Decision

Charity Inquiry: Support the Heroes

Published 13 July 2022

Applies to England and Wales

The Charity

Support the Heroes (“the charity”) was registered as a charitable incorporated organisation on 19 February 2014.

The charity’s objects were to support and to promote the assistance of persons currently serving or who have served in the armed forces and their dependents by advancing any lawful charitable purpose as the trustees think fit and in particular but not exclusively:

  • to promote direct and practical support to those which are serving or who have served in the armed forces who are in need by virtue of their physical or mental health or economic circumstances and provide benefits to the dependents of such persons who are in need
  • to support the families of those who have died in service
  • to aid and support those serving or who have served in the armed forces making the transition to civilian life

During its operation, the charity had one wholly owned trading subsidiary named Support the Heroes (Fundraising) Ltd (‘STHFL’). This company was dissolved on 19 November 2019.

The charity was removed from the register of charities on 18 January 2022 and is recorded as a removed charity on the register.

Events leading up to the inquiry

In October 2016, the Commission engaged with the charity following the receipt of complaints from members of the public about the charity’s operation and fundraising practices. Through this engagement, the Commission established that the charity had entered into a fundraising arrangement with a company named Targeted Management Limited (‘TML’) in October 2014 for a term of 5 years. The Commission identified serious concerns about the charity’s fundraising activities including the transparency of its arrangement with TML and the charity’s accounting of the arrangement.

In addition, just prior to the opening of the inquiry, the charity featured in a BBC investigative programme entitled ‘The Great Military Charity Scandal’, which was broadcast in November 2016 on BBC Scotland. This programme also identified concerns in respect of fundraising activities conducted by the charity, or on its behalf, particularly involving the transparency its agreement with TML and the percentage of funds given to the charity from public collections.

The Commission was not satisfied that the trustees had taken adequate steps to manage the risks to the charity’s reputation arising from these public concerns and so on 10 November 2016, the Commission opened a statutory inquiry into the charity under section 46 of the Charities Act 2011 (the ‘Act’).

The inquiry closed with the publication of this report.

Issues under investigation

The inquiry was established to examine the following regulatory issues:

The administration, governance and management of the charity by the trustees, in particular the extent to which the trustees had:

  • ensured that conflicts of interest in the charity and its subsidiary had been adequately avoided or managed
  • acted in the charity’s best interests and acted in accordance with their legal duties
  • responsibly managed the charity’s resources and acted with reasonable care and skill in respect of its fundraising agreement with TML and associated risks to the charity’s property
  • adequately protected the charity’s reputation and managed significant risks to public trust and confidence in the charity especially with regards to the conduct and reporting of fundraising activities conducted by the charity or on its behalf

Findings

The inquiry’s findings are based on the report of the Interim Manager (“IM”) appointed by the Commission to review the charity’s operation and structure; on the Commission’s own engagement with the trustees and on information provided by the trustees in the course of the inquiry.

Whether the trustees ensured that conflicts of interest in the charity and its subsidiary had been adequately avoided or managed

At the time the inquiry was opened, the charity had two trustees – the chair and her sister who had been two of the founding trustees. When the inquiry was opened, the charity did not have the required number of trustees (three) under the provisions of its governing document and the trustees could and should only have acted to appoint a new charity trustee at that point.

The inquiry found that there were conflicts of interest within the charity due to the familial relationship between two of the trustees were in post from the charity’s beginning until the inquiry was opened. In addition, the inquiry identified that the chair of trustees was the long-term partner of the father of the sole director of TML. The inquiry established that TML were significantly involved in the formation of the charity for example through attendance at meetings, use of letter headed paper and assistance in setting up the charity’s website.

The inquiry found that the trustees had failed to avoid or adequately manage conflicts of interest throughout the life of the charity’s agreement with TML which was a breach of the charity’s governing document. The governing document required the trustees to declare conflicts of interest and absent themselves from any decisions where they faced such a conflict.

The inquiry also found that the chair had agreed to an amendment to the charity’s fundraising agreement with TML which incurred further costs to the charity. There was no evidence to show that the chair had sought approval from the other trustees. It was also identified that the chair had received clear legal advice about the need to properly manage her conflict of interest in relation to the contract with TML and therefore the unilateral amendment of the agreement was improper because her conflict of interest had not been properly identified or managed.

The chair was also the registered sole director of the charity’s trading subsidiary, STHFL, through which the fundraising activities of TML were conducted. The trustees failed to ensure that at least one director of a charity’s trading subsidiary is not also a trustee of the charity in order to manage conflicts between the separate duties in each role.

The inquiry found that the two trustees in position when the inquiry was opened had failed to act in the charity’s best interests and in accordance with their legal duties. For example, the inquiry found that the trustees did not act in the charity’s best interests when they decided to enter into the agreement with TML as they were unable to demonstrate that they took a balanced and adequately informed decision and nor did they properly consider the exposure to risks both to the charity’s assets and reputation which the inquiry found to constitute mismanagement and/or misconduct by the trustees.

The inquiry examined the minutes of the charity’s meetings but found no evidence that the trustees undertook any due diligence on TML before entering the agreement and there was no oversight by independent trustees at that time. Evidence obtained during the inquiry indicated that only limited steps were taken to review other fundraising options for the charity and no other firm quotes were obtained by the trustees.

Before a decision is made about whether a fundraising agreement with a commercial partner is in a charity’s best interests, trustees should have effective systems in place to ensure that the partner is suitable and appropriate to work with. The inquiry did not find evidence that the trustees had given due regard to these principles, for example by ensuring that the costs were justifiable in the best interests of the charity, that the terms of the arrangement ensured that the charity had proper control of funds and would protect the charity against undue risk.

Whether the trustees responsibly managed the charity’s resources and acted with reasonable care and skill in respect of its fundraising agreement with TML and associated risks to the charity’s property

The inquiry found that the trustees failed to ensure that the contract with TML was lawful, appropriate, and represented value for money through the consideration of appropriate advice and a process of benchmarking. This omission created a risk that significant charitable resources could be misused through the over-remuneration of TML, and that the charity would be provided with services by TML which were delivered in a manner which posed a reputational risk. The inquiry found that the chair of trustees negotiated the terms of the agreement, with no involvement or oversight of independent trustees to ensure the terms of the agreement were in the best interests of the charity

The agreement with TML was for a term of 5 years and could only be terminated by the charity under limited conditions. It entitled TML to 67% of the gross proceeds raised from the public, which covered fundraising agents commission, venue fees and TML’s fees (together with irrecoverable VAT, these represented 39% of the total funds raised). This percentage excluded VAT which resulted in further deductions from the gross proceeds raised from the public. In the financial years ending 31 March 2015, 2016 and 2017, the inquiry found that the charity donated £223,000 in furtherance of its charitable purposes out of total funds raised of £1,318,039. This represents approximately 17% of the gross income over this period. [footnote 1] The inquiry considers this to be a low rate of return to the charity when considering the gross income raised. The inquiry found that the trustees did not take adequate steps to address the reputational risks and issues arising from the consistently low proportion of funds applied directly for charitable purposes.

The inquiry obtained copies of a solicitation statement to the Commission which made no reference to the charity’s arrangements with TML. In addition, the trustees’ elected not to disclose financial details of the fundraising conducted under the agreement with TML in the charity’s statutory annual reports and accounts.

Based on the findings detailed above, the inquiry found numerous examples of misconduct and/or mismanagement by the trustees, which provided the evidential basis for the regulatory action taken by the Commission to address its concerns during the inquiry.

Whether the trustees adequately protected the charity’s reputation and managed significant risks to public trust and confidence in the charity especially with regards to the conduct and reporting of fundraising activities conducted by the charity or on its behalf

The inquiry found that the trustees failed to protect the charity’s reputation and manage significant risks to public trust and confidence in the charity and the public’s wider perception of military charities, arising from public concerns and the risks associated with entering into the agreement with TML.

At the time the inquiry was opened, the charity’s activities had raised concerns from the public (both directed at the charity and Commission) and had featured in a BBC investigative programme and in national newspapers which significantly damaged the brand of the charity. It is the responsibility of the trustees to report serious incidents to the Commission, which includes significant risks to a charity’s reputation, but the trustees made no attempt to proactively inform the Commission of these events.

This coverage reported serious concerns in respect of fundraising activities conducted for or on behalf of the charity, such as concerns that fundraising collectors working on behalf of the charity were not accurately disclosing to donors or financial contributors their own remuneration, the nature of the charity’s agreement with TML and the significant deductions from public collections. The inquiry found that the charity did not have a complaints management procedure in place or seek specialist legal advice in respect to these complaints. The inquiry found that the complaints were actually directed to TML to be dealt with that company.

The inquiry noted that neither TML nor the trustees considered TML to be acting as a professional fundraiser and the charity’s website made no reference to the charity contracting with a third party in respect of its fundraising activities. In addition, the charity’s solicitation statement made no reference to the arrangements with TML or the percentage of funds receivable by the charity or consumed by the costs and fees associated with the arrangement. The inquiry found that this lack of transparency resulted in the public being misled by the charity’s fundraising activities and, as a result, were unable to make an informed decision whether to donate to the charity.

Conclusions

The inquiry concluded that there had been misconduct and/ or mismanagement in the administration of the charity by the trustees, most notably their failures in governance, their failures to protect the charity’s interests and its reputation, the lack of transparency around the charity’s arrangements with TML and their failure to adequately manage conflicts of interest.

Due to the misconduct and/or mismanagement identified, the inquiry took regulatory action by protecting the charity’s funds and then expediting the appointment of an IM to take full control of the charity.

It is noted that the trustees provided information to the inquiry which showed that they had discussed and agreed to wind the charity up prior to the opening off the inquiry due to the ongoing reputational issues at the charity which affected its ability to continue operation. This demonstrated some awareness by the trustees of the extent of the reputational harm that affected the charity at that time and was a reasonable step for the trustees to take, albeit that this was superseded by the appointment of the IM, who took on responsibility for the operation and eventual wind up of the charity.

During the course of the Inquiry, the chair, on behalf of the charity appealed to the First Tier Tribunal (Charity) to appeal the Commission’s decision to appoint an IM. This appeal was dismissed by the Tribunal, with the Tribunal agreeing with the findings of the Commission regarding misconduct and/or mismanagement in the charity.

It was determined by the IM that it was appropriate for the charity to be wound up. This was realised through the appointment of a liquidator and the completion of a Members Voluntary Liquidation. On 31 August 2021, a donation of £15,055 was made to Help for Heroes, registered charity (1120920), which constituted the charity’s remaining assets before the charity was dissolved. It is acknowledged that the completion of the liquidation process has contributed to the length of this inquiry, as well as other associated delays.

Regulatory Action Taken

On 11 November 2016, the Commission issued an order to the charity under section 76(3)(d) of the Act not to part with any charity property. At the same time, the Commission issued a direction to the charity under section 84A of the Act which directed specific action not to be taken, specifically any fundraising activities either by the charity itself or anyone on its behalf.

On 18 November 2016, the Commission issued two further orders under section 76(3)(d) to the charity’s banking provider to freeze the charity and its subsidiary’s accounts.

In October 2018, the Commission issued an order under section 84B of the Act which directed the IM to wind the charity up.

In January 2020, the Commission received signed voluntary undertakings from both trustees that they would not act as trustees of any charity for a period of five years.

Appointment of Interim Manager

On 9 December 2016, the Commission appointed Brian Johnson, (then of HW Fisher & Co, now of UHY Hacker Young), under section 76(3)(g) as Interim Manager of the charity. The IM has appointed to the exclusion of the trustees initially conducted an in-depth review of the charity’s governance, finances and the charity’s arrangements with its subsidiaries and third parties.

An appeal was submitted to the First Tier Tribunal (Charity) in December 2016 on grounds which challenged the suitability of the IM who had been appointed, his remuneration, and the proposed timescale for his work. This appeal was dismissed on 12 June 2017.

Following the dissolution of the charity in September 2021, the IM was discharged from his appointment on 5 October 2021. During the course of the appointment, the IM incurred fees of £43,000 inclusive of VAT. Other costs involved in the winding up and liquidation of the charity amounted to approximately £12,000.

Issues for the wider sector

Partnering with a specialist individual or business to raise money for a charity can bring benefits. However, to meet their legal duties, trustees must ensure that:

  • these arrangements comply with the specific legal requirements that apply
  • they can show that the arrangements, including the costs, are set and monitored in the best interests of the charity, protecting it from undue risks to its reputation and other assets
  • money raised is always used in an effective and efficient way to advance the objects of the charity and support beneficiaries

Trustees should be satisfied that:

  • there is strong management of the people and organisations that the charity works with
  • they can explain fundraising costs, being transparent about how the charity benefits

The Commission issued a regulatory alert about working with Third Party fundraisers in 2016.

Charity trustees should ensure that they have a conflicts of interest policy in place to ensure that they are fully aware of their responsibilities and that any conflicts that do arise are appropriately managed.

Where a charity trustee has a conflict of interest they should follow the basic checklist set out in the Commission publication Conflicts of interest: a guide for charity trustees (CC29) and where necessary or appropriate take professional advice.

  1. The inquiry notes that this distribution figure increases to approximately 18% taking into account the remaining funds distributed (£15,055) by the IM at the winding up of the charity.