Decision

Charity Inquiry: Peacetrail

Published 29 January 2018

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

Applies to England and Wales

The charity

Peacetrail (‘the charity’) was a Charitable Incorporated Organisation (‘CIO’) and was established and registered, on the register of charities (‘the Register’) on 1 November 2013. The charity was removed from the register on 31 October 2017 following its dissolution by the Charity Commission (‘the commission’). The charity’s governing document (‘GD’) was a constitution dated 1 November 2013.

The charity’s objects were:

• to advance the Islamic religion anywhere in the world for the benefit of the public through the holding of prayer meetings, lectures, producing and/or distributing literature on the Islamic faith to enlighten others about the Islamic faith

• the prevention or the relief of poverty anywhere in the world by providing grants, items and services to the individuals in need and/or charities, or other organisations working to prevent or relieve poverty

Issues under investigation

The commission identified the charity for a compliance visit (‘the visit’) because the charity’s statutory returns for the financial year ending (‘FYE’) 30 November 2013 were overdue and the commission’s register showed that the charity was operating in a high risk area (the Occupied Palestinian Territories – ‘OPT’). On 7 January 2016, the commission undertook the visit, which was attended by Mr Sohale Ahmed, the Chief Executive Officer (‘the CEO’) of the charity.

During the visit, the commission obtained information from the CEO and subsequently had concerns relating to:

• the financial management of the charity by the trustees

• the lack of due diligence carried out by the trustees of the charity’s agents and partners

• poor governance, including that the charity has been operating outside of its GD which required a quorum of two trustees

• the risk to the charity’s property as a result of inadequate financial controls and monitoring/verification of expenditure

Both during and following the visit the commission identified the following concerns in respect of the charity’s financial records:

• an initial inspection of the bank statements for the bank account used by the charity found that between 1 November 2013 and 5 June 2015 there was total expenditure of £203,000 which could not be supported by evidence

• between 29 November 2013 and 19 October 2015 the charity transferred £70,149 to an individual acting as the charity’s agent in OPT but it did not have any evidence of the end use of this expenditure

• no records were provided to evidence that the trustees had carried out an appropriate level of due diligence and/or monitoring in relation to those the charity employed or worked with both in the UK and overseas

• the charity’s CEO had self-authorised salary payments totalling £46,500

• the trustees had not complied with the charity’s GD as the two most recent trustees sought to resign their positions as trustees which would have left the charity inquorate

• £18,812 had been withdrawn via ATMs and by cashing cheques and the charity did not have any paperwork to evidence that this money had been used for charitable expenditure

At the visit the commission noted that the bank account (‘the account’) used by the charity was in the name of the company Peace 2012 Ltd (‘the company’) which was incorporated on 17 April 2012 and dissolved on 31 May 2016. The company was a separate legal entity to the charity, however at the time of registration with the commission the trustees confirmed that the account was the bank account being used solely by the charity. As a result of the commission’s analysis of the bank statements for the account, it considered that the account had held the charity’s funds. Furthermore, the charity’s website had also advertised that charitable donations should be made to the account.

Additionally, during the visit the CEO had stated that paperwork for the charity was held by its accountants, however when the commission contacted the accountants they stated that they did not hold any paperwork in relation to the charity.

On 31 March 2016, as a result of the commission’s findings during and following the visit, a statutory inquiry (‘the inquiry’) into the charity was opened under section 46 of the Charities Act 2011 (‘the act’).

Trusteeship

When the inquiry was opened the charity’s entry on the register showed that the charity had no trustees. The last two recorded trustees were Mrs Sara Jane Booth (Trustee A) and Mr Nadeem Ahmed (Trustee B). The commission’s records showed that Trustee A had resigned from the charity on 8 September 2014 and Trustee B had resigned on 4 January 2016, three days before the commission’s visit. However clauses 3 and 12 of the charity’s GD stated that a trustee can only resign if enough charity trustees would remain in office when the notice of resignation took effect to form a quorum, and provided that a quorum was two trustees. Consequently, at the time of opening the inquiry, the commission was satisfied that the resignations of Trustees A and B could not have been effective and therefore they remained trustees of the charity.

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 with specific regard to levels of due diligence carried out in respect of any partners with whom the charity operates or to whom the charity provides funding

• the financial controls and management of the charity

• whether or not the trustees had fulfilled their duties and responsibilities as trustees under charity law

Following the opening of the inquiry, the commission exercised its legal powers and made a number of orders and directions, using powers under various sections of the act. This included on 10 February 2017 exercising its legal powers under section 79(4) of the act removing both trustees as a trustee, charity trustee, officer and/or agent of the charity. On 5 December 2017 the commission made an order under section 181A of the act to disqualify the CEO from acting as a trustee, charity trustee, officer and/or agent of the charity for a period of 4 years and 6 months. ^{[footnote 1]}

Further information is provided below under ‘regulatory action taken’.

The inquiry closed on 29 January 2018, with the publication of this report.

Findings

The management of the charity, application of the charity’s funds and governance;

On 28 July 2016, the inquiry held a meeting (‘the meeting’) with the CEO to discuss the regulatory concerns that had been identified. Trustees A and B were invited but did not attend the meeting. A number of areas were discussed at the meeting including the activities undertaken by the charity, its fundraising, governance and financial management. The CEO was advised at that meeting that the inquiry considered him to have acted as a ‘de-facto’ trustee, as he had taken decisions and acted in the capacity of a charity trustee. ^{[footnote 2]} The CEO stated, during the meeting, ‘I was pretty much running it [the charity] on my own as a de facto head’.

During the inquiry the CEO and Trustee B provided additional information to evidence the charity’s expenditure which was not provided to the commission during the visit. Based on the analysis of all information provided to the inquiry, at least £92,110.35 of charitable expenditure remained completely unaccounted for. This is a significant amount and represents nearly fifty percent of the charity’s total expenditure.

In addition, with regard to expenditure for which receipts have been provided, these do not clearly evidence that the expenditure was for charitable purposes and some of the expenditure may have been unauthorised benefits to the trustees and/or the CEO. For example, amongst the charity’s records there were receipts for the following which were not clearly linked to the activities of the charity:

• food (from supermarkets and restaurants)

• petrol

• parking (including valet parking)

• travel (including first class train travel) and accommodation (in the UK and overseas, including Turkey, Bahrain and Qatar)

• magazines

• TV license payments

• household goods

• other expenditure which is not clearly charitable without further evidence

The trustees did not provide evidence of carrying out adequate due diligence checks on the charity’s agent in OPT. During the meeting, the CEO stated that he had travelled to OPT to meet the charity’s agent and had spoken to people who had worked with him as well as the government to see if they knew of the agent, however he was unable to provide any records of these checks to the inquiry.

On 12 November 2016 Trustee B provided the inquiry with a copy of an email between the charity’s agent in OPT and the CEO, sent in September 2014. The email provided a breakdown of charitable funds used to furnish an ‘office bedroom’, at a total cost of approximately £1,219. The email included an image of a bedroom, which the inquiry identified was an image (available online) of a bedroom in the Hilton Hotel in Istanbul. No further information was provided about how the ‘office bedroom’ in OPT was used.

The CEO stated that the charity ran a residential house (‘the house’) for women who were reverting to and/or reconnecting with the Islamic faith, and their families, in Manchester. The charity had a lease for the house and ceased to rent it on 31 October 2015. The CEO provided the commission with a list of beneficiaries, which included seven adults and four children. The charity only had the full names of two of the seven adults and had contact telephone numbers for five of the individuals. The charity did not have any further records to evidence this charitable activity. During the meeting with the commission in June 2016 the CEO stated that he had stayed at the house for a number of nights when it was empty, citing security as the reason for this.

Of the charitable funds where end use was evidenced, a significant proportion of the funds were spent on staff, including consultants, and other governance costs. The charity organised several fundraising events, and funds spent on these (room hire, paid speakers and entertainers and food) has been incorrectly classified as “direct charitable expenditure” in the charity’s accounts. During the meeting with the commission, the CEO stated that some fundraising events had not made a profit.

As stated above, the charity’s funds were held in the account in the name of the company. On 31 May 2016 the company was dissolved by Companies House as a result of an application to strike off the company made by the CEO on 22 February 2016. £1,255.88 remained in the account, and was passed to the Crown upon the charity’s dissolution. The CEO’s actions in dissolving the company whilst its account held charitable funds therefore resulted in the loss of these charitable funds.

The charity operated substantially in cash, with around £40,000 withdrawn from ATMs. Although some receipts have been provided to evidence the expenditure of such funds, these are insufficient for the trustees to demonstrate that they have fulfilled their legal duties to account for all charitable funds.

The CEO was the sole signatory to the account; it is the trustees who are legally responsible for the management and administration of the charity, and their failure to exercise control over the charity’s finances is misconduct and/or mismanagement in the administration of the charity.

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

Charity trustees have a number of legal duties. These include complying with the charity’s governing document, acting in the best interests of the charity, being able to account for the charitable end use of the charity’s funds and applying the charity’s funds solely in furtherance of the charity’s purposes.

Trustee A was in an Islamic marriage with the CEO at the commencement of his employment with the charity. There is no evidence that this conflict of interest was ever managed in accordance with clause 7 of the charity’s GD. This extends to all decisions made in connection with his employment including the fact that Trustee A signed his contract of employment.

Trustee A considered she had resigned as a trustee in September 2014. She was advised by the commission in March 2016 that her resignation had been invalid and she remained a trustee. It would not be reasonable to expect Trustee A to have acted in the administration of the charity during the period when she was not aware that she remained a trustee. However, even excluding this period, Trustee A was responsible for misconduct and/or mismanagement in the administration of the charity as outlined above.

Similarly, Trustee B considered he had resigned as a trustee in January 2016. He was advised by the commission in March 2016 that his resignation had been invalid and he remained a trustee. It would not be reasonable to expect Trustee B to have acted in the administration of the charity during the period when he was not aware that he remained a trustee. However, even excluding this period, Trustee B was responsible for misconduct and/or mismanagement in the administration of the charity as outlined above.

The trustees had a duty to protect the charity’s reputation, which was an asset of the charity and part of its property, during their periods of trusteeship. During the period 28 February 2016 to the date of its removal from the register the charity’s late filing history was publicly viewable via the register and this may have had a negative impact on the charity’s ability to attract funding from donors and other organisations. The charity had been subject to negative media reporting in respect of the trustees’ failure to file the charity’s statutory accounts. This was highlighted in a media article which was published on 11 January 2016 and remains viewable. ^{[footnote 3]}

Trustee A made a complaint about the above referenced article to the Independent Press Standards Organisation (‘IPSO’) which was not upheld. In response to the allegation made in the Daily Mail article that the charity was ‘opaque’ Trustee A denied this and stated that the charity was “working with the Charities Commission because it has been slow in submitting certain accounts, but that is not unusual or a sign of fraudulent activity.” On 24 March 2016 IPSO issued a public ruling which found that “it was not inaccurate to describe [the charity] as opaque or to question what had happened to the monies raised” and the complaint was not upheld. ^{[footnote 4]}

During the course of the inquiry, the trustees failed to comply with a section 47(2) (a) and (b) direction issued on 9 June 2016 as a response was not received within the stipulated timeframe. Similarly, the charity‘s CEO did not comply with a section 47(2)(a) and (b) direction issued on 9 June 2016 as not all of the information and documentation required was provided.

Conclusions

The inquiry concluded that the trustees had been responsible for misconduct and/or mismanagement in the administration of the charity throughout their periods of trusteeship, primarily through their lack of oversight over the charity’s CEO and failure to fulfil their basic legal duties, including obtaining evidence of end use of charitable funds and failing to file the charity’s statutory returns within the statutory timeframe. The inquiry also found that the CEO was responsible for misconduct and/or mismanagement in the administration of the charity as he failed to ensure proper financial controls were in place and to address governance issues when the two trustees had attempted to resign.

Trustee B did comply with the commission in obtaining further documentary evidence during the inquiry, and the CEO also complied with the commission in attending the meeting and providing responses to requests for information.

The commission accepts that the trustees considered they had resigned from their positions as trustees, however once the commission informed them that they still held their positions in order to fulfil the quorum they did not act as the commission would expect.

Regulatory action taken

The commission issued six orders under section 52 of the act to obtain copies of the charity’s bank statements.

Following the opening of the inquiry, on 11 April 2016, the commission exercised its legal powers and made an order under section 76(3)(f) of the act restricting the transactions that the trustees, without the prior written approval of the commission, could enter into. These transactions were:

(i) the disposal of or the authorisation of disposal of property, donated to or held in the name of the charity, or held by or on behalf of the charity including the charity’s funds deposited into the company’s bank account

(ii) to undertake any activities which would incur a cost or a charge to the charity

The order was made as the inquiry was satisfied that the statutory test was met.

Further, the inquiry exercised the commission’s legal powers under section 47(2)(a) and (b) of the act to direct individuals, including to the trustees and the CEO, to provide answers in writing to questions and to provide copy documents on eight occasions.

On 12 September 2016 the inquiry notified Trustees A and B of the commission’s intention to remove them from their positions as trustees, charity trustees, officers and/or agents of the charity.

Both trustees requested the decisions be reviewed. These reviews were carried out in line with the commission’s decision review process. ^{[footnote 5]} An independent senior officer reviewed the initial decisions to remove the trustees, along with representations provided by the trustees, and determined that the removal orders were a reasonable and proportionate use of the commission’s powers in these cases. On 10 February 2017 the inquiry exercised the commission’s legal powers and made orders under section 79(4) of the act removing both trustees as a trustee, charity trustee, officer and/or agent of the charity. As a result of these orders, the trustees are disqualified, unless they obtain a waiver from the commission or the courts, from acting as a trustee of any other charity.

On 14 August 2017 the commission, being satisfied that the statutory test was met, notified the CEO of its intention to disqualify him from acting as a trustee of a charity of being a charity trustee, or holding a senior management position within a charity, for five years pursuant to section 181A of the act.

On 18 September 2017 the CEO provided representations against his disqualification and asked the commission to review this decision. The representations review was carried out by an independent senior officer, in line with the commission’s policy for decision review. ^{[footnote 6]} The reviewer agreed that the statutory test was met but considered that the length of the disqualification should be reduced by six months (from 5 years to 4 years and 6 months). On 5 December 2017 the commission made an order under section 181A of the act to disqualify the CEO. This disqualification came into effect on 18 January 2018.

It is a criminal offence under 183 of the act for any person to act as a charity trustee or trustee for a charity while disqualified, and this carries a maximum sentence of two years imprisonment. The trustees and the CEO have been added to the commission’s register of removed persons. ^{[footnote 7]}

On 16 May 2017, as the charity was a CIO, the commission notified Trustees A and B (who at that point were former trustees of the charity) and the CEO (‘the interested parties’) of its intention to dissolve the charity, under section 16 of the Charitable Incorporated Organisations (Insolvency and Dissolutions) Regulations 2012 (‘the regulations’). This was because it considered that the charity was no longer operating. The commission gave the interested parties several opportunities to provide any representations, in accordance with the process set out in the regulations. As it did not receive a response the commission then published notice of its intended dissolution of the charity for a period of three months on the register. The commission did not receive any representations and it therefore dissolved the charity and removed it from the register on 31 October 2017.

The Commission considered a range of regulatory actions and after considering all of the particular circumstances in this case came to the view that the most proportionate regulatory response was the removal of the two trustees, the disqualification of the CEO and the charity’s dissolution.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the commission’s assessment 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 are under a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects. They must also be able to demonstrate that this is the case. Section 130 of the act requires trustees to keep accounting records for their charity. Every charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position. Therefore, in order to show that they are complying with their legal duties, trustees must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the charity’s purposes for the public benefit.

Trustees are responsible for the overall management and administration of the Charity. They should be decisive, take responsibility and be accountable for controlling their charity. They should be able to devote sufficient time to enable them to play a full role. It is important that decisions concerning the charity are taken by the trustees acting together as they are jointly responsible. A charity is entitled to the independent and objective judgment of each of its trustees, acting solely in the interest of the charity.

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. This order will come into effect on 17 January 2018 unless it is appealed. ↩

2. Section 177 of the act gives the meaning of ‘charity trustees’ as “the persons having the general control and management of the administration of a charity”. ↩

3. Media article published on 11 January 2016 ↩

4. IPSO public ruling ↩

5. As set out in the commission’s operational guidance 736-1, available on the commission’s website, and policy Dissatisfied with one of the Charity Commission’s decisions: how can we help you?. ↩

6. As above, footnote 4. ↩

7. Register of removed persons ↩