Decision

Charity Inquiry: Muslim Aid

Published 29 November 2022

Applies to England and Wales

The Charity

Muslim Aid (‘the charity’) was entered onto the register of charities (‘the register’) on 29 December 2017. The charity is governed by its foundation constitution dated 29 December 2017, as amended by resolution dated 9 February 2022.

The charity has objects which are, for the public benefit, to tackle poverty and relieve human suffering in support of people globally in accordance with the teachings of the Holy Qur’an and Sunnah.

The charity’s entry on the register records that on 1 February 2018 the charity received a transfer of funds from the now removed charity, Muslim Aid 1985 (‘MA’). The charity is the successor to MA following its conversion to a charitable incorporated organisation (‘CIO’) in December 2017.

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

Background and issues under Investigation

MA had been the subject of previous regulatory intervention by the Commission in 2010. Its trustees at the time were provided with regulatory advice and guidance and recommendations, under section 15(2) of the Charities Act 2011 (‘the Act’), in relation to its activities internationally and due diligence. In July 2012 further regulatory concerns were identified which led the Commission to open a statutory inquiry into MA on 20 November 2013, under section 46 of the Act (‘the 2013 inquiry’).

As part of the 2013 inquiry the trustees at the time were issued an order under section 84 of the Act, directing them to implement a number of actions aimed at improving MA’s governance. The trustees at the time did not comply with the section 84 order; consequently, the 2013 inquiry appointed an Interim Manager (‘the IM’) in 2016 under section 76(3)(g) of the Act to regularise MA’s governance and ensure it was fit for purpose. A recommendation from the IM was for MA to be incorporated into a CIO, which resulted in the creation of the charity and a transfer of MA’s funds and property to it before it was dissolved and removed from the register.

The charity was established with a new trustee board recruited under a selection process carried out by the IM and overseen by the Commission. All of the trustees were new, none had been trustees of MA. The new trustee board took office on 29 December 2017. At the time of registration, the constitution provided for there to be a minimum of six trustees and a maximum of twelve. The IM appointed seven individuals who were recorded as trustees. Of those seven, four remain in post (with no break in office and their terms having been renewed in accordance with the provisions in the Charity’s constitution) as at the date of the publication of this report.

As part of the 2013 inquiry into MA a meeting was held in October 2017 with the charity’s incoming trustees, its senior leadership team, and the IM of MA. It was accepted at the meeting that further improvements were needed in a number of areas to ensure that failings identified in MA’s management and administration would not be replicated in the charity moving forward. This included safeguarding, human resources, financial controls, and the governance of the charity’s overseas country offices. On 24 April 2018, the 2013 inquiry issued the trustees of the charity, at that time, with an action plan under section 15(2) of the Act (‘the 2018 Action Plan’) which sought to address the outstanding regulatory concerns the 2013 inquiry had with the charity’s management and administration (as set out above). This included 66 actions to be completed by 1 March 2020 with a final report to be submitted to the Commission by 24 April 2020. The 2013 inquiry into MA closed with the publication of an inquiry report on 6 December 2018.

The Commission monitored the trustees’ progress against the 2018 Action Plan by considering the progress reports provided by the trustees (at 6, 12 and 18 months) and by meeting with the trustees on 14 February 2020.

The purpose of the meeting on 14 February 2020 was to discuss the Commission’s serious ongoing regulatory concerns, based on the progress reports submitted, regarding the charity’s compliance with the 2018 Action Plan and to be satisfied that it would be fully complied with by the deadline of 24 April 2020. Additional concerns were also raised and discussed regarding the charity’s financial management and ongoing solvency, including a report by the charity’s auditors at the time which highlighted financial management as an area where insufficient progress had been made. At that time the trustees accepted that their oversight of compliance with the 2018 Action Plan had not been as effective and robust as it should have been.

During the meeting of 14 February 2020, the trustees informed the Commission that the Charity was not in the position they thought it had been and they faced significant challenges as a result. The trustees stated they were not confident of meeting the Action Plan deadline of 24 April 2020. Assurances were provided at the meeting that remedial steps to address the outstanding issues were being taken, wider than the actions in the 2018 Action Plan, and that this included a financial recovery plan. The trustees also informed the Commission that the charity had commissioned its own investigation to examine substantive issues, as identified through serious incident reports, relating to the charity’s activities in several high-risk areas overseas.

Following the final progress report, submitted on 23 April 2020, the Commission assessed the information submitted and concluded that the trustees had not fully complied with the 2018 Action Plan. In reaching this conclusion the Commission acknowledged that considerable progress had been made by the charity to address a number of issues relating to its governance and management. However, the Commission considered that the failure to fully comply with 2018 Action Plan along with the additional regulatory concerns identified (including a qualified auditors report and serious incident reporting regarding the charity’s overseas country offices) warranted further examination and investigation.

On 17 September 2020 the Commission opened a statutory inquiry (‘the 2020 inquiry’) into the charity under section 46 of the Act. This was communicated to the trustees on 29 September 2020.

The scope of the 2020 inquiry was to consider regulatory concerns in relation to:

• the trustees’ failure to comply fully with the 2018 Action Plan
• the financial position of the charity and whether it remained a going concern
• the trustees’ governance and management of the charity
• reputational risk to the charity

On 6 November 2020, the Commission’s decision to open the 2020 inquiry was challenged by the trustees by way of an appeal to the First Tier Tribunal (General Regulatory Chamber (Charity)) (‘the Tribunal’). Following an agreement between the parties, the Charity applied to withdraw the appeal on 15 August 2022 and the Tribunal made a direction treating the appeal as withdrawn.

Findings

Whether the failure of the trustees to comply fully with the 2018 Action Plan was misconduct and/or mismanagement in the administration of the charity

The trustees between 24 April 2018 and 24 April 2020 did not make sufficient progress to fully comply with the 2018 Action Plan before the deadline.

On 30 March 2020 the Commission wrote to the trustees setting out its serious regulatory concerns regarding their ability to regularise the charity’s governance and the charity’s ability to complete all of the required actions. The letter also reminded the trustees of their responsibility to comply with the 2018 Action Plan; the trustees were put on notice of the possibility for the Commission to escalate the matter if the 2018 Action Plan was not fully complied with.

On 23 April 2020, in the foreword to the final completion report, the trustees acknowledged that they had not previously given the 2018 Action Plan the attention and focus they ought to have, writing that they “recognise that more work should and could have been done since the (2018 Action Plan) was issued two years ago”. Despite this the trustees were of the view that they had complied with a significant proportion of the 2018 Action Plan and were implementing a much broader program of change that was still in progress. The trustees also provided mitigation in that they had faced unforeseen challenges during the period, most notably in staffing.

The Commission acknowledged that the trustees had faced challenges fully complying with the 2018 Action Plan and considered the mitigation outlined, but noted that the trustees had not requested, at any point, an extension to the final deadline.

In their April 2020 submission, two years after the 2018 Action Plan had been issued, the trustees stated they had completed 15 of the 66 actions set out in the 2018 Action Plan and provided revised completion dates for the remaining actions, dating from June 2020 to April 2021.

On 6 August 2020, the Commission wrote to the trustees setting out the findings of its review of the evidence submitted with the final progress report – concluding that the trustees had failed to fully comply with the 2018 Action Plan within the timeframe.

On 6 November 2020, the trustees challenged the opening of the 2020 inquiry by appealing to the Tribunal. As part of their representations the trustees stated that they continued to make progress in implementing their own package of change and improvement that encompassed the outstanding actions from the 2018 Action Plan. On 15 July 2021, the Tribunal issued an order, agreed by both the Commission and the charity, to stay the appeal proceedings pending further consideration of information submitted to the 2020 inquiry by the charity, to show the trustees had fully complied with the 2018 Action Plan.

On 25 October 2021 the 2020 inquiry wrote to the trustees setting out its findings in relation to the Tribunal’s order of 15 July 2021. This acknowledged that the trustees had made significant progress but that the charity had still not fully complied or substantially completed a number of actions as set out in the 2018 Action Plan

The 2020 inquiry had serious concerns that by 25 October 2021, over three and a half years since the 2018 Action Plan was issued, the trustees were still not able to demonstrate that they had complied fully with it. On 1 November 2021 the 2020 inquiry made an order under section 84 of the Act, directing the outstanding actions to be completed by 1 November 2022.

The trustees appealed the decision to make the section 84 order to the Tribunal. As with the appeal against the 2020 inquiry, the Tribunal appeal proceedings were stayed so that the Commission could (on a formal request from the trustees), conduct an internal review of its decision. This was undertaken by an independent reviewer (‘the reviewer’) as part of the Commission’s decision review process. The reviewer considered both written and oral representations against the issuing of the order from the trustees.

On 11 April 2022 the trustees made a further submission of evidence with a report, to the reviewer, which they stated showed full compliance with the section 84 order, and thus the 2018 Action Plan. The reviewer referred the submission to the 2020 inquiry to consider.

The outcome of the decision review concluded that the statutory grounds under section 84 of the Act had not been met. The reviewer revoked the section 84 order and decided the actions set out therein should have been issued initially as advice and guidance in the form of an action plan under section 15(2) of the Act. This decision was communicated, along with the revocation order, to the trustees on 24 May 2022.

On 30 May 2022, the 2020 inquiry issued an Action Plan under section 15(2) of the Act (‘the 2022 Action Plan’) to the trustees. This set out the outstanding actions, from the 2018 Action Plan, which had not been substantially or fully complied with and additional actions following regulatory concerns identified by the 2020 inquiry. A deadline of 1 November 2022 was given.

Upon the issuing of the 2022 Action Plan, the 2020 inquiry reviewed the evidence (submitted to the reviewer) and found that the trustees had complied fully with the 2022 Action Plan and communicated this to the trustees on 25 August 2022.

Whether the charity remained a going concern and the financial position of the charity

The charity’s independent auditor qualified the accounts for the financial year ending (‘FYE’) 31 December 2018. In respect of the FYE 2018 the auditor questioned the trustees’ assessment that the charity was a going concern. The auditor noted that forecasts for the FYE 31 December 2020 were not sufficiently reliable to support the trustees’ conclusion that the charity was a going concern. The charity’s 2018 accounts showed a significant deficit in unrestricted funds, in the region of £2.3 million. The auditors reported that this deficit would continue until 2021.

Levels of restricted and unrestricted funds had been a regulatory concern in the 2013 inquiry. Significant parts of the 2018 Action Plan related to the charity’s financial management and oversight of this by the trustees.

Prior to the 2020 inquiry the trustees had implemented their own financial recovery plan and had planned sweeping changes to the structure of the charity with a view to reducing costs and increasing efficiency. This included a significant reduction in the number of overseas country offices from ten to five.

Throughout the 2020 inquiry the trustees provided the Commission with updates including with regard to the charity’s financial position. The trustees have maintained that the charity is, and always was, a going concern but have acknowledged financial issues. In 2020, a new independent auditor was appointed. The accounts for the FYE ending 31 December 2019 show a prior year adjustment was made to restricted income, which eliminated some of the surplus. The trustees provided the 2020 inquiry with a plan to apply all remaining surplus restricted funds within one year, which was achieved.

The 2020 inquiry reviewed internal accounting information, including management accounts and those from all overseas country offices. The 2020 inquiry also noted that accounts for the FYE 31 December 2019 and FYE 31 December 2020, have not been qualified.

Following the completion of, and full compliance with, the 2022 Action Plan, the 2020 inquiry’s regulatory concerns in respect of the charity’s finances have been addressed.

The governance and management of the charity’s overseas country offices by the trustees

The 2020 inquiry considered repeated concerns in respect of the management and control of the charity’s overseas country offices. At the time the 2020 inquiry was opened the trustees had reported several serious incidents, in 2019 and 2020, relating to its country offices. These included alleged fraud, financial loss, legal action and safeguarding concerns. Reporting such incidents to the Commission was correct and appropriate, but upon review the 2020 inquiry became concerned that the matters being reported were not isolated incidents and some were linked to historical incidents at MA.

The 2020 inquiry noted the same or similar concerns had been considered as part of the 2013 inquiry and action to address these regulatory concerns formed part of the 2018 Action Plan. As set out above, the 2020 inquiry found that the trustees had not fully complied with the 2018 Action Plan within the timeframe given, including actions to rectify concerns regarding aspects of country office operations.

During the 2020 inquiry, the trustees reported a serious incident and launched an internal investigation following the discovery of suspicious cash withdrawals at one of its country offices. These suspicions were detected as part of a regular review of bank statements. The internal investigation found weaknesses and failures to follow financial policies and procedures which had allowed an in-country member of staff to falsely draw cheques for cash, resulting in a loss of approximately £4,000. The member of staff concerned was dismissed as a result.

The internal investigation also found that the financial control environment in the country office concerned was weak, this was despite an internal audit and investigation the year prior which identified similar weaknesses and made recommendations for improvement. Had these recommendations been applied it may have prevented the subsequent £4,000 loss. The trustees explained that the improvements to the charity’s financial controls and internal auditing quickly identified the suspicious cash withdrawals which led to the internal investigation being instituted quickly, and action being taken.

The internal investigation report made various recommendations about policies, procedures, security and the management and oversight of the country office, which were implemented as part of a wider review and restructuring of country offices. This has included a new finance manual, more robust financial procedures and increased scrutiny by the charity and its internal audit function.

The Commission’s regulatory concerns in respect of the trustees’ management and oversight of the country offices were addressed by the completion of, and compliance with, the 2022 Action Plan.

Reputational risk of the charity

Prior to the opening of the 2020 inquiry concerns had been raised publicly by whistleblowers from the charity’s headquarters in the UK about the management of the charity and conduct of some members, and former, members of staff. These concerns and other related issues exposed the charity to the risk of reputational damage (a charity’s reputation is considered part of its assets).

The 2020 inquiry found that the trustees were taking steps to investigate the claims made publicly by whistleblowers, including a vote of no confidence in the trustees and senior management team, and commissioned an independent review into the allegations and wider issues at the charity. The launching of an independent review was publicly communicated via the charity’s website. As part of the review, staff members were given the opportunity to give their views and opinions anonymously, which were incorporated into the findings and recommendations. The trustees encompassed the recommendations into the wider financial recovery plan, which saw a major restructure of the charity.

An institutional donor had terminated its programme co-operation agreement with one of the charity’s country offices, following the submission of suspected fraudulent documentation by country office staff to the donor. The institutional donor had written to the charity’s country office director, but the country director had not reported the matter to the trustees as per the charity’s established procedures. The trustees only became aware that the programme co-operation agreement had been terminated when it was raised by the Commission in its February 2020 meeting.

This incident had the potential to damage the charity’s reputation with other institutional donors at a time when the charity was seeking to increase funding from such donors as part of its financial recovery plan.

An intern was dismissed for providing false information to the institutional donor and the country director subsequently resigned from their post. Recommended improvements, including to the financial policies and procedures, have now been implemented as part of the trustees’ wider institutional change.

The trustees informed the 2020 inquiry they had engaged with the institutional donor to provide assurances that improvements have been made. The trustees have confirmed they are still being considered for contracts with the institutional donor.

The 2020 inquiry found, via a serious incident report submitted by the trustees, that a separate country office, which closed in 2018 due to operational and regulatory difficulties, was subject to a legal claim regarding the failure to pay a partner organisation for work completed. The country office had been unable to pay the partner due to a withdrawal of institutional funding and a civil claim was made in March 2018. Following negotiations, the claim was withdrawn but subsequently reinstated and a hearing took place in March 2020. The trustees were unaware of the hearing or the ruling until 14 May 2020 when they received written correspondence.

The court in the now closed country office’s jurisdiction awarded circa £600,000 to the partner. The 2020 inquiry found that the trustees did not have sufficient oversight of liabilities affecting the country office after its closure. The court case exposed the charity to reputational damage and financial harm, at a time when it was in a difficult financial position. The 2013 inquiry had identified issues with this particular country office, but the trustees had not fully complied with the action set out in the 2018 Action Plan aimed at rectifying these issues, including oversight and control of country offices.

As part of the 2018 Action Plan the trustees were required to review, amend, and update their data protection policies and procedures to comply with incoming GDPR legislation. As part of this process issues were identified which exposed the charity to risk of reputational damage and potential fines. However, the trustees resolved this issue promptly.

Conclusions

The Commission concluded that the trustees had failed to fully comply with the 2018 Action Plan by the required two-year deadline.

The Commission acknowledged the significant progress made by the charity and its trustees to fully comply with the 2018 Action Plan. Throughout the 2020 inquiry, the trustees have co-operated, as they are expected to, in providing information and updates as required.

The purpose of the 2020 inquiry was to escalate the Commission’s engagement with the trustees to ensure full compliance with the 2018 Action Plan to achieve the necessary changes and improvements to the charity’s governance and administration. The 2020 inquiry’s purpose was secured with the trustees’ completion of the 2022 Action Plan.

Regulatory Action Taken

On 18 September 2020, the Commission opened the 2020 inquiry pursuant to section 46 of the Act.

The 2020 inquiry exercised the Commission’s information gathering powers under section 47 of the Act on two occasions to obtain information and documents from the trustees. The use of this power is common practice during an Inquiry to gather information.

The 2020 inquiry exchanged information with partner agencies via the statutory gateway under sections 54 to 56 of the Act.

On 1 November 2021, the 2020 inquiry exercised the Commission’s regulatory power under section 84 of the Act to direct the charity, as a body corporate, to take specified actions to rectify outstanding actions from the 2018 Action Plan and additional issues identified during the 2020 inquiry. Following a decision review, the section 84 order was revoked as the reviewer found the legal test was not met.

Issues for the wider sector

Governance

Trustees are collectively responsible for their charity and ultimately accountable for everything done by the charity and those representing the charity. Trustees must actively understand the risks to their charity and make sure those risks are properly managed; the higher the risk, the greater the expectation and the more oversight is needed. 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.

Management

To be effective and to meet their statutory duties as charity trustees they must ensure that it is managed in accordance with its governing document and general law. All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken.

Trustees should ensure that these policies are implemented and reviewed at appropriate junctures. A failure to implement and ensure compliance with internal policy documents could be evidence of misconduct and/or mismanagement in the administration of the charity and can put assets, beneficiaries and a charity’s reputation at risk. The Commission expects trustees to make conscientious and continuing efforts to ensure that they resolve the issues that have already been raised with them by the Commission. Where a previous commitment has been given, the Commission will view non-compliance as evidence of misconduct and/or mismanagement.