration of the charity.

Statutory returns

Trustees have a legal duty to file their charity’s statutory returns with the Commission. Failing to do so within ten months of the charity’s financial year end may be an offence pursuant of section 173 of the Act.

The charity’s income exceeded £1m annually during the period of the compliance case and the Inquiry, and as such the trustees at the time were required to submit audited accounts with the audit conducted by a qualified auditor.

Prior to completing the audit of the charity’s FYE 31 December 2017 accounts, the charity’s then auditors resigned. The resignation of the charity’s auditors had a cumulative effect, including the time taken to appoint new auditors, which may have contributed to the charity’s accounting documents begin submitted late with the then trustees failing in their legal duty to file accounting documents on time for the financial year ending 31 December 2018. While a version of the accounts for the financial year ending 31 December 2017 were filed on time, these accounts were qualified by the charity’s new auditor and audited accounts were not filed until 19 July 2020, nineteen months late.

Due to the Covid-19 pandemic and the resulting difficulties for both the charity and its auditors, the trustees agreed with the Commission an extension to the submission dates for the FYE 31 December 2019 accounts, which were subsequently filed with a qualification.

The non-submission, or late submission, of accounts and other statutory returns, is misconduct and/or mismanagement in the administration of the charity and the Inquiry finds that the trustees of the charity at the time are responsible for this.

Conclusions

The Inquiry concluded that there had been misconduct and/or mismanagement in the administration of the charity by the then trustees.

A significant factor in the misconduct and/or mismanagement was insufficient oversight of the charity’s executive by the then trustees which contributed to or facilitated the mismanagement.

Due to the progress made during the Inquiry by the current trustees the charity is in a stronger position going forward but there remain improvements to be made.

The Commission acknowledges that the trustees fully co-operated with the Inquiry throughout, as they are expected to.

Regulatory Action Taken

On several occasions the Inquiry exercised its information gathering powers under section 47 of the Act to obtain information from the charity’s then trustees, former CEO, and others. The exercise of these powers was in line with the Commission’s usual policy when gathering information during an inquiry.

On 18 April 2018 the Inquiry used its powers under section 84A of the Act to prevent the then trustees from undertaking activities that did not comply with the charity’s existing policies and procedures and from starting new programmes of work. This order was discharged on 29 November 2019.

On 1 May 2018 the Inquiry made an order under section 84 of the Act which directed the then trustees to take several actions including commissioning an independent review of the charity’s accounts and a review of the charity’s policies and procedures.

On 25 November 2019 the Inquiry made an order under section 84 of the Act instructing the then trustees to file audited versions of the charity’s overdue annual accounting documents for the financial years ending 31 December 2017 and 31 December 2018.

On 4 February 2021 the Inquiry made an order under section 84 of the Act directing the current trustees to take a number of actions to ensure compliance with their legal duties. These included filing overdue annual accounts to both the Commission and Companies House, applying internal policies and procedures and conducting due diligence on the charity’s partners and donors. Assessing compliance with this order will be conducted as part of the Commission’s routine monitoring work.

Issues for the wider sector

Responsibility over delegated duties

It is legitimate for trustees to delegate the day-to-day management of a charity to staff and others. However, charity trustees always retain the ultimate responsibility for running the charity and should ensure that robust reporting procedures are in place to enable them to make reasonable decisions. Responsibility for ensuring they have sufficient information and are adequately informed in order to make decisions rests with the charity trustees.

Reporting duties to the Commission (including serious incident reporting)

A serious incident is an adverse event, whether actual or alleged, which results in or risks significant:

• harm to your charity’s beneficiaries, staff, volunteers, or others who come into contact with your charity through its work
• loss of your charity’s money or assets
• damage to your charity’s property
• harm to your charity’s work or reputation

A serious incident should be reported to us immediately, not just on completion of the annual return.

Find out more information on reporting a serious incident in your charity.

Trustees’ accounting and financial duties

Trustees must ensure that their charity has adequate financial controls in place. 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.

The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on GOV.UK.

There is also a self-check-list for trustees which has been produced to enable trustees to evaluate their charity’s performance against the legal requirements and good practice recommendations set out in the guidance.

Due diligence

Charity trustees are legally responsible for ensuring charitable funds are used properly for legitimate charitable purposes and not misused for financial crime, terrorist, or other criminal purposes. Trustees are publicly accountable and have duties and responsibilities under charity law to safeguard their charity, its funds, property and beneficiaries.

Due diligence is an important part of trustee duties and is essential in order to be assured of the provenance of charitable funds and confident that they know the people and organisations the charity works with and can identify and manage associated risks. It is vital that trustees have robust due diligence processes and ensure that these are consistently implemented.

Monitoring is a vital step in ensuring that a charity’s funds or property reach their proper destination and are used how the charity intended. The type and depth of monitoring may vary depending on the type of project, the location and the sums of money involved. It is vital that trustees have robust monitoring process in place including documentation (reports, receipts and invoices) in addition to photographs and video.

The Commission has published guidance for trustees in respect of due diligence and monitoring end use of charitable funds.

Cash couriering and moving charitable funds

Charity trustees are legally responsible for ensuring the charity’s money is used properly for legitimate charitable purposes and safeguarded from loss. Trustees must always act to protect charity property. Ensuring strong financial management procedures and proper internal controls, and applying a common-sense approach, will help trustees meet their duties. They also need to promote the transparency and accountability of their charity, particularly as regards its finances, which is so important for public trust and confidence in charities.

The Commissions position in respect of cash couriering is clear – The Commission strongly advises charities against the use of cash couriering as a method to transfer charitable funds due to the risks involved. These are set out in the Commission’s regulatory alert on the use of cash couriers published in February 2017.

In most cases charities should use the regulated banking sector when transferring charitable funds. It is difficult to see, where regulated banking services are available, how trustees could show they discharged their legal duties if they do not use the regulated banking sector in order to secure the charity’s funds.

Charities must have robust financial controls in order to protect the charity’s funds. Charitable funds should not be transferred via personal bank accounts save for exceptional circumstances. There are significant risks to charitable funds if they are held in personal bank account, even were control measures are in place. This practice is not transparent or easily accountable.

1. Registered company number 08553893. ↩

2. Al-Qaeda was proscribed by the Home Secretary in March 2001 under the Terrorism Act 2000. Hay’at Tahrir Al- Sham was later added as an alias. The proscription can be viewed here; Proscribed terrorist groups or organisations. ↩

3. According to the charity’s accounts for FYE 31 December 2016, filed with the Commission on 25 October 2017. ↩

4. Sections 15-18 of TACT have extra-territorial effect - consequently it does not matter whether the incident, giving rise to the (actual or alleged) offence, occurred in the UK or overseas. ↩

5. A report under Section 19 was made to the Police in January 2019, following Commission intervention. ↩

6. Compliance Toolkit, as published on 6 October 2014, stated: “The Commission strongly advises trustees, their employees, volunteers and agents against moving significant amounts of cash from one location to another on their person or in personal luggage.” ↩