Decision

Charity Inquiry: Markaz - EL Tathgheef - EL Eslami (The Centre for Islamic Enlightening)

Published 9 April 2020

This decision was withdrawn on 21 April 2022

This report has been archived as it is over 2 years old.

The charity

The charity was registered on 17 October 1989 and is governed by a Declaration of Trust dated 30 September 1988.

The objects of the charity are:

• the advancement of the Islamic religion in the United Kingdom and in particular but without limiting the foregoing by the promotion and observance of the religious customs and festivals of the Islamic faith
• the advancement of the education of the public concerning the Islamic religion and culture
• the provision in interests of social welfare of facilities for recreation and other leisure time occupation of such persons of the Islamic faith as you may have need of such facilities by reason of their youth or age or infirmity or disablement or social and economic circumstances or for the benefit of the public at large
• the promotion for the benefit of the public of any charitable purpose directed to alleviating those who have lost through death a relative or friend and in particular the protection and promotion of good health both mental and physical the relief of poverty and sickness and the advancement of education in matters relating to the nature of grieving and bereavement

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

Background

In August 2013, the Charity Commission (‘the Commission’) opened a compliance case in relation to the charity. A report obtained from the liquidators of Ahlebait Ltd company number 06951935 (‘the company’), showed the charity as a creditor of the company, and that it was owed £708,200. The monies owed by the company were not been reflected in the charity’s accounts.

The company’s business was the production and broadcast of a special interest television channel. The inquiry was informed that the charity loaned monies to the company as both organisations broadly had the same purpose and objective and the charity could reach a much wider audience by using the television channel to carry out its charitable purposes.

The sole director/shareholder of the company was the son of one of the trustees of the charity (‘the connected trustee’).

As a result a statutory inquiry (‘the inquiry) was opened under section 46 of the Charites Act 2011 (‘the act’) on 3 June 2014.

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 administration, governance and management of the charity by the trustees, including the financial controls
• to establish the transactions between the charity and the company
• whether the trustees have applied due diligence in their decision to provide funds to the company
• whether the trustees managed conflicts of interest, in their transactions with the company given the familial links
• whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law

The inquiry closed with the publication of this report.

Findings

The administration, governance and management of the charity by the trustees, including the financial controls

The inquiry found that the trustees were administering the charity in accordance with its stated objects and ensuring the delivery of lectures, conferences and seminars in Urdu, Arabic, Persian and English. The inquiry also found evidence of documented minutes from trustee meetings held over a number of years and some written policies including a cash and non-cash handling policy. However, these policies did not include sufficient financial controls or guidance as to how the trustees should monitor expenditure.

Furthermore, the inquiry found correspondence from the charity’s accountant to the trustees which referred to the four financial periods ended 30/9/2009 – 30/9/2012 and which identified weaknesses in the internal accounting and controls systems of the charity. The accountant’s correspondence made recommendations to the trustees as to how they should strengthen these areas of the record keeping. The inquiry found no evidence that the trustees implemented these improvements, and it was therefore unclear how the trustees had effectively scrutinised and monitored the finances of the charity.

The transactions between the charity and the company

The inquiry found that the charity had entered into a loan agreement for £500,000 with the company, dated 29 June 2009, which in practice was advanced in a number of instalments and which was to be repaid over twelve monthly instalments. The loan agreement set out that the charity reserved the right to call upon, sell or transfer the Electronic Programme Guide (‘EPG’) to cover the cost of any outstanding balance.

The first loan repayment was due on 4 September 2009, but the inquiry found that the company defaulted on this first repayment.

The inquiry found a letter from the charity to the company dated 11 December 2009 accepting the offer of equipment belonging to the company in lieu of the first repayment and confirmed to the company that the balance of the loan had been reduced by £40,000 (to £460,000).

The company also defaulted on its second loan repayment. As a result, the charity agreed that the company would transfer the EPG from the company into the charity’s name; reducing the loan balance by a further £40,000 (to £420,000). Despite the continued failure to meet the repayment schedule, the inquiry found that further instalments continued to be advanced to the company and letters from the company dated December 2009, January 2010 and March 2010 confirmed receipt of these monies.

The inquiry found evidence from the charity’s bank statements that monies were paid to the charity totaling the full amount of the balance of the loan monies and the inquiry was satisfied there was no financial loss to the charity. However, as the company liquidation only recovered £16,289 for the charity, the monies received by the charity came from donations and did not represent the repayment of the loan by the company. The charity’s financial accounts for the period ended 30 September 2012 record that the loan was repaid in full.

Discrepancies between the sums of money referred to as a loan and donation are due to conflicting categorisation within the charity’s accounts and due to charity records identified by the inquiry which refer to both a loan and donation to the company.

Whether the trustees have applied due diligence in their decision making to provide funds to the company

The company went into liquidation prior to the charity’s loan being repaid in full. The trustees could not evidence that they ensured the financial stability of the company and its ability to meet its liabilities prior to advancing any monies. The inquiry found that monies continued to be advanced to the company despite the company’s failure to repay the loans in accordance with a repayment plan. This is mismanagement and/or misconduct in the administration of the charity.

At the point of entering insolvency the total loan had been reduced by £80,000 and there was an outstanding debt of £420,000. The inquiry found evidence that the difference between the sum of £708,200 referred to in the liquidator’s report and the total loan represented the company’s use of the Charity’s facilities including the car park, rent and use of kitchen facilities.

The inquiry could find no evidence that the use of the facilities by the company was formally documented by the charity nor that any professional valuation was obtained to calculate a fair market rent for the use of any charity facilities.

Whether the trustees managed conflicts of interest, in their transactions with the company given the familial links

The inquiry established that at the time the loan monies were transferred to the company, the trustees had failed to manage a conflict of interest which arose because the son of the connected trustee, was the sole director/shareholder of the company. The inquiry found no evidence that the connected trustee declared his conflict of interest and withdrew from any discussions or decisions in relation to the loan to the company. The minutes from a trustee meeting held on 26 June 2008 show the connected trustee was present but do not record that any conflict was declared. The inquiry could not see how the remaining unconflicted trustees could not be aware of the conflict and should have ensured the connected trustee took no part in the decision-making processes.

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

The inquiry found that the trustees had not complied with their duties and responsibilities as trustees under charity law. There was no evidence that prior to advancing monies to the company the trustees had considered whether the loan was in the best interests of the charity or the ability of the company to repay the loan to safeguard the charity’s funds. The lack of such due diligence undertaken by the trustees prior to making loans to the company put the charity’s funds at risk.

The inquiry found that there was a documented loan agreement between the charity and the company setting out the terms and conditions of the loan and its repayment. However, the inquiry found that despite the failure of the company to fulfil its repayment obligations the trustees failed to pursue the full recovery of the loan. Also, despite a special resolution being passed to enter the company into a creditor’s voluntary liquidation in August 2010, the trustees continued to advance monies to the company which put the charity’s funds at risk.

The inquiry found no evidence that the trustees undertook any valuations of the company’s equipment or the EPG to ensure the charity was receiving goods to the equivalent value of the outstanding loan repayments. Failure to carry out valuations put the charity’s funds at risk which is mismanagement and/or misconduct in the administration of the charity.

The inquiry identified that between April 2012 and February 2015 the charity received numerous large receipts in cash and credits as part of the repayment of monies owed. The trustees were unable to satisfy the inquiry that they had verified the sources of approximately `accepting funds from unknown or unverified sources. The inquiry was satisfied that the balance between the £187,366 and the total of £420,000 repaid to the charity were sufficiently small receipts that did not require any further verification by the trustees.

A special resolution was passed to enter the company into a creditor’s voluntary liquidation in August 2010 which was a month before the final payment was due to the charity. The Company was dissolved on 10 July 2014. The potentially significant loss to the charity due to the failed loan was not reported to the Commission as a serious incident.

Conclusions

The Commission concluded that the trustees failed to act in accordance with their legal duties and responsibilities as set out in the charity’s governing document and charity law. This constitutes mismanagement and/or misconduct in the administration of the charity by the charity’s trustees.

However, despite the poor decision making and lack of financial oversight, the Commission is satisfied there has been no financial loss to the charity as a result of making the loan. The connected trustee resigned on the 28 April 2016.

Regulatory Action Taken

Between 26 June 2014 to 2 March 2017, the Commission used Section 52 of the Act on 14 occasions to obtain information and copies of documents from the charity’s bank.

Between 30 September 2014 to 10 May 2018 the Commission used Section 47 of the Act on 25 occasions to various parties, including trustees to provide information, copies of documents and written answers to questions.

Throughout the inquiry the trustees have been provided with regulatory advice and guidance to help strengthen their governance, due diligence and financial controls.

Issues for the wider sector

Every charity needs an effective trustee body which has control over the administration of the charity and acts as a whole, especially because all trustees are equal in responsibility. Trustees must ensure that their charity has adequate financial and administrative controls in place, and that the funds of their charity are applied for the benefit of the public for which it has been set up.

Due diligence is the range of practical steps that need to be taken by trustees so that they are reasonably assured of the provenance of the funds given to the charity; confident that they know the people and organisations the charity works with; and able to identify and manage associated risks. A significant aspect of a trustee’s legal duty to protect charitable assets, and to do so with care, means carrying out proper due diligence on those individuals and organisations that give money to or receive money from or work closely with the charity.

Trustees must prevent any conflict of interest from affecting the decision making. Trustees must actively manage any conflicts of interest. They should step back from or avoid any situation where a conflict exists or is likely to arise. If it is clear the conflict cannot be adequately managed, even if this means, for example, that additional disinterested trustees are appointed or that the affected trustees resign. 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 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.

Trustees are required to keep accounting records for their charity. Every charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position. Therefore, in order to show that they are complying with their legal duties, trustees must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the charity’s purposes for the benefit of the public.

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 (who are collectively referred to throughout this guidance as people 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.

Read our guidance on reporting a serious incident.