Decision

Charity Inquiry: Muffin Pug Rescue

Published 5 December 2024

Applies to England and Wales

The Charity

Muffin Pug Rescue (‘the charity’) was registered with the Commission on 19 October 2015. It is governed by a Constitution of a Charitable Incorporated Organisation.

The charity’s objects are:

• for the benefit of the public to relieve the suffering of pugs in need of care and attention in particular by providing care and treatment of the pugs and seeking to suitably rehome them

• to promote humane behaviour towards pugs by providing appropriate care, protection, treatment, and security for pugs that are in need of care and attention by reason of maltreatment, sickness poor circumstances or ill usage and to educate the public in matters pertaining to dog welfare in general and the prevention of cruelty and suffering among dogs

The charity changed its name to Pug Life Rescue on 18 December 2023. The charity’s entry can be found on the register of charities.

The trustees appointed during the time period this inquiry investigated are:

Name	Role	From	To
Kristine Lovelady	Founder trustee	10 June 2015	16 May 2023
Trustee A	Founder trustee	10 June 2015	01 March 2017
Trustee B	Trustee	01 October 2015	17 April 2019
Trustee C	Trustee	01 October 2015	17 April 2019
Declan Poole	Trustee	01 October 2018	16 May 2023

New independent trustees were appointed while the charity was engaged with the Commission. Trustee E and F were appointed on 07 February 2022, trustee G was appointed on 01 August 2022, and trustee H was appointed on 12 May 2023.

Background and issues under investigation

In February 2021, the Commission opened a Regulatory Compliance case due to the charity’s repeated failure to submit their accounts and annual returns (‘the accounting information’) to the Commission. Since 2016, the Commission had opened three regulatory compliance cases into the charity for this reason and despite being given ample opportunity and support by the Commission to submit their accounts, the only time accounting information was submitted to the Commission was for the financial year ending 30 April 2016.

The Commission also identified concerns regarding the charity’s governance and financial controls. The charity’s governing document stipulates that there should be at least three trustees to effectively administer the charity. The charity was founded with 4 initial trustees. However, Trustee A was not a trustee for any significant period and Trustees B and C had very little involvement with the charity from the beginning of 2018. Furthermore, Kristine Lovelady was the only person to have control of the charity’s funds and bank account at that time. Trustee details were never updated correctly on the register of charities.

From April 2019 to February 2022, the charity operated with only 2 trustees, Kristine Lovelady and Declan Poole, who are mother and son. This meant that throughout that period the charity had an inquorate trustee board and was unable to manage conflicts of interest. When Declan Poole became a trustee, he was added as a signatory to the charity’s bank accounts along with Kristine Lovelady. 

On 26 May 2022, 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 investigate:

• the trustees’ compliance with legal obligations for the content, preparation and filing of the charity’s accounts and other information or returns

• the possible misappropriation and/or misapplication of the charity’s funds

• if the trustees have avoided or adequately managed potential conflicts of interest and if there has been any unauthorised direct or indirect private benefit

Given the lack of involvement of trustees A B and C in the management of the charity, the inquiry examined for the most part the activities of the trustees Kristine Lovelady and Declan Poole.

The inquiry closed with the publication of this report.

Findings

The trustee’s compliance with legal obligations for the content, preparation, and filing of the charity’s accounts and other information or returns

Trustees must comply with statutory accounting and reporting requirements. A failure to submit accounts to the Commission is a criminal offence. The Commission also regards it as mismanagement or misconduct in the administration of the charity.

Despite ongoing engagement with the Commission, the trustees in post at the time, repeatedly failed to comply with legal requirements to submit annual returns and accounts for financial years ending 30 April 2017, 30 November 2017, 30 November 2018, 30 November 2019, and 30 November 2020.

On 10 January 2021 the then trustees, Kristine Lovelady and Declan Poole, appointed an accountant to produce the overdue financial accounts (accounting firm A). On 8 July 2022 Kristine Lovelady informed the Commission that the charity’s accounts were prepared and only required independent examination. However, accounting firm A terminated their services on 30 August 2022 and stated that the charity had not provided them with the information they required to prepare the accounts despite numerous requests. Providing misleading information to the Commission is evidence of misconduct and/or mismanagement in the administration of the charity by Kristine Lovelady.

A new accountant (accounting firm B) was appointed in September 2022. However, it was only after Kristine Lovelady and Declan Poole were suspended from acting as a trustee under section 76(3)(a) of the Act on 14 December 2022 that the new trustees began the process of gathering all the information required to submit the outstanding accounts for the financial years ending 30 November 2017 – 2021.  (Kristine Lovelady and Declan Poole were subsequently removed under section 79(4) of the Act in May 2023).

However, due to the previous trustees’ failure to maintain adequate financial and decision-making records and to provide timely explanations to Accountant B, all the accounts that the new trustees submitted had to be qualified.

In addition to qualifying the accounts, Accounting firm B submitted a Matters of Material Significance report (MOMS) to the Commission. Amongst the issues identified by the accountant were:

• a failure to comply with HM Revenue and Customs requirements, including in the payment of staff wages and the provision of benefits in kind to the trustees
• during the years 2017 – 2021, HMRC made Gift Aid payments to the charity amounting to £250,708 - the then trustees, and particularly Declan Poole who received a payment from the charity of £1,500 for preparing Gift Aid claims, made numerous errors in completing those returns which resulted in the charity owing HMRC £213,567 in Gift Aid that had been claimed in error

Financial misappropriation and/or misapplication of charitable funds

Trustees must ensure that their charity is accountable, and its resources are managed responsibly. A failure to keep accounts and proper accounting records is evidence of misconduct and mismanagement.

The inquiry found that the charity’s financial records were in disarray and poorly managed with the trustees unable to fully account for the charity’s finances. The trustees relevant at the time, failed to implement a system of internal controls with little evidence of record keeping or authorisation of expenditure.

The inquiry also found numerous instances of non-charitable expenditure made from the charity’s bank account. They included, but not limited to, payments to clothing stores, food delivery companies, restaurants, and jewellery shops which included a Rolex watch costing £7,000 which was purchased in the name of Declan Poole.  This expenditure represented an ongoing pattern of lifestyle payments that clearly benefitted both Kristine Lovelady and Declan Poole who were the only trustees in control of the charity’s funds at the time the expenditure was made. 

In the absence of any accounts, in September 2022, the inquiry undertook a financial analysis of the charity’s bank statements to quantify sums that had flowed through the charity’s bank accounts. During the period 4 August 2021- 15 July 2022 the inquiry established that receipts totalled £574,459.76 and payments totalled £583,363.53. This is a significant amount of expenditure that ought to be supported by the charity’s records. Kristine Lovelady and Declan Poole were unable to provide supporting evidence for most of that expenditure. As they were the only two trustees in post during this period, plus both were also named on the bank mandate, they had clearly failed in their duty to be accountable. In the absence of any evidence to the contrary, the inquiry was not satisfied that the vast majority of the income received by the charity had been applied correctly.

Subsequently, from the work undertaken by the charity’s own accountant to resolve the outstanding accounts for the years 30 April 2017, 30 November 2017, 30 November 2018, 30 November 2019, 30 November 2020 and 30 November 2021, total costs amounting to £361,951 were identified, that the accountant was unable to establish were incurred in furtherance of the charity’s objectives.

Throughout the inquiry, Kristine Lovelady and Declan Poole frequently referred to a ‘trustee loan account’ in relation to unexplained non charitable/personal expenditure with little clear information or evidence to enable the loans to be verified. Kristine Lovelady claims she made loans to the charity over several years, and the non-charitable expenditure was to offset the loans that she had made. The inquiry was unable to identify any substantive loan agreement or terms and conditions other than a handwritten note from 26 October 2015 that suggested a ‘loan account’ was agreed and authorised in a meeting between the trustees Kristine Lovelady and trustees A and B.

Subsequently, Kristine Lovelady provided numerous spreadsheets to the inquiry which allegedly outlined how much she had loaned to the charity. However, there was insufficient evidence to corroborate her claims and no clear audit trail that could be understood either by the inquiry or the charity’s accountant. Whilst the inquiry accepts Kristine Lovelady may have made some payments from her personal funds on behalf of the charity that were genuine charitable expenditure, particularly in relation to importing dogs from China, the information she has provided does not amount to the unverified expenditure of £361,951 that has been identified in the accounts.

The inquiry also established that there were significant debts and county court judgements incurred since 2018 by the then trustees which had been left unaddressed. Some of these debts had been incurred in the name of the charity, such as unpaid vets’ fees. Others, such as unpaid parking fines and toll charges had been incurred personally by Kristine Lovelady and her family.   

Failure to manage potential conflicts of interest and unauthorised direct or indirect private benefit

Trustees must not receive any benefit from the charity unless it is properly authorised and is clearly in the charity’s interests. The inquiry found that during April 2019 to February 2022, the charity operated with only two trustees, mother and son, Kristine Lovelady and Declan Poole. This led to inquorate decisions and unauthorised trustee benefit. It also meant any conflicts of interest that did arise could not be managed appropriately given the familial links between the two trustees.  

The inquiry found the charity had made significant payments towards the rent of the residence occupied by Kristine Lovelady, Declan Poole and other family members until January 2023. Between March 2018 and June 2022, the charity paid £96,000 (£2000 per month) to the property’s landlord. The inquiry found limited evidence that some of the trustees in post at the time had agreed for a sum of £2000 per month to be paid towards the rent of the property as a short-term solution when the charity was set up. However, the inquiry found no evidence that this arrangement was ever formalised or later reviewed, and the new trustees were also initially unaware of this arrangement.

Some of the dogs were housed in the property, which was of some financial benefit to the charity. However, the failure to manage the conflict of interest and the receipt of unauthorised trustee benefits, in respect of accommodation costs enabled Kristine Lovelady and Declan Poole to personally benefit from charitable funds to live entirely rent-free in a sizeable family home.

Further to this, there is evidence to suggest that the charity was also paying the living expenses of Kristine Lovelady and Declan Poole. The inquiry found that the charity was paying some utility bills and internet bills for the residential address, including for Sky subscription and Sky Box Office.

Kristine Lovelady’s partner (and father of Declan Poole) also resided at the above property and was engaged in work for the charity, primarily as a driver. During the period between December 2015 and July 2022, the charity made payments totalling £48,165.19 to Kristin Lovelady’s partner and £25,650.00 to Declan Poole. The lack of proper records meant that it was not possible for the inquiry to understand why they had received these payments.

Furthermore, the only people that could have authorised these payments would have been a family member. This not only gave rise to a conflict of interest, but the lack of supporting documentation meant the inquiry could not identify if all these payments were made for the charity’s purposes.

The inquiry found that Declan Poole also benefitted directly from the charity because it funded a private company, he owned and of which he was director, for the development of a patented dog feeding product. The inquiry found that payments totalling £23,360 were made by the charity to Declan Poole as a ‘development loan’, and accounting records indicated that this loan was to be repaid to the charity. However, yet again, there was no formal loan agreement in place, and, to date, the charity has not yet received any repayments either from Declan Poole or his company.

The current trustees are primarily responsible for taking reasonable steps to recover any property or money lost or misappropriated, and the Commission has advised them to follow the Commission’s guidance on this and take independent legal advice.

Conclusions

The inquiry concluded there had been serious misconduct and/or mismanagement by Kristine Lovelady and Declan Poole through:

• the failure to file accounting information
• poor financial controls
• the failure to manage conflicts of interest
• direct and/or indirect trustee benefit
• the misapplication of charitable funds for personal benefit
• the failure of administration and governance in the running of the charity

Kristine Lovelady and Declan Poole have breached their trustee duties and responsibilities in failing to avoid conflicts of interest or manage the charity’s financial affairs and resources with care and skill. They also failed to keep adequate financial records for the charity, and therefore were in breach of their legal obligations under section 386 of the Companies Act 2006 which states that every Company must keep adequate accounting records. Those trustees exposed the charity to unacceptable financial risk due to their failure to adequately manage the resources of the charity.  

Following the removal of Kristine Lovelady and Declan Poole as charity trustees, the new trustees have continued to operate the charity and have been working to rectify the issues at the charity. The charity is now up to date with its accounting information, and robust financial controls and policies have been put in place. To mitigate the reputational damage suffered to the charity, on 18 December 2023 the trustees made the decision to change the name of the charity to Pug Life Rescue.

Regulatory Action Taken

The inquiry exercised its powers under section 47(2)(a) and (b) of the Act on multiple occasions to obtain information and copies of documentation from various sources including the trustees.  

On 30 May 2022, the Commission issued an Order under section 84 of the Act directing the trustees to submit the outstanding accounts for financial years ending 30 April 2017, 30 November 2017, 30 November 2018, 30 November 2019, and 30 November 2020.

On 25 July 2022, the Commission made an Order under section 76(3)(d) of the Act not to part with property to various organisations in order to protect the charity’s funds. This Order was discharged on 4 August 2023.

On 15 December 2022, the Commission exercised its powers section 76(3)(a) of the Act to suspend Kristine Lovelady and Declan Poole from acting as trustee, officer, agent and or employee of the charity. 

On 15 December 2022, the Commission issued notice of its intention to permanently remove Declan Poole and Kristine Lovelady from acting as trustee, officer, agent, or employee of the charity under section 79(4) of the Act.

On 21 December 2022, the Commission issued an Order under section 76(3)(f) to the remaining trustees to restrict payments without prior approval of the charity Commission. This Order was discharged on 5 July 2023.

On 17 January 2023 a joint representation was submitted by Kristine Lovelady and Declan Poole to appeal against the suspension order and the notice of its intention to remove them.   

On 23 February 2023, the Commission made an Order under 335(1) of the Act directing Kristine Lovelady to comply with the requirements of the Order made under section 76(3)(a) to cease any actions as a trustee, officer, agent, or employee of the charity whilst suspended and transfer all charity accounts and administrative permissions to the remaining trustees.

On 3 May 2023 the Commission’s independent reviewer concluded that the legal tests, to suspend Kristine Lovelady and Declan Poole, pending consideration being given to their removal as a trustee and the decision to issue notice of its intention to remove them both as a trustee, charity trustee, officer or agent had been satisfied.

On 4 May 2023, the Commission exercised its powers under section 79(4) of the Act to permanently remove Kristine Lovelady and Declan Poole from acting as trustee, officer, agent, or employee of the charity. Subsequently, both parties appealed this decision at charity tribunal. However, Declan Poole withdrew his appeal the day before the hearing on 19 December 2023. Kristine Lovelady’s appeal against the making of the Removal Order was held on 20-21 December 2023, with the tribunal’s decision to refuse her appeal given on 8 April 2024. 

As a result of the removal, Kristine Lovelady and Declan Poole are now disqualified from being a trustee or senior manager of any charity, under section 178 of the Act.

On 17 May 2023, the Commission made an Order under section 85 of the Act to direct the charity’s bank to remove Kristine Lovelady and Declan Poole from the bank mandate.

Issues for Wider Sector

It is the fundamental duty of all charity trustees to protect the property of their charity and to secure its application for the objects of the charity. In order to discharge this duty, it is essential that there are adequate internal financial and administrative controls over the charity’s assets and their use. Therefore, 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.

Failure of a trustee(s) to show how the charity’s funds have been properly applied in accordance with the objects of the charity amounts to misconduct and mismanagement.

If loans are made to a charity, we would expect the charity to have receipts and some form of agreement in place to cover this arrangement – setting out the terms of the loan, when it was to be repaid and any interest to be added. This would assist in protecting charitable funds from potential abuse and any failure to take this action potentially puts charitable funds at risk.

Any individual or organisation that loans money to a charity should appear in the charity’s accounts as creditors of the charity.

The failure to prepare proper accounts reflecting the loans made or the receipt of money to discharge loans amounts to misconduct or mismanagement and contravenes general law and the obligations owed by a charity trustee.

Trustees must always act in the best interests of the charity. Conflicts of interest or loyalty can lead to decisions which are not in the best interests of the charity and can lead to difficulties and damage to the reputation of the charity. Trustees must recognise and manage conflicts of interest as they arise. Trustees must not mix charitable expenditure with personal expenditure, particularly when a benefit may be inferred to the trustee(s) directly. Trustees must follow any conflict-of-interest provision in their governing document. The Commission has published guidance for trustees in respect of conflicts of interests.

It is good practice to have a conflicts of interest policy in place if it does not have a suitable clause in its Governing Document, to ensure trustees are fully aware of their responsibilities and that any conflicts that do arise are appropriately managed.