Decision

Charity Inquiry: Muslim Foundation UK

Published 25 August 2020

This decision was withdrawn on 30 August 2022

This report has been archived as it is over 2 years old.

Applies to England and Wales

The charity

Muslim Foundation UK (‘the charity) was registered with the Charity Commission (‘the Commission’) on 21 January 2013. It is governed by a Trust Deed dated 20 November 2012 (‘the governing document’)

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

Background

On 12 July 2019, the Commission used its power under section 181A of the Charities Act 2011 (“the Act”) to disqualify Pir Muhammad Afzal Qadri (“the Individual”) as a charity trustee and trustee of any or all charities for a period of 10 years. As a result of the Commission’s disqualification Order, the Individual is also disqualified from holding senior management functions in any charity in England and Wales. The disqualification was made under Condition F ^{[footnote 1]}, section 181A(7) of the Act.

The Individual was listed on the Register of Charities (‘the register’) as a trustee of the charity from the date of its registration (21 January 2013) until 10 July 2019. The Commission’s disqualification Order under section 181A of the Act took effect on 24 August 2019.

The Individual had made comments which the Commission considered were contrary to fundamental British values, namely the rule of law and Article 2 (right to life) of the Human Rights Act 1998. Across several public addresses in October 2018, the individual advocated the extrajudicial murder of Pakistani Supreme Court Judges, on one occasion issuing edicts of death. The individual also praised the extra judicial killing of a Pakistani Politician and advocated a violent uprising against the Pakistani military and government.

On 10 September 2019, the Commission conducted a visit (‘the visit’) to the charity to consider how the trustees had managed the charity’s response to comments made by the Individual whilst he was a trustee, including the management of conflicts of interest and/or loyalty in the administration of the charity.

During the visit, the Commission became aware of serious regulatory concerns regarding the governance and administration of the charity.

Issues under Investigation

Due to the regulatory concerns identified and the failure of the trustees to promptly respond to these, a statutory inquiry (‘the inquiry’) was opened under section 46 of the Act on 28 January 2020.

The scope of the inquiry was to examine several issues including:

• whether the trustees have properly exercised their legal duties and responsibilities under charity law in the administration of the charity
• the financial management of the charity
• the conduct of the trustees

The inquiry closed with the publication of this report.

Findings

Whether the trustees have properly exercised their legal duties and responsibilities under charity law in the administration of the charity

The inquiry found that the charity was poorly managed and administered by those who served and serve as trustees. The trustees failed to demonstrate that they were acting in accordance with the provisions of the charity’s governing document or in the best interests of the charity.

Response to comments made by the Individual

The inquiry found no evidence that the trustees took steps to manage the potential impact of the Individual’s comments on the charity despite being aware of a number of the comments. During the meeting of 10 September 2019, the trustee in attendance did not recognise or consider the significance of the comments. The explanation offered by the trustee was not compelling as a reason for the trustees’ lack of action.

The inquiry found that conflicts of interest and/or loyalty were an aggravating factor in the trustees’ failure to act. At the time the comments were made only one trustee was independent of the Individual. The familial links between the trustees and the Individual may have led to a more lenient attitude and for the trustees to pay less critical attention to the comments made than they would have if they were independent.

Trustees have a duty to act to protect the assets of their charity and to always act in its best interests. The trustees were not alert to public comments made by a trustee, which could have had a detrimental impact on the reputation of the charity. Nor did the trustees seek to mitigate any potential reputational damage. The trustees knew, or ought to have known, that their failure to act was improper and placed the charity and its assets, of which its reputation is part, at risk. This is a misconduct and/or mismanagement in the administration of the charity.

Submission of annual return and accounts

The inquiry found that the trustees had failed to submit an annual return and annual accounts within 10 months of the financial year end for the financial years ending 30 November 2016 and 2017 (116 and 27 days respectively). Failure to do so is a breach of the trustees’ statutory duties under sections 162,163,164 and 169 of the Act. It is also a criminal offence under section 173 of the Act. It is also a breach of clause 24 of the charity’s governing document. The inquiry found that this is a breach of duty and misconduct and/or mismanagement in the administration of the charity by its trustees.

The inquiry found that the trustees failed to update the Register following the resignation of the Individual on 6 June 2019. The Commission was not notified of the Individual’s resignation until 28 June 2019. The trustees were reminded of this duty several times but failed to act. The Commission removed the Individual from the Register on 10 July 2019.

Safeguarding

The inquiry found that the charity operates supplementary educational classes (Madrassah) for school age children. The inquiry received a copy of the charity’s child protection policy, which was the only document provided following the visit. The inquiry reviewed this policy and found it is generic and not specific to the activities of the charity. Policies should be specific to the activities and circumstances of each charity. The inquiry also found that the policy makes reference to ‘Criminal Records Bureau’ checks, which suggested the policy has not been updated for some time. The Disclosure and Barring Service (“DBS”) replaced CRB in 2012.

No information was provided during the inquiry, despite requests, which demonstrates the application of the child protection policy including obtaining DBS checks for relevant staff or volunteers. The Inquiry found, on the balance of probabilities, that the trustees have not complied with their basic duties to safeguard the beneficiaries of the charity, particularly children. This is misconduct and or/mismanagement in the administration of the charity.

In June 2020, during the drafting of this report, a basic DBS certificate for one of the trustees was provided. This shows the date of issue was 9 September 2019, one day prior to the Commission’s visit. The single DBS certificate does not change the inquiry’s findings or conclusions in respect of safeguarding.

Governance

The inquiry found only two trustees had been active in the administration of the charity since registration. Two trustees were outside of the UK and have not regularly engaged with the other trustees in the decision-making process. Clause 13 of the governing document specifies that all trustees must physically attend one trustees each year. The inquiry found the trustees had not complied with this clause.

The inquiry also found that one individual was listed on the register in error. They had never acted as a trustee and it was not clear why their name had been added to the register. The trustees stated that they were unaware this person was listed as a trustee until the Commission’s correspondence. This person was removed from the register on 12 September 2019.

As set out, above, four out of five trustees prior to the inquiry opening were directly related to the Individual. The inquiry found that the trustees did not identify or manage the potential reputational damage to the charity caused by the Individual’s comments. The inquiry further found that the lack of independent trustees was an aggravating factor in the failure to act to protect the charity. The inquiry found no evidence that conflicts of interest or conflicts of loyalty were identified or managed by the trustees.

Breaches of governing document

Clause 13 of the charity’s governing document states that at least two ordinary meetings must be held each year. Clause 21 of the governing document states that the trustees must keep minutes of the proceedings of meetings. During the visit, the Commission inspected copies of meeting minutes which showed that only one meeting was held per year.

The Commission requested copies of further meeting minutes during the visit and thereafter on three separate occasions but the trustees failed to provide the information. It was not until June 2020, during the drafting of this report, that copies of meeting minutes were provided. These documents showed that in 2016, 2017 and 2019 only 1 trustee meeting had been held. Furthermore, the quality and accuracy of these meeting minutes is in doubt. Upon analysis the minutes are largely generic year to year and do not record significant decisions.

The inquiry found that in 2016,2017 and 2019 only one trustee meeting had been held, which is a breach of the charity’s governing document and misconduct and/or mismanagement in the administration of the charity

The financial management of the charity

Loans

The inquiry found the charity owed £100,440 in Qard E Hasana (Interest free loans) to members of the community. The accounts for the financial year ending 30 November 2017 record that the charity repaid £10,000 of Qard E Hasana loans. However, the Commission established during the visit, that no loan agreements or other records related to the loans exist. It was not clear how repayments could be made and administered in the absence of loan agreements or other records. In June 2020, during the drafting of this report, a one-page document showing names and loan amounts was supplied. This document suggests £65,000 is owed but is undated and contains insufficient information to ascertain with certainty who has lent money to the charity.

The inquiry found that the charity has insufficient liquid assets to repay all, or the majority, of the Qard E Hasana loans. If all or the majority of the loans were called-in, however unlikely this may be, the charity may have to sell its property in order to raise sufficient funds and this would curtail its ability to operate and be detrimental to the beneficiaries

The Commission found that the trustees have not managed the Qard E Hasana loans and repayments appropriately. Whilst most of the loans have been or could be converted to donations, the charity has made some repayments but relevant documentation has not been created and maintained. The document provided in June 2020 is not sufficient for the trustees to show they have managed, or are managing, outstanding loans appropriately. This is misconduct and/or mismanagement in the administration of the charity.

Transferring charitable funds

The Commission found that the charity expended funds overseas in Malawi (£704), Nigeria (£2,506), Pakistan (£2,844) and India (£125) during the financial years ending 30 November 2016 and 2017. The Commission was told, during the visit, that records pertaining to overseas transfers and expenditure existed but despite repeated requests for the information, it was not provided to the Commission or the investigative stage of the inquiry.

The Commission also found that transfers of funds overseas were made outside of the regulated banking sector by individuals with links to the respective countries. The Commission found that an individual, described as a volunteer, was responsible for the charity’s funds in Pakistan. No further information was provided in respect of this person, their role, how they were identified and what records were provided to the trustees to account for the overseas expenditure and application of the charity’s funds. The Commission strongly discourages the transfer of funds outside of the regulated banking sector due to the associated risks of loss or misuse.

The inquiry found that the trustees have not acted in the best interests of the Charity by transferring funds outside of the regulated banking sector. The inquiry also found that the trustees are not able to demonstrate that they have complied with their legal duties, specifically with regard to accounting for and protecting the charity’s assets. This is misconduct and/or mismanagement in the administration of the charity.

In June 2020, during the drafting of this report, documents pertaining to the transfer of funds overseas in 2017 were provided. These documents show that the trustees provided funds to individuals on the basis they would apply those funds to charitable projects overseas. There are no recorded due diligence checks in respect of these individuals, no clear project proposals or plans and no evidence of monitoring the end use of funds has been provided. On review these documents do not change the inquiry’s findings or conclusions in respect of transferring charitable funds overseas.

Conduct of the trustees

The Commission requested various documents, relating to the administration of the charity, be made available at the visit. However, only meeting minutes were available during the visit. Following the visit, the Commission made repeated requests for information that was reviewed during the meeting and information which the Commission was told existed. No response was received from the trustees. It was not until June 2020, during the drafting of this report, that information was provided.

The Commission expects trustees to comply with requests for information promptly. The inquiry found that, in failing to comply with these requests, the trustees are responsible for misconduct and/or mismanagement in the administration of the charity.

Information provided after the investigative stage of the inquiry

On 15 June 2020, following the investigative stage of the inquiry, a trustee of the Charity provided information in response to a draft of this report. The response contained some information which had been requested during and prior to the inquiry but not all of it. On review this further information does not change the inquiry’s findings or conclusions.

Conclusions

The Commission concluded that the trustees of the charity have been responsible for misconduct and/or mismanagement in the administration of the charity over a period of years. The charity’s assets, including its reputation, were placed at significant risk of loss by the conduct of the trustees.

Regulatory Action Taken

On 9 March 2020, the inquiry exercised the Commission’s power under section 84 of the Act to direct the trustees to take specified action which the Commission considered to be expedient in the interests of the charity. These include:

• to comply with the clauses of the Charity’s governing document
• conduct a governance review
• conduct a review of the governing document
• agree and implement policies in respect of finance, conflicts of interest, due diligence and monitoring end use of funds and a code of conduct
• conduct a review of the child protection policy
• consider if DBS checks are necessary and if so undertake these checks
• appoint at least one independent trustee
• review all Qard E Hasana loans and put in place a record of those which are outstanding

The Commission will monitor the progress of the trustees in relation to this Order.

Issues for the wider sector

Finance

Charity trustees must submit annual returns and accounts (if required) to the Commission within 10 months of the financial year end.

Charity trustees are legally responsible for ensuring the charity’s money is used properly for legitimate charitable purposes and safeguarded from loss. Trustees must always act to protect charity property. Ensuring strong financial management procedures and proper internal controls and applying a common-sense approach, will help trustees meet their duties. They also need to promote the transparency and accountability of their charity, particularly as regards its finances, which is important for public trust and confidence in charities.

In most cases charities should use the regulated banking sector when transferring charitable funds. It is difficult to see, where regulated banking services are available, how trustees could show they discharged their legal duties if they do not use the regulated banking sector in order to secure the charity’s funds.

Charities must have robust financial controls in order to protect the charity’s funds. The Commission has issued guidance for charities in respect of financial controls and holding, moving and transferring funds safely.

Governance

Trustees are representatives their charity. Trustees must be aware of and act in accordance with their legal duties. Trustee conduct can be a key driver of public trust and confidence and when the conduct if trustees falls below the standards expected there can be damage to the reputation of trustees, the charity and possibly the wider sector.

• trustees are jointly and severally liable for the decision they make. Trustees must act collectively. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties
• trustees must act in accordance with the Charity’s governing document. Trustees should be familiar with their governing document
• all charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken

Trustees must always act in the best interests of the Charity. Conflicts of interest or loyalty can lead to decision 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 and loyalty as they arise. Trustees must be mindful of mixing their role with the charity and their private business affairs, particularly when a benefit may be inferred to that business or the trustee directly. Trustees must follow any conflict of interest or loyalty provision in their governing document. The Commission has published guidance for trustees in respect of conflicts of interests and loyalty.

1. Condition F states “that any other past or continuing conduct by the person, whether or not in relation to a charity, is damaging or likely to be damaging to public trust and confidence in charities generally or in the charities or classes of charity specified or described in the order.” ↩