Decision

Charity Inquiry: Jewish Seminary for Girls

Published 18 March 2020

This decision was withdrawn on 7 April 2022

This Inquiry has been archived as it is over 2 years old.

The Charity

The Jewish Seminary for Girls (‘the charity’) was registered with the Commission on 25 April 1972 and is governed by a constitution dated 16 April 1972.

The objects of the charity are: to promote the Jewish faith amongst Jewish girls and women between the ages of 15 and 25 by providing religious education for such persons in accordance with traditional Judaism, and to provide instruction to enable students to enter a trade or profession.

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

The Trustees

The charity’s trustee board has changed several times during the period examined by the inquiry, therefore the following distinctions are made to clarify who was responsible for the charity during the events set out in this report.

Mr Avrohom Modechai Royde was a trustee between 25 March 2014 to 31 October 2018 (‘Mr Royde).

Mr Yonathan Kahn was a trustee between 25 March 2014 to 10 July 2019 (‘Mr Kahn’).

Mr Royde and Mr Kahn will together be referred to as the ‘former trustees’.

The current board of trustees consists of Trustee A and Trustee B were appointed on 12 September 2018.

Trustee C was appointed on 10 July 2019.

Together known as the ‘current trustees’.

Background

The charity was previously part of the Commission’s ‘double defaulters’ class inquiry for failing to submit annual accounts for the financial years ending 31 July 2013 and 31 July 2014. On 25 November 2015 the charity submitted the outstanding annual accounts, after being ordered to do so, and the charity was removed from the double defaulter inquiry on 3 March 2016.

Following scrutiny of the charity’s accounts there were concerns as to whether the accounts provided presented an accurate picture of the charity’s financial activities and whether the assets currently or previously, that belonged to the charity had been adequately accounted for.

The Commission opened a statutory inquiry (‘the inquiry’) into the charity, under section 46 of the Charities Act 2011 (‘the Act’) on 13 May 2016.

The inquiry was closed with the publication of this report.

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 activities of the charity and the extent to which it operates for the public benefit
• the charity’s internal financial controls
• the extent of related party transactions and the management of the conflicts of interest
• the nature and value of assets held by the charity
• compliance with legal obligations for the presentation and filing of the charity’s accounts and other information and returns
• whether there has been any misconduct and/or mismanagement by the trustees and whether remedial regulatory action is necessary

Findings

The extent of related party transactions and the management of the conflicts of interest

The Loan

The inquiry carried out a Books and Records Inspection on 26 February 2018 (‘the inspection’) where it identified concerns relating to a loan agreement (‘the loan agreement’) between the charity and a company (‘the company’) that was connected to Mr Kahn, a former trustee.

This loan agreement led to £472,394 being paid to the company. At this time, the charity had no other assets other than £816 held in cash according to the charity’s accounts for the financial year ending 31 July 2016.

The Commission found that the loan agreement was signed by Mr Royde on behalf of the charity, and by Mr Kahn on behalf of the company, who was the sole shareholder of the company at the time. The charity’s constitution requires three trustees for a quorum, therefore, as the loan agreement was decided by only one trustee, the decision was inquorate and a breach of the charity’s constitution.

The inquiry acknowledged that Mr Kahn did not participate in the decision-making process, as he left the meeting when the other trustee considered the matter.

The former trustees’ records indicated that Mr Royde would only agree to the loan on the basis that: the interest rates offered were high; the accountant was happy with the financial health of the company; and that a debenture be put in place as a security.

The Commission was not provided with any records, other than the meeting minutes to support Mr Royde’s decision. The company’s accounts available prior to the decision showed net assets of less than £6,000. The inquiry was not satisfied that the former trustees carried out the appropriate level of due diligence prior to entering into the loan agreement and were unable to provide sufficient evidence to support the decision.

The inquiry found that Mr Kahn received unauthorised trustee benefit from the loan to the company by receiving £472,394 at a time when the inquiry is doubtful that it would have secured a loan for this amount on such favourable terms from a high street lender. Whilst there has been no loss to the charity, the inquiry found that due to the terms of the loan, the decision was not made in the best interests of the charity.

This was misconduct and/or mismanagement in the administration of the charity. In the first instance it is for the trustees of the charity to consider the merits of and pursue a claim for restitution on behalf of the charity. The inquiry made an order under section 84, on 10 January 2020, to direct the current trustees to obtain legal advice in relation to restitution.

Capital repayments

Despite Mr Royde’s insistence that a debenture be put in place, the loan agreement he signed did not require that this occur until 36 months after the date of the loan agreement. A debenture was not put in place until 5 May 2018, after the inquiry had been opened.

There was no requirement in the loan agreement for the company to make any capital repayments before 30 October 2030. The charity did not receive any capital repayments until the former trustees decided to change the clause on 29 July 2016, which required that capital be repaid at a rate of £3,500 per month. This change occurred after the Commission had opened the inquiry.

The former trustees informed the inquiry that the capital repayments from the company had been paid directly to Rabbi A and Rabbi B (together ‘the Rabbis’), to meet the costs of delivering lectures. The Rabbis received monthly payments of £2,500 (Rabbi A) and £1,000 (Rabbi B).

The inquiry found Rabbi A was a connected party, as he was related to one of the former trustees. The former trustees have been unable to show that the conditions required as set out in sections 185 and 186 of the Act were complied with in relation to the payments to Rabbi A and this amounted to unauthorised benefit to a party connected to one of the former trustees.

Employment of the Rabbis – payments to connected parties

On 12 February 2019, the inquiry was informed that the decision had been taken by the then trustees to employ the Rabbis and the payment amounts received by them did not change. These trustees had not carried out an open and competitive recruitment process and the charity did not have an employment policy.

The inquiry found that Mr Kahn, Trustee A and Trustee B failed to manage the charity’s resources responsibly by entering into employment contracts with the Rabbis without first satisfying themselves that the remuneration package was reasonable.

Due to the lack of records the trustees were unable to demonstrate how the employment of the Rabbis was in the best interests of the charity.

Compliance with legal obligations for the presentation and filing of the charity’s accounts

When the inquiry was opened in May 2016, the charity was in default for its annual return for the financial year ending 2015, which was eventually filed on 22 December 2016. This was misconduct and/or mismanagement in the administration of the charity. The charity filed qualified accounts for the financial year ending 31 July 2016.

On 2 November 2018, the inquiry requested that the then trustees send the charity’s accounts for the financial year ending 31 July 2017. In response these trustees said that they had been advised that the preparation was not necessary due to not meeting the income threshold. Whilst the charity was not required to file its accounts with the Commission, there is a requirement to prepare the charity’s accounts, which they had failed to do.

The charity made its accounts for financial year ending 31 July 2018 available to the Commission without request and filed its annual returns on time for the financial years ending 2016, 2017 and 2018.

The activities of the charity and the extent to which it operates for the public benefit

The former trustees informed the inquiry that the charity was previously involved with a school known as Beth Yaakov Seminary for Girls (‘the school’), and that since its closure the charity sponsored the Rabbis to deliver weekly lectures (‘the projects’), as well as issuing some donations to other organisations. Rabbi A and Rabbi B received £2,500 and £1,000 respectively to cover the costs for delivering the projects.

On 6 November 2018, the inquiry requested that the then trustees provide copies of all invoices and receipts for expenditure relating to the projects and a schedule (including times) of the lectures.

These trustees informed the inquiry that since the inception of the projects, they had been managed entirely by the Rabbis and they were not in possession of any invoices. Furthermore, Rabbi A confirmed he had not kept any records such as receipts or invoices nor had he been asked to do so by the trustees. The only records the charity was able to produce were receipts to show that the money from the company had been received by the Rabbis.

The trustees’ failure to ensure records were maintained is a breach of section 130 of the Act, which requires charity trustees to keep accounting records in respect of the charity, which are enough to show and explain all their charity’s transactions. This failure is misconduct and/or mismanagement in the administration of the charity.

To satisfy itself that the charity was operating for the public benefit the inquiry obtained the dial in details for a telephone lecture being delivered by Rabbi A and dialled into a call. The inquiry was able to confirm that the lectures were taking place and that several beneficiaries were on the call.

However, the telephone lectures required the distribution of learning materials (as advised by the former trustees), but Rabbi A was not able to evidence that he had shared any learning materials when the Inquiry requested this for a sample selection of months.

The charity’s internal financial controls

The inquiry could not find any evidence that the former trustees had adequate documentation supporting the charity’s transactions.

The only receipts and invoices held by the charity were for tax and accounting service from 2008 and 2009. The inquiry did not find any evidence at the inspection that the former trustees had implemented any policies to ensure compliance, or to protect the charity’s property.

The inquiry found that the former trustees failed to ensure proper financial controls were in place and there was inadequate record keeping which exposed the charity’s property to unnecessary risk and failed to prevent substantial unauthorised trustee benefits.

Whether there has been any misconduct and/or mismanagement by the trustees and whether remedial regulatory action is necessary

As set out above the inquiry found evidence of breaches of trust by the former trustees and misconduct and/or mismanagement.

The inquiry wrote to the former trustees on 19 June 2018 and they confirmed that they had implemented a number of new policies and procedures. Despite these assurances, the charity continued to send payments to Rabbi A, in breach of trust, and failed to keep any records to verify the end use of these funds. This is misconduct and/or mismanagement in the administration of the charity.

Conclusions

The Commission concluded that the decision to make a loan of £472,394 to a company connected to one of the former trustees was made in breach of trust, was not in the best interests of the charity and has put the charity’s main asset at unnecessary risk. Furthermore, the majority of the capital payments, which were due to the charity, have been paid to Rabbi A to provide lectures that the trustees were unable to evidence took place, and which in themselves constituted unauthorised connected party transactions.

Whilst the inquiry found that trustee B and trustee C have made attempts to resolve these issues, further work is required to ensure that the activities that the charity undertakes are good value, further the purposes of the charity and are for the public benefit.

Regulatory action taken

On 26 February 2018 the inquiry completed an inspection of the charity’s books and records and interviewed one of the former trustees.

The inquiry used its information gathering powers under section 47 of the Act to direct the trustees to provide information and documents to the inquiry on various occasions.

On 4 February 2019, the inquiry directed the trustees, by making an order under section 84 of the Act, to ensure that all future capital repayments from the loan agreement would be repaid directly to the charity.

On 14 March 2019 the inquiry made an order, under section 76(3)(d) of the Act, to the charity’s bank, which held property on behalf of the charity, not to part with the property without the approval of the Commission. This order was revoked on 7 June 2019.

On 20 December 2019, the inquiry used its discretionary disqualification powers, under section 181A of the Act, to disqualify Mr Kahn and Mr Royde from acting as trustees and/or holding an office or employment with senior management functions in charities generally for 12 years.

On 10 January 2019, the inquiry directed the trustees, by making an order under section 84 of the Act, to take action to address the ongoing risks to the charity’s property.

Issues for the wider sector

Trustees have a legal duty to protect charity property and funds with the necessary care and properly assess risk. Trustees must carry out appropriate due diligence on those individuals and partner organisations that the charity receives donations from, gives money to or works with closely. Due diligence and financial controls or checks depend on various factors and must be proportionate to the level of risk. Factors for consideration include: the amount of charitable funds and if the funds are being transferred to a high-risk area.

Charity trustees are responsible for governing their charity and making decisions about how it should be run. Making decisions is one of the most important parts of the trustees’ role.

Trustees can be confident about decision making if they understand their role and responsibilities, know how to make decisions effectively, are ready to be accountable to people with an interest in their charity, and follow the 7 principles that the courts have developed for reviewing decisions made by trustees.

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.

Trustees must exercise their duty of care and taking proper decisions, and not allow the good name of charity to be abused for the benefit of commercial companies. Charities are held in high esteem by the general public, and trustees must ensure they do not enter into agreements that could jeopardise that public trust.

Charity trustees should ensure that they have a conflicts of interest policy in place to ensure that they are fully aware of their responsibilities and that any conflicts that do arise are appropriately managed.

Where a charity trustee has a conflict of interest they should follow the basic checklist set out in the Commission publication Conflicts of interest: a guide for charity trustees (CC29) and where necessary or appropriate take professional advice.

The law states that trustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self-dealing transactions unless they have the legal authority to do so. This may come from the charity’s governing document or, if there is no such provision in the governing document, the Commission or the Courts. Further information is available from Trustee expenses and payments (CC11).

Trustees of charities with an income of over £25,000 are under a legal duty as charity trustees to submit annual returns, annual reports and accounting documents to the commission as the regulator of charities. Even if the charity’s annual income is not greater than £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. Failure to submit accounts and accompanying documents to the commission is a criminal offence. The Commission also regards it as mismanagement and misconduct in the administration of the charity.