Decision

Charity Inquiry: Orphan Relief Fund and Charitable Trust

Published 19 March 2021

This decision was withdrawn on 21 March 2023

This report has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The charity

Orphan Relief Fund and Charitable Trust (‘the charity’) was entered onto the register of charities (‘the register’) on 10 April 1990. It was governed by a Trust Deed dated 20 March 1990, which ceased to exist and was removed by the Commission from the register on 16 September 2020.

The charity had objects to relieve poverty and advance education for the benefit of those under the age of 21 who are suffering hardship as a result of the death of one or more parents. In carrying out its activities the charity operated exclusively in Iraq.

The trustees’ dates in office

Wathib Salman Al-Amood (‘Trustee A’) from 10 April 1990 until removal on 26 April 2019.

Ahmed Al-Amood (‘Trustee B’) from 24 November 2004 until resignation on 12 August 2017.

Sulieman Adam (‘Trustee C’) from 9 February 2007 to 17 May 2012 and from 8 October 2013 until resignation on 12 August 2017.

Husham Al-Amood (‘Trustee D’) from 8 October 2013 until resignation on 12 August 2017.

Bushra Al Neama (‘Trustee E’) from 17 May 2012 until resignation on 12 August 2017.

Trustee F from 12 August 2017 until resignation on 28 December 2017.

Trustee G from 12 August 2017 until resignation on 18 September 2018.

Trustee H from 12 August 2017 until resignation on 14 January 2019.

Trustee I from 12 August 2017 until the dissolution of the charity.

In addition to the Commission’s removal of trustee A, trustee’s B, C, D and E were disqualified from trusteeship and senior management function by the Commission. See regulatory action taken for more information.

Issues under investigation

On 3 May 2017, the Commission undertook a compliance visit at the charity’s premises. The charity was proactively identified for a visit due to its international operations in high risks areas, including Iraq. Charities which operate internationally can be more vulnerable to abuse or harm as a result of where and how they operate.

The visit sought to review the charity’s policies and financial records and to ensure the trustees were complying with their legal obligations in exercising control and management over the charity and its activities overseas.

Following a review of the charity’s records, the Commission identified serious regulatory concerns in respect of trustees A to E’s administration and management of the charity. This included:

• the trustees being unable to provide sufficient evidence for the majority of payments made by the charity, as a result the Commission could only satisfactorily trace 2.2% of payments to invoices or other supporting documentation
• an inspection of the charity’s records found that between January 2015 and March 2017 there was a total of £998,746.13 transferred out of the charity’s bank account which was not supported by evidence to show and explain its end use. This equated to 89% of the charity’s total bank payments for this period. The trustees stated that these funds were transferred to an Iraqi based charity
• a misapplication of the charity’s funds by expending them on activities outside of the charity’s stated objects
• a lack of records to demonstrate that due diligence checks ^{[footnote 1]} had been carried out in respect of the charity’s partner
• the charity’s bank statements showed regular direct debits to trustee A’s personal credit card; these payments totalled £35,699.92. Trustee A asserted to the Commission that their credit card was solely used for charitable purposes on behalf of the charity. However, the Commission’s review of the credit card statements showed evidence of what trustee A subsequently conceded was their personal use of the credit card. The Commission did not see any evidence to demonstrate trustee A repaid the costs of their personal use of the credit card back to the charity
• trustees A through to E were all related to one another. Except for trustee A, the other trustees played no active role in the charity’s administration following their appointments. Given that all the trustees are related it was unclear to the Commission as to how any conflicts of interest/loyalty were being managed (if at all) if they arose

In addition to the serious concerns identified as part of the review, the Commission also had concerns in relation to the charity’s filed accounts and annual returns. A scrutiny of the charity’s accounts and trustees annual report for Financial Year End (‘FYE’) 31 July 2015 showed that they were not compliant with the charities Statement of Recommended Practice (‘SORP’) or the Charities Act 2011 (“the Act”). In particular:

• the trustees annual report did not include all the disclosures required by the charities SORP and the Act
• there was no Independent Examination as required by the Act
• there was an Income and Expenditure account, but no Statement of Financial Activities as required by the charities SORP and the Act

In default of the legal requirements, the trustees at the relevant times had also failed to ensure that the charity’s accounts and annual returns for FYE 31 July 2012 and FYE 31 July 2016 were filed on time.

On 31 July 2017, as a result of the Commission’s findings, a statutory inquiry (‘the inquiry’) was opened into the charity under section 46 of the Act.

The inquiry closed with the publication of this report.

Scope of the Inquiry

The scope of the inquiry was to examine a number of issues including:

• the administration, governance and management of the charity by the trustees
• the financial controls and management of the charity and whether its funds had been properly expended solely for exclusively charitable purposes and can be accounted for
• the conduct of the trustees
• whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law

The Commission announced its inquiry into the charity on 22 August 2017.

After opening the inquiry, the Commission exercised a range of its regulatory powers.

Findings

The administration, governance and management of the charity by the trustees

The inquiry found that the charity was poorly managed and had little to no governance infrastructure in place or other policies or controls to assist the trustees at the relevant times to manage the charity. Trustees A to E failed to demonstrate that they were acting in accordance with provisions in the charity’s governing document, including applying funds solely in furtherance of its stated charitable objects, and that the charity was otherwise being properly managed and administered.

The inquiry saw insufficient evidence that trustees B to E played any active role in the management and administration of the charity. Most decision making was concentrated in the hands of trustee A – the charity’s founder and chair. With insufficient checks and balances in place, trustee A was able to exert a significant role in the charity to its detriment. The inability or unwillingness of trustees B to E to act in accordance with their legal duties including, in the best interests of the charity, contributed to the misconduct and/or mismanagement (as set out in this report) at the charity.

Following the opening of the inquiry, trustees B to E resigned from their positions - this left only trustee A in office. As per the charity’s governing document, only trustee A had the power to appoint new trustees.

On 12 August 2017, trustee A appointed four new trustees to the charity - trustees F to I. Between December 2017 and January 2019, trustees F, G and H resigned from the charity.

Trustees A to E failed to fully comply with a legal direction, made under section 47 of the Act, both in terms of the specified timeframe for compliance and what was required to be provided. The direction required the trustees to provide information, explanations and documentation with regards to the trustee’s management of the charity.

Since January 2019, and up until the charity’s dissolution, the charity was managed solely by trustee I.

Taking into consideration the previous misconduct and/or mismanagement, the inquiry came to the conclusion that the charity’s purposes could be promoted more effectively if the charity ceases to operate. As such, the Commission made an order under section 84B of the Act to direct trustee I to wind up and dissolve the charity. The Commission also took individual action against trustees A, B, C, D, and E – see regulatory action taken for more information.

The financial controls and management of the charity and whether its funds have been properly expended solely for exclusively charitable purposes and can be accounted for

The inquiry found that trustees A to E had a serious disregard for, and/or a lack of understanding of, the importance of proper financial controls and accountability in respect of the charity’s funds. This relates to the charity’s overseas expenditure, trustee A’s credit card expenditure and the charity’s accounts and annual returns (as set out below). The action, and/or inaction, of trustees A to E in this regard is misconduct and/or mismanagement in the administration of the charity.

Purported overseas expenditure

The Commission’s review, as part of the visit, found that between 5 January 2015 and 3 March 2017 there was a total of £998,746.13 transferred out from the charity’s bank account which was not supported by evidence to show and explain its end use. Trustee A told the Commission that the charity’s funds were transferred to an Iraqi charity (‘the Iraqi charity’) operating in Basra, in which trustee A was the founder and director of.

When asked (in May 2017) about due diligence, monitoring and verification in relation to the Iraqi charity and its purported use of the charity’s funds, trustee A stated that little record keeping was done by the charity or the Iraqi charity to evidence the end use of the charity’s funds for its projects in Iraq.

On 31 July 2017, the inquiry compelled trustees A to E, by direction under section 47 of the Act, to provide all records relating to the charity’s purported overseas expenditure covering the period of January 2015 to July 2017. Following trustees B to E’s resignations on 12 August 2017, trustee A responded on behalf of the Charity. FYE accounts (written in Arabic) of the Iraqi charity were provided to the Commission and having translated the accounts of the Iraqi charity, the Commission ascertained that no reference is made to the charity in them. The trustees failed to provide any records which show and explain how the charity’s funds had been expended by them in Iraq.

In November 2017 the inquiry learnt, following the Commission’s visit to the charity in May 2017, that a further £88,515.63 had been transferred out from the charity’s bank accounts overseas between 30 March 2017 and 28 September 2017. These funders were purportedly spent in Iraq. In light of the Commission’s serious regulatory concerns, which prompted the opening of the inquiry, the inquiry took immediate action to freeze the charity’s bank accounts pursuant to orders made under section 76(3)(d) of the Act. This meant that the trustees were unable to access funds from the charity’s bank accounts without the prior written consent from the Commission.

In addition to freezing the bank accounts, the inquiry made an order under section 76(3)(f) of the Act which prohibited the trustees from entering into any credit card transaction on behalf of the charity or to permit or authorise another person to incur credit on behalf of the charity, without the prior written consent from the Commission.

In May 2018, the inquiry met with trustees G to I – including the charity’s then accountant. During this meeting, the trustees informed the inquiry that records do exist to show how the charity spent its funds in Iraq from 2015 to 2017. This was contrary to what the Commission had previously been told in May 2017 that little record keeping was done. The inquiry questioned the trustees on the existence of this material; however, the trustees were unable to provide any detailed information to substantiate their response.

It was some 15 months after the Commission’s first visit to the charity in May 2017, that the trustees (as they were at that time) provided some “sample documentation” in Arabic in an attempt to show and explain the charity’s purported overseas expenditure. Further documentation was also provided, via a USB memory stick, to the inquiry in January 2020.

Given the length of time it took for the documentation to be produced and given that inconsistent accounts have been provided to the Commission as to whether or not records were kept, the inquiry has been unable to make a determination on the veracity of the records.

As such, the inquiry was not satisfied that the charity’s funds (i.e. £1,087,261.76) could be properly accounted for.

In failing to keep adequate accounting records (in relation to purported overseas expenditure) the trustees at the relevant times were in breach of their legal obligations under the Act (sections 130 and 131). The trustees also failed to follow and adhere to the charity’s own financial controls policy. This is misconduct and/or mismanagement in the administration of the charity.

Trustee A’s credit card expenditure

Despite trustee A’s assertions that their credit card was solely used for charitable purposes on behalf of the charity, in September 2017 the inquiry ascertained that £10,315.15, of the £35,699.92 paid by the charity to trustee A’s credit card, related to trustee A’s own personal expenditure between 2011 and 2017.

Trustee A later told the inquiry that they had repaid the sum of £10,315.15 to the Iraqi charity. However, trustee A offered no evidence to support this claim.

The failure to ensure that sufficient financial controls were in place to manage the charity’s expenditure is misconduct and/or mismanagement in the administration of the charity on the part of trustees A to E.

Accounts and annual returns

The charity’s accounts and annual returns for FYEs July 2012 and July 2016 were filed late. These were filed between 43 and 131 days late respectively. Trustees A to E failure to ensure that the charity’s accounts and annual returns were filed on time was misconduct and/or mismanagement in the administration of the charity. Failing to file the charity’s accounts and annual returns on time was also a breach by the former trustees, of their duties under charity law and such failing can amount to a criminal offence pursuant to section 173 of the Act. Trustees have joint and several liability, so trustees A to E were all responsible for ensuring the documents were filed on time.

As set out above, the Commission found that the charity’s accounts and annual return for FYE 31 July 2015 were not compliant with the charities SORP and the Act. In addition to this, trustees A to E also failed to comply with the charity’s governing document which sets out that the trustees must ‘arrange for the accounts to be audited annually by a qualified accountant’. Failure to comply with the charity’s governing document is misconduct and/or mismanagement in the administration of the charity.

The conduct of the trustees

The inquiry found that the conduct of trustees’ A, B, C, D, and E fell below that which the Commission expects of trustees and that there had been misconduct and/or mismanagement in the administration of the charity.

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

The inquiry found that trustees A, B, C, D, and E did not fulfil their duties and responsibilities as trustees under charity law.

Conclusions

Trustees play a crucial role in the governance of charities and are required to use their skills, knowledge and experience to run their charity well and in its best interests. This was not the case with this charity in relation to trustees A, B, C, D and E. This charity was mismanaged by its trustees to its detriment.

The Commission concluded that there was misconduct and/or mismanagement in the charity’s administration by trustees A, B, C, D, and E which led to their removal and/or disqualification.

The inquiry concluded that the charity’s purposes could be promoted more effectively if it ceased to operate. The inquiry therefore took regulatory action to direct the charity to wind up and dissolve.

Regulatory action taken

The inquiry exercised the Commission’s regulatory powers under sections 47 and 52 of the Act on multiple occasions to obtain further information and copy documents, including from the former trustees, the charity’s independent examiner and the charity’s banking providers.

On 15 November 2017, the inquiry exercised the Commission’s power under section 76(3)(d) of the Act to order the charity’s banking providers not to part with any property held in the accounts in which the charity’s funds were held, without the Commission’s prior consent.

On 21 November 2017, an order was made under section 76(3)(f) of the Act restricting certain transactions that the trustees could enter into without the prior authorisation of the Commission. This order prohibited the charity’s trustees from entering into any credit card transaction on behalf of the charity or to permit or authorise another person to incur credit on behalf of the charity, without the Commission’s prior consent.

On 20 April 2018, the inquiry used its temporary and protective power under section 76(3)(a) of the Act to make an order to suspend trustee A as a trustee, officer, employee and/or agent of the charity pending consideration being given to their removal, under section 79(4) of the Act.

On 3 May 2018, trustee A made representations to the Commission against their suspension under section 76(3)(a) of the Act. These representations were considered by an independent reviewer as part of the Commission’s decision review procedure. The outcome of the decision review on 9 August 2018 concluded that the making of the suspension order was lawful, reasonable and proportionate and that it should remain in force.

On 14 January 2019, the inquiry made an order under section 84 of the Act directing trustees H and I to take specified actions. These actions included, but were not limited to, ensuring the charity’s accounts and annual return FYE 31 July 2017 were filed with the Commission.

On 25 March 2019, the inquiry issued formal notice to trustee A, under section 89(5) of the Act, of its intention to remove him as a charity trustee, under section 79(4) of the Act. Having received no representations from trustee A, an order under section 79(4) of the Act was made on 26 April 2019.

The consequence of removal is automatic disqualification from being a trustee of or for any other charity without a waiver from disqualification from the Commission or the courts. It is an offence to act as a trustee whilst disqualified.

On 30 August 2019, the inquiry issued notice of its intention to disqualify, under section 181A of the Act, trustees B, C, D and E for a period of 8 years. The proposed disqualification would prevent the individuals from being trustees of or for any other charities and holding any office or employment with senior management functions in any charity in England and Wales throughout the period of their disqualification.

In taking this action the inquiry considered that there had been:

• misconduct and/or mismanagement in the administration of the charity
• the former trustees were unfit to be charity trustees or trustees for a charity
• that it was desirable in the public interest to act

On 3 October 2019, the inquiry, having not received any representations from trustees’ B, C, D and E in relation to the notice of disqualification, issued orders under section 181A of the Act to disqualify the former trustees for a period of 8 years. These orders came into legal effect on 15 November 2019 following the expiration of the period of appeal to the First-tier Tribunal (Charity).

On 29 November 2019 the Inquiry informed the sole remaining trustee of the charity, trustee I, of its proposal to issue an order under section 84B directing the winding up and dissolution of the charity. On 5 December 2019 the Commission published a public notice, pursuant to section 84B(4) of the Act, of its intention to issue the order under section 84B(2) of the Act.

It was published on the Commission’s website for a period of 60 days. On 5 January 2020, trustee I made representations to the Commission against the issuing of the winding up order. These representations were considered by an independent reviewer as part of the Commission’s decision review procedure. The outcome of the decision review on 29 April 2020 concluded that the winding up order be made.

On 4 May 2020, and following the conclusion of the independent review, the inquiry issued an order under section 84B(2) of the Act which gave the trustee three months to take specified action to wind up and dissolve the charity.

The charity was dissolved and removed from the register on 16 September 2020.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the inquiry of the issues raised publicly that may have relevance for other charities.

It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report but is included because of their wider applicability and interest to the charity sector.

Trustees jointly and equally responsible

Trustees are jointly and equally responsible for the management of their charity. To be effective and to meet their statutory duties as charity trustees they must contribute to the management of the charity and ensure that it is managed in accordance with its governing document and general law. They should be able to devote sufficient time to enable them to play a full role.

A charity is entitled to the independent and objective judgment of each of its trustees, acting in the best interests of the charity.

Financial controls

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/or misconduct in the administration of the charity.

Trustees must ensure that their charity has adequate financial controls in place. It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities. In this case there was no clear audit trail of cash donations from donor to bank, or to expenditure.

The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on the Commission’s website. There is also a self check-list for trustees which has been produced to enable trustees to evaluate their charity’s performance against the legal requirements and good practice recommendations set out in the guidance.

Charity trustees should ensure that adequate records are kept of their decisions so that they can demonstrate that they have acted in accordance with the governing document and with best practice. Such records ensure that trustees can demonstrate that they had:

• acted honestly and reasonably in what they judged to be the best interests of the charity
• taken appropriate professional or expert advice where appropriate
• based their decisions on directly relevant considerations

Trustees are jointly and equally responsible for the management of their charity. To be effective and to meet their statutory duties as charity trustees they must contribute to the management of the charity and 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 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.

Charities working internationally

Many charities are based in the UK and send money to projects, charities, not for profit organisations and direct to beneficiaries in other countries - these charities carry out invaluable work, in challenging circumstances, often helping the neediest in society.

Trustees of such charities may need to take additional steps to ensure that charitable funds are properly used and reach intended beneficiaries. In some cases, the risks will be significantly higher. Sometimes these risks arise because the charity is not on the ground to check funds have been spent properly, requiring trustees to consider carefully what specific due diligence and monitoring steps they need to undertake. These steps may be more time-intensive than for other charities.

When working internationally, charities often operate through local partners rather than establishing their own delivery infrastructure in their country or region of operation. Working through or with a local partner can be an effective way of delivering significant benefits direct to a local community.

It does not, however, shift or alleviate responsibility for ensuring the proper application of the charity’s funds by the local partner. That responsibility always remains with the charity trustees, forming part of their duties and responsibilities under charity law. The need to implement risk strategies therefore remains critical.

1. 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. ↩