Decision

Charity Inquiry: Jalalabad Association

Published 30 October 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

A statement of the results of an inquiry into Jalalabad Association (registered charity number 1012090) (‘the charity’).

The charity

The charity was registered on 22 June 1992 and is governed by a constitution adopted 20 September 1991, as amended 22 May 1992 and 9 June 2019.

The objects of the charity are to advance the religion of Islam; promote any charitable purpose, particularly for the Muslim Community, in Hereford and Worcester, and in particular the advancement of education and relief of poverty, sickness and distress and the provision of recreational facilities to improve the conditions of life of such inhabitants and to educate the public about Bengali art and culture.

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

Background

On 20 September 2013, the Charity Commission (‘the Commission’) opened a statutory class inquiry, under section 46 of the Charities Act 2011 (‘the Act’), into charities in default of their statutory obligations by failing to submit their annual documents for two or more years in the last five years.

The charity was entered into the class inquiry in November 2017, for failing to submit its annual accounts for five consecutive years (years ending 31 March 2012 – 2016). On 14 November 2017 the Commission issued the charity with a direction, under section 84 (2) of the Act. This directed the trustees to prepare and submit the outstanding accounting information and to undertake a review and implement procedures to ensure they submitted documentation on time in the future. The trustees failed to comply with the direction.

The charity subsequently submitted the accounts for year ending 31 March 2013, however, it continued to be in default of its statutory accounting obligations and provided no evidence that the trustees had reviewed or implemented any new procedures. The charity also failed to submit their accounting information for year ending 31 March 2017 and so was still in default for five years of accounting information at the time the inquiry was opened.

On 12 December 2018 the charity was removed from the class inquiry and a separate statutory inquiry was opened under section 46 of the Act.

Issues under investigation

The inquiry examined the extent to which the trustees were complying with their legal duties in respect of their administration, governance, and management of the charity, and in particular:

• the extent to which a properly appointed board of trustees was exercising proper and adequate oversight of the charity’s affairs
• financial management, including the charity’s financial controls
• compliance with legal obligations for the presentation and filing of the charity’s accounts and other information and returns
• the extent to which the trustees complied with previously issued regulatory guidance and the order made under section 84 of the Act on 14 November 2017

The inquiry closed with the publication of this report.

Findings

The extent to which a properly appointed board of trustees is exercising proper and adequate oversight of the charity’s affairs

Board of Trustees

At the opening of the inquiry the charity had three trustees entered on the Commission’s register of charities. The charity’s constitution required that an annually elected Executive Committee, made up of not less than nine members, managed the charity; these would be the charity’s trustees, in accordance with the definition in section 177 of the Act. The constitution specified that the members elected in the officer roles of Chair, Treasurer and Secretary (‘the officers’) would form part of the Executive Committee and so they were, by definition, trustees.

Following the opening of the inquiry and engagement with the Commission, the charity held an Annual General Meeting on 3 February 2019, whereby those who had been members of the Executive Committee at the opening of the inquiry (‘the former trustees’) all resigned their posts; elections were held and a new Executive Committee formed, consisting of five trustees, one of whom was the former secretary and so a former trustee.

The same treasurer was re-elected, as well as a new secretary and a new Chair. The charity subsequently amended the charity’s constitution to reflect that the charity would be managed by the newly elected Executive Committee of five trustees (‘the new trustees’). The new trustees were entered onto the Commission’s register of charities. The inquiry found that from its inception until the constitution was amended, the charity had been operating without the requisite number of trustees.

The inquiry established that three of the former trustees had been appointed at the inception of the charity in 1992 (‘the founder trustees’) and entered on the Commission’s register of charities. They had remained continually in post without being re-elected annually, as required by the charity’s constitution.

The remaining three former trustees had all been appointed in officer roles at different times (‘the former officers’) and had remained in their posts for a number of years, without being re-elected annually, as required by the charity’s constitution; they had never been entered on the Commission’s register.

The former officers all stated that they had been unaware that they had taken on the role and responsibilities of being a charity trustee. They all accepted they had little to no knowledge of the charity’s constitution and said it was never referred to during any charity business.

They confirmed they had been present at trustee meetings and involved in discussions but said that any final decisions were deferred to the three founder trustees, who they believed were the only trustees of the charity.

The three founder trustees confirmed they had been trustees since 1992, but that they had never read the constitution, so consequently they did not refer or adhere to it. They believed that they alone were the trustees for the charity. They described leaving most of the day to day running of the charity to the former officers, who had also assisted them in making decisions; however, they had not recognised them as trustees.

The founder trustees fully accepted that they had not exercised proper and adequate oversight of the charity’s affairs; this had led them to make the decision to retire from their posts.

The Commission acknowledges that the former officers, although trustees by virtue of clause nine of the charity’s constitution, did not understand that they were trustees and so did not realise they had taken on those responsibilities. The charity held a meeting with all of its members on 14 July 2019, where further amendments were made to the constitution, to clarify who formed part of the Executive Committee. The Commission’s register of charities (‘the register’) was updated to reflect this decision.

The charity’s constitution required that the Executive Committee meet four times a year with a quorum of at least two thirds of the membership of the Executive Committee and that all meetings be minuted. The inquiry established that meetings of the Executive Committee were generally held informally, with no minutes being maintained, so it was impossible to determine when they had had meetings or if the quorum had ever been met.

Consequently, any decisions made by the trustees could be deemed invalid. Meetings with the wider membership did take place and some were minuted. However, the records kept were historical in nature and did not capture full attendance, quorums, decision making or any detailed financial information.

The Commission found that there was a total failure by the Executive Committee to understand or adhere to the charity’s governing document; this is mismanagement and /or misconduct in the administration of the charity.

The Commission acknowledges that the trustees have now amended the constitution to reduce the number of trustees, revised their meeting structures and implemented new procedures to ensure all meetings are now recorded. The Charity now operates with seven trustees, all of who are entered on the register.

Constitution

The inquiry found that, at the time the inquiry was opened, the charity’s constitution was not fit for purpose. The inquiry acknowledges that the new trustees have been working with the Commission to rectify this.

Policies and procedures

The inquiry found that the charity had no policies or controls in place, to assist the former trustees in their governance and management of the charity.

Safeguarding

The charity accounts identified that some form of remunerated teaching role had been undertaken. The former trustees outlined that the previous Iman (who left the Association in 2017) and a paid teacher had been delivering after school education, teaching the Quran to classes of children at the charity premises.

The trustees were unable to produce any records of the provision to the inquiry or any documentation to demonstrate whether any appropriate DBS checks had been undertaken or safeguarding measures considered. The failure to adopt good safeguarding practices could have put the charity and its beneficiaries at risk.

The new trustees confirmed that no teaching had taken place since 2017 and gave an undertaking that no further educational activities would take place until appropriate safeguarding measures were in place. The trustees have provided the inquiry with a Safeguarding Policy that they have now implemented and the new Iman, who will deliver any educational classes, has been subject to an enhanced disclosure and barring check (DBS).

The Commission has directed the trustees, in an order issued under section 84 of the Act, to review all of the charity’s activities and to implement policies and procedures as required. The order specifically directs the charity to implement policies with regards to safeguarding and financial controls.

The Commission acknowledges that the trustees have now implemented safeguarding, radio broadcasting and reserves policies. The Commission will monitor their compliance with the section 84 Order in respect of the review of the charity’s activities and any policies introduced.

Whether the trustees were exercising sufficient financial management of the charity and complying with their legal obligations for the presentation and filing of the charity’s accounts and other information and returns.

Maintenance and submission of accounting information

The inquiry found that the former trustee body had failed to maintain and preserve any accounting records, in accordance with sections 162 to 169 of the Act and the charity’s constitution. These require that trustees ensure that accounting records are kept, submitted to the Commission and available to the wider public on request.

At the time of the opening of this inquiry, the charity was in default of submission of its financial information to the Commission for five years; it further defaulted on submission of its accounts for the year ending 31 March 2018.

The former trustee body were under a legal obligation to account for all of their charity’s income, and perhaps more crucially, its expenditure. The inquiry found that, apart from the charity’s bank statements, the charity’s records contained little evidence of the details of the charity’s income or expenditure, with only limited records of membership fees and no invoices, receipts or other records.

The inquiry found the charity’s accounts had never been overseen by the former trustee board or presented to the AGM, as required by the constitution. The former trustee board had abrogated the responsibility of preparing the accounts to their accountant, without putting any oversight or monitoring processes in place. As a consequence the charity had been in default of their accounting submissions from April 2013 to April 2019.

The charity did submit all their outstanding accounts but were directed to re-submit those for the financial year ending 31 March 2018, in an order issued under section 84(2) of the Act, as the submitted accounts were not SORP compliant; provided insufficient information as to how the charity operated and did not reflect all of the fixed assets held by the charity.

SORP is the Statement of Recommended Practice, a set of recommendations applicable to charities preparing their accounts in accordance with the Financial Reporting Standard.

Financial controls

The inquiry found the charity received most of its donations in cash but did not record details of all the transactions. No checks and balances were undertaken to reconcile monies collected with those banked, leaving the charity’s funds open to potential abuse and risk.

The charity had no financial controls policy or cash handling protocols in place and the treasurer had not received any training for his role. Notwithstanding the charity’s previous accountancy firm confirming to the inquiry that they had lost two years of the charity’s records, there was very little evidence of income and expenditure outside of those two years maintained by the charity.

The inquiry also found that the charity did not have a reserves policy and it was unclear how the trustees managed restricted funds and ensured they were only spent on the purposes for which they were raised.

The former trustee board did not have adequate financial control or oversight of the charity’s finances. The charity failed to keep sufficient accounting records to explain the charity’s transactions, in accordance with their statutory duty under charity law and to demonstrate that any expenditure was in furtherance of its objects. This is mismanagement and/or misconduct in the administration of the charity.

The Commission acknowledges that the charity now has Financial Controls and Reserves policies in place.

The extent to which the trustees have complied with previously issued regulatory guidance and the order made under S84 of the Act on 14 November 2017

The inquiry found that the founder trustees had not implemented the regulatory advice and guidance provided by the Commission during the class inquiry.

The founder trustees had also failed to comply with a legal direction, issued to them under section 84 of the Act on 14 November 2017, requiring them to submit their outstanding financial information to the Commission and to review the charity’s processes, to ensure the required information was submitted in a timely manner in the future. The charity further defaulted on two years submissions.

Trustees are expected to cooperate with the Commission, its requests for information and its legal directions and orders. Failure to comply with a direction is misconduct and/or mismanagement on the part of all of the charity’s trustees and is equivalent to failing to comply with an order of the High Court.

Conclusions

The Commission concluded that the charity was not operating with a properly appointed board of trustees and that the former trustee body showed no evidence of exercising proper and adequate oversight of the charity’s affairs. They had failed to properly administer their charity, in accordance with the charity’s constitution and charity law. This is serious mismanagement and/or misconduct in the administration and governance of the charity.

Though the charity’s administration, governance and management were not fit for purpose at the time of opening the inquiry, the charity has taken a series of steps to improve and strengthen these areas. Early into this inquiry, the former trustees resigned and a new trustee board formed; this includes two of the former trustees, one of whom the Commission recognises as being instrumental in bringing about changes to put the governance of the charity back on a proper footing.

Regulatory Action Taken

On 3 January 2019 the inquiry made a direction under section 47(2)(b) of the Act, to the charity’s bank to obtain bank statements.

On 12 March 2019 the inquiry made a direction under sections 47(2)(b) of the Act, to the charity’s bank to obtain copies of cheques issued from the charity account.

On 13 June 2019 the Commission issued an order under section 84(2) of the Act, directing the Executive Committee to take specified actions within set timeframes, these included:

• to take steps to ensure there are sufficient trustees, appointed in accordance with the charity’s constitution
• to review and amend the charity’s constitution, to ensure it is fit for purpose, implementing any changes as appropriate
• to review the charity’s meeting structure and decision making processes, implementing any changes to comply with the charity’s constitution and charity law
• to implement training for the trustees and relevant persons, as required
• to review the process for submitting the charity’s financial information to the Commission, in accordance with charity law
• to resubmit their year ending 31 March 2018 accounting information to the Commission, ensuring it is SORP compliant and outlines all of the charity’s assets
• to review the charity’s activities, implementing Safeguarding and Financial Controls policies and any further policies or procedures, to ensure compliance with the law and to manage any identified risks
• to review how the charity holds property, implementing any changes to ensure compliance with the charity’s constitution

On 6 August 2019 the Commission varied the section 84 Order, under s337(6) of the Act, to ensure that its provisions applied to each member of the Executive Committee; following a revision made to the constitution on 14 July 2019 as to how the trustee body was to be constituted.

The Commission requested and obtained a written undertaking from the founder trustees, on 12 September 2019 that they will not take on any future trustee roles for this or any other charity for a period of ten years.

Issues for the wider sector

An effective charity is run by a properly appointed, clearly identifiable board or trustee body with the minimum number of trustees, as required by its governing document.

An effective trustee body acts in the best interests of the charity and its beneficiaries, understands its responsibilities and has systems and policies in place to exercise them properly, with clear and robust reporting procedures and lines of accountability.

It is legitimate for trustees to delegate decisions regarding the day-to-day management of a charity to staff and others. However, where they do so, the trustees must always retain ultimate responsibility and accountability for all decisions that are made.

Trustees should familiarise themselves with their charity’s governing document. Trustees have a legal duty and responsibility to their charity and it is important that individuals take reasonable steps to find out what the role of trustee requires of them. Holding the position of trustee in name but failing to fulfil the legal duties and responsibilities of a trustee may amount to misconduct and mismanagement in the administration of a charity.

Proper financial controls are a necessary feature of any well-run organisation. Trustees should ensure that adequate financial controls and policies are put in place and that sufficient information is reported back at trustee meetings, to satisfy them that the controls are being properly implemented.

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. This is key to ensuring public trust and confidence in charities.

Trustees are expected to follow the requirements and recommendations in the charities SORP when preparing annual reports and accounts. A charity’s annual report and accounts should not be viewed simply as a statutory requirement but should help users of the information to understand what the charity is set up to do, the resources available to it, how these resources have been used and what has been achieved as a result of its activities.