Decision

Charity Inquiry: The Alternative Animal Sanctuary

Published 2 September 2021

This decision was withdrawn on 25 September 2023

This report has been withdrawn in line with our policy as it is over 2 years old.

Applies to England and Wales

The Charity

The Alternative Animal Sanctuary (‘the charity) was registered on 22 September 2005. It was governed by a trust deed dated 25 August 2005.

The charity’s objects were to relieve the suffering of animals in need of care and attention, to promote humane behaviour towards animals and to provide and maintain facilities for the reception and care of unwanted animals. The charity was removed from the register of charities on 28 June 2021 and is recorded as a removed charity on the register.

Events leading up to the Inquiry

In February 2016, the Commission received a report from the charity’s former auditors in relation to the audit of the charity’s 2015 accounts. This report identified various concerns and deficiencies in the charity’s internal financial controls and a lack of effective governance by the trustees. These concerns included no evidence of trustee meetings, incomplete and missing financial records and a lack of segregation between personal and charitable funds.

Following receipt of this report, and a period of information gathering in respect of the charity’s finances, the Commission identified that the charity was party to a direct mailing agreement (‘the Agreement’) with a specialist direct mailing agency (‘the Agency’) ^{[footnote 1]}. The Commission obtained information relating to the Agreement and identified that the total income raised from its inception in 2009 until 2016 was approximately £8.1 million but that just £905,000 had been received directly by the charity. This represented approximately 11% of the total funds raised from the public being received by the charity in this period, with the other 89% of funds being consumed by the Agreement’s costs and fees.

The Commission also identified concerns as to whether legal requirements were being met, specifically under section 60(1) of the Charities Act 1992, regarding the transparency of this Agreement and its associated fundraising material. Such material did not appear to provide the public with relevant information that would inform their decision to donate to the charity, such as the proportion of their donation that would be consumed by fees/costs or the proportion of funds that the charity would be able to apply in furtherance of its charitable objects. In addition, the Commission was concerned about the trustee’s decision to enter into the original Agreement, a subsequent extension in the term of the Agreement and whether such decisions were properly taken and reasonable decisions in the best interests of the charity.

On 2 March 2017, the Commission opened a statutory inquiry into the charity under section 46 of the Charities Act 2011 to examine the following issues.

Issues under Investigation

The inquiry was established to examine the following regulatory issues:

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

• acted in the charity’s best interests and acted in accordance with their legal duties
• responsibly managed the charity’s resources and financial affairs, including the charity’s debts/solvency and the adequacy of the charity’s financials controls
• ensured that conflicts of interest have been adequately avoided or managed
• complied with their reporting duties, including the submission of the charity’s annual reports and accounts to the Commission
• prudently managed the arrangements with a third-party fundraising agency

The inquiry closed with the publication of this report.

Findings

The inquiry’s findings are based on the reports of the Interim Managers (“IMs”) appointed by the Commission to review the charity’s governance and operation; on the Commission’s own engagement with the trustees and on information provided by the trustees and other sources during the course of the inquiry.

The extent to which the trustees acted in the charity’s best interests and acted in accordance with their legal duties

At the opening of the inquiry, the charity had four trustees, three of whom were members of the same family, including the Chair of trustees (the “Chair”), who ran the sanctuary on a day-to-day basis and who managed the charity’s finances. The inquiry found significant and wide-ranging evidence that the trustees failed to act in accordance with their legal duties and to act in the best interests of the charity. The inquiry found a complete lack of effective governance by the trustees and an unwillingness and inability to have proper oversight of the activities of the Chair.

The inquiry found that the charity’s record keeping was inadequate, which resulted in key decisions by the trustees, and the considerations involved in such decisions, not being recorded. Without adequate information about the trustee’s decision making, the trustees could not demonstrate that their decisions were properly taken, reasonable or in the best interests of the charity. In addition, the inquiry found that the trustees failed to keep and maintain adequate financial records, which is evidenced by the charity’s repeated failure to meet their statutory reporting obligations and by the opinions and advice given by the charity’s auditors in the reporting years from 2012 - 2017. The inquiry found that the trustees failed to act in accordance with their duties to maintain adequate accounting records, to meet their statutory filing obligations and to ensure the charity is accountable to the public and its supporters.

The inquiry found that the trustees had also failed to properly manage conflicts of interest. For example, the sanctuary was run on a property owned by the Chair but no formal lease agreement existed which set out the details of this arrangement for the charity’s use and occupation of the property. This meant there was nothing recorded in writing to protect the charity’s interests and which would demonstrate the arrangement complied with the charity’s governing document.

The inquiry identified that in 2017, the Chair purchased a property in Lincolnshire, purportedly on behalf of the charity. The property was purchased, using some of the charity’s funds, for £105,000 but the majority of the funding (£80,000) was secured as a loan made between the Chair and a private individual. The inquiry found no evidence that demonstrated that this purchase was a collective decision made by the trustees or that the decision was taken in the best interests of the charity or how it furthered the charity’s purposes. At the time of the purchase, the charity did not have the finances or cash reserves to cover the purchase. In fact, the charity’s financial position and cash flow was very poor at the time, and the use of personal credit cards by the Chair was commonplace to address these issues. This property was subsequently sold in 2020 at a loss of over £10,000. This example demonstrates the trustees’ failure to consider the financial implications of such a purchase, to act and take decisions collectively and to act with reasonable care and skill or in the best interests of the charity.

Failure to comply with Commission orders/directions

The trustees were required under an Order made on 30 August 2017 under section 84 of the Act to regularise the arrangement between the charity and the use of the Chair’s property. Within the same Order, the trustees were also required to formalise the contractual arrangements between the Chair and the charity, who was in receipt of both regular monthly payments from the charity for the use of the property and further payments to meet her personal expenses, including food and clothing. The inquiry found that these arrangements were not permissible under the provisions of the charity’s governing document. The trustees failed to comply with both of these requirements within the section 84 Order.

In addition, the trustees also breached an Order under section 76(3)(f) of the Act which placed a restriction on the charity making payments of over £2,000, without the prior written consent of the Commission. The inquiry identified that the trustees made three payments above the £2,000 threshold whilst this Order was in place without seeking prior authorisation from the Commission. The trustee’s failure to comply with the Commission’s Orders, alongside the inquiry’s findings that the trustees failed to act in accordance with their legal duties constituted misconduct and/or mismanagement in the administration of the charity.

The extent to which the trustees responsibly managed the charity’s resources and financial affairs, including the charity’s debts/solvency and the adequacy of the charity’s financials controls

The inquiry found that the charity’s finances were solely managed and controlled by the Chair, who managed the sanctuary on a day-to-day basis, providing facilities for the homing and care of various animals. The inquiry found that there were no internal financial reporting mechanisms nor any formal procedures in which trustees other than the Chair were involved in the approval or payment of expenditure. The charity had no financial control procedures to protect the charity’s funds from risk, a significant weakness that had been repeatedly brought to the attention of the trustees by the charity’s auditors in each of the three financial years preceding the opening of the inquiry.

The inquiry also found a complete lack of separation between the personal finances of the Chair and those of the charity. As well as having complete autonomy over the charity’s bank account and expenditure, it was identified that the Chair used personal credit cards to pay for some of the charity’s expenditure, which was then later reclaimed when the charity had funds available. The inquiry was told that this arrangement was in place due to long-standing cash flow issues at the charity, meaning that the Chair had resorted to using personal funds to pay for some of the charity’s expenditure. From 1 April 2010 to 31 March 2017, the charity paid over £360,000 to the Chair, much of which appears to have been paid under this informal arrangement. However, whilst some of this expenditure was likely to have been reasonably incurred, the inquiry found no procedures within the charity that would have enabled the other trustees to provide adequate checks and balances on this practice. The inquiry found no evidence to show that the other trustees had any means of verifying this expenditure or the amounts claimed by the Chair. The trustees did not take any reasonable steps to implement procedures to track or document such expenditure or to reassure themselves that such expenditure was legitimately incurred in furtherance of the charity’s purposes. The inquiry was unable to verify that all of the expenses incurred personally by the Chair were applied in furtherance of the charity’s purposes.

The Chair had, for many years, been in receipt of a monthly payment of £2,000 from the charity which remunerated her for the charity’s use of her property. Whilst this was permissible under the charity’s governing document, there was no written lease or licence between the Chair and the charity that set out the details of the arrangement or how the charity’s interest in the property was protected. In addition, the Chair also received regular benefits paid for by the charity, such as food, clothes and other day-to-day items. The inquiry also found no evidence of any formal agreement between the Chair and the charity that set out or documented this arrangement. This arrangement did not comply with the provisions of the charity’s governing document in that these payments could not be regarded as reasonable ‘out of pocket’ expenses and the inquiry found no evidence that the other trustees had any proper oversight of this expenditure. In essence, the Chair had complete autonomy to manage the charity’s finances, apply considerable funds to herself and to make all financial decisions with no recourse to, or oversight, by the other trustees.

The inquiry found there to be a lack of collective decision making on significant items of expenditure and an environment in which the Chair at times made unilateral decisions on financial matters without reference to the other trustees. The inquiry identified an example in which the Chair expended personal funds to purchase and restore an antique horsebox. Such funds were subsequently reimbursed to the Chair out of the charity’s funds. The inquiry understands that the charity spent upwards of £75,000 on this item, the majority of which was spent after the initial purchase to attempt to restore the vehicle. Such expenditure was incurred on an item that ultimately appeared to have little use for the charity or monetary value. This therefore represented a significant loss to the charity.

The charity’s lack of even basic financial controls or procedures and the trustee’s unwillingness and inability to have proper oversight or control of the Chair’s actions or to ensure the trustees made collective and documented financial decisions exposed the charity’s funds to undue risk and resulted in significant losses to the charity. The inquiry found that this constituted misconduct and/or mismanagement in the administration and management of the charity by the trustees.

The extent to which the trustees ensured that conflicts of interest were adequately avoided or managed

The inquiry found that throughout the life of the charity, the charity’s trustee board included three members of the same family, which included the Chair. At various times, and following the opening of the inquiry, the three related trustees formed the majority of the trustees. The inquiry found that the ability of the trustees to effectively operate and manage the charity and avoid conflicts of interest was compromised by the fact that three of the trustees were connected to one another.

The charity did not have a conflicts of interest policy and the trustees did not appear to recognise how to identify and manage such conflicts or the importance of doing so. The issue of managing conflicts of interest and related party transactions was put to the trustees by the charity’s auditors and advice provided on how to take appropriate steps to address identified deficiencies. The inquiry found no evidence that the trustees acted upon such advice.

The inquiry found that the trustees failed to identify and properly manage conflicts of interest when administering the charity, particularly in relation to decisions made that resulted in personal benefits to the Chair. The trustees could not provide documentary evidence demonstrating how key decisions that resulted in benefits to the Chair were made or how conflicts of interest were managed. For example, the charity spent significant charitable funds on work to the Chair’s property. This decision should have been made by a quorum of unconflicted trustees. The inquiry found no evidence to demonstrate that decisions had been made in this way and the conflict had been appropriately identified and managed. Similarly, the decision to pay the chair regular amounts for the use of her property by the charity should have been taken by a quorum of unconflicted trustees. The inquiry found that these decisions were not properly documented and therefore the trustees could not demonstrate that the conflicts of interest had been appropriately managed.

The inquiry found that the trustees were unable to demonstrate how they adequately identified or managed conflicts of interest and acted in the charity’s best interests. The Chair was also under a personal duty not to put herself in a position where her personal interests conflicted with those of the charity which she failed to do. The inquiry considers that this demonstrated misconduct and/or mismanagement by the trustees.

The extent to which the trustees complied with their reporting duties, including the submission of the Charity’s annual reports and accounts to the Commission

The inquiry found that the trustees consistently failed to meet the statutory reporting requirements for the charity, those being the obligation to file annual accounts and a Trustees Annual Report within ten months of the charity’s financial year end (‘FYE’). The charity’s accounts were significantly late in being filed for the FYE’s 31 March 2014 (73 days late) and 31 March 2016 (175 days late). The trustees failed to file the charity’s accounts for the financial year ending 31 March 2017, which should have been filed by 31 January 2018. This was despite the ongoing statutory inquiry into the charity and regular enquiries by the inquiry to ascertain the progress and status of those accounts. In addition, the trustees failed to submit these accounts in the period from February 2018 to January 2019, at which point the inquiry appointed the IMs to the charity to the exclusion of the trustees. Following their appointment in January 2019, responsibility for completing and filing the accounts passed to the IMs.

Charity trustees are under a legal duty to keep and maintain proper financial records and to ensure that their charity is accountable. The inquiry found that the delays in the production of the charity’s accounts was directly linked to the trustees’ inability to keep and maintain adequate financial records that would allow for the timely preparation of accounts. The Chair, who had operational control of the charity and was responsible for its day-to-day operation and the maintenance of its records, bears the majority of the responsibility for these findings. However, it is also the collective responsibility of all the trustees to ensure that a charity complies with its statutory reporting requirements.

The inquiry found that the charity’s accounts for each of the financial years ending between 2012 – 2015 were all qualified by the charity’s auditors. A qualified opinion by an auditor is generally used when an auditor has doubts or disagrees with certain aspects of the accounts. In this case, the qualified opinions with each set of accounts referred to significant and wide-ranging weaknesses in the charity’s governance, financial management, financial controls and record keeping. The inquiry found that similar issues were identified year-on-year within the charity and were communicated to the trustees. For the 2016 and 2017 accounts, the auditors gave a disclaimer of opinion on the accounts, which is generally where an auditor believes the matter is too material to be able to express an opinion either due to a limitation of scope or involvement of significant uncertainties. In any case, the situation for the disclaimer of opinion is that auditors believe the matter is too material to even be able to express an opinion on the financial statements. In this case, for the 2017 accounts, the auditors gave the opinion for reasons including:

• the valuation and completeness of related party transactions
• the valuation and completeness of expenditure; and
• the accuracy, existence, completeness and classification of opening balances and corresponding figures

The inquiry found that the trustees had many opportunities over a number of years to demonstrate their willingness and ability to take steps to address the identified weaknesses and issues within the charity’s governance, administration and record keeping. The inquiry found little evidence that the trustees had taken such steps or made any meaningful effort to change how the charity was governed and administered. The inquiry found that the trustees failed to act in accordance with their duties to maintain adequate accounting records, to meet their statutory filing obligations and to ensure the charity was accountable to the public and its supporters, all of which demonstrated misconduct and/or mismanagement in the administration of the charity.

The extent to which the trustees prudently managed the arrangements with a third-party fundraising agency

The reasonableness of the trustees’ decision to enter into the agreement and subsequent amendments to the terms of the agreement

The charity entered into its Agreement with the Agency in January 2008. The initial term of the Agreement was seven years, which was extended by three years in 2013 and further extended by five years in 2018. The inquiry found that at the time of entering into the Agreement, the trustees did not take any formal legal or accountancy advice and failed to undertake any due diligence in respect of the company. The trustees confirmed that they did not enter into any negotiations on the specific terms of the Agreement, which implied that they entered into the Agreement on the original terms offered. Whilst the Chair stated that she discussed the Agreement with the other trustees at the time of entering the Agreement, no charity records exist of the trustee’s decision making from 2008 or 2013 which detailed the trustees considerations at those times and how they reached their decisions. Trustees are required to ensure that they are adequately informed prior to making a decision. When making decisions, to discharge their legal duties as trustees, they must:

• act within their powers
• act only in the interests of the charity
• make sure they are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest and make decisions that are within the range of decisions that a reasonable trustee body could make

Trustees should be able to show how they have followed these principles. The inquiry found that the trustees could not demonstrate how they had considered these principles at the time the Agreement was entered into or when extended in 2013. The trustees did not consider the range of reasonable alternatives available at those times, that they understood the statutory requirements of such agreements or that they gave adequate consideration to the risks, issues and potential liabilities arising from the terms of the Agreement.

The inquiry’s view is that the original terms of the Agreement were unfavourable to the charity, particularly in relation to the termination provisions, which disadvantaged the charity and were not in its best interests. Those provisions essentially gave the charity no practical means by which to terminate the Agreement, which given it was for an initial duration of 7 years and it was intended to generate the principal source of income for the charity, was of particular concern.

During the course of the inquiry, the charity, with professional assistance, negotiated a new agreement in 2018 with the Agency which effectively extended the term of the Agreement for a further five years. In doing so, a significant debt write-off and an increase in the charity’s monthly income was achieved.

The IM took steps to terminate the Agreement (and associated contracts) in December 2019 and the charity’s relationship with the Agency ceased in April 2020.

The trustees’ oversight and management of the financial performance of the agreement

The inquiry found that the Chair was primarily responsible for overseeing the Agreement on behalf of the charity. However, there was limited awareness by the wider trustee body of the Agreement’s performance and no collective oversight or management of the Agreement by the wider trustee body.

When the inquiry was opened, the charity was insolvent on a balance sheet basis and the charity’s auditors had identified material uncertainty over the charity’s ability to continue as a going concern. The accounts for FYE 2016 showed that the charity had net current liabilities of £355,000 and that this position was largely attributable to monies owed under the Agreement. It was clear to the inquiry that the charity was heavily reliant on the income generated under the Agreement and that the trustees had failed to consider the risks of failing to diversify the charity’s income streams to address this issue. The inquiry also noted that the charity had entered into a loan for £60,000 with the Agency in November 2014, which was interest bearing. The Chair confirmed that she unilaterally signed off this loan with without recourse or discussion with the other trustees in post at the time. The inquiry understands the loan was entered into in order to pay expenses accumulated by the charity, including vet and hay bills. It is clear that the charity was not receiving sufficient income under the Agreement in order to meet its financial commitments, but there was no evidence to indicate that the trustees took any steps to address the shortfall.

The inquiry found that the high level of costs and fees associated with the Agreement resulted in a very low proportion of publicly donated funds being passed to the charity to further its objects. The inquiry found that in the lifetime of the charity’s Agreement with the Agency, which ran from 2008 to 2020, the total income generated by the arrangement was £10.6 million. Total income received by the charity amounted to £1.8 million. This represented less than 18% of the funds raised from the public being directed to the charity for it to use in furtherance of its objects, with over £8.8 million being consumed by the costs and fees associated with the Agreement.

The transparency of the Charity’s agreement and arrangements, both in its mailing materials sent to the public and its reporting of the agreement in the Charity’s annual reports and accounts and the extent to which the trustees have protected the charity’s reputation in this regard

There are specific rules that have to be followed if a charity uses a ‘professional fundraiser’. The Charities Act 1992 and associated statutory regulations require professional fundraisers, and others, to follow certain rules when fundraising for a charity or charitable purposes. This includes making a detailed declaration, known as a solicitation statement, to the public when soliciting or procuring funds on behalf of the charity from them. The regulations seek to enable donors to make an informed decision, knowing how much of their donation will reach the charity and the proportion that will be received by the professional fundraiser.

The Agency carried out an extensive range of functions that solicited or procured donations from the public on behalf of the charity, which included developing the strategy for the charity’s direct mail campaigns, drafting the letters and artwork to be used in those campaigns; populating mailing lists and preparing reports on the results of the Agreement.

The inquiry obtained copies of the charity’s mailing material which was sent to the public in order to solicit donations under the Agreement. The inquiry established that the fundraising material issued to the public by the Agency on the charity’s behalf contained no solicitation statement or explanation about its arrangements with third parties or the proportion of funds that the charity expected to receive. From the Agreement’s inception in 2008 until May 2017, when the inquiry engaged with the trustees on this matter, the fundraising material did not provide the public with necessary and relevant information that would help inform their decision to donate to the charity, such as the proportion of their donation that would be consumed by fees/costs or the proportion that the charity would be able to apply in furtherance of its charitable objects.

Following the opening of the inquiry, the charity’s mailing material began including a solicitation statement and it is noted that this step was taken by the trustees in consultation with the Agency. It is the Commission’s view that the Agency was likely acting as a professional fundraiser and should therefore have complied with relevant statutory regulations. Even in arrangements in which a third party does not consider itself a professional fundraiser, a charity’s reputation may be subject to unacceptable risk and damage if donors are not given a fair indication of the arrangement or the costs involved. Charities are expected to be transparent with their donors in their fundraising activities, particularly where someone is not employed directly by, but there are fees or commission being taken by them, from the money collected or raised from the public.

The inquiry also considers that the charity’s reputation was subject to an unacceptable risk of damage by the lack of information available to donors at the point of solicitation, particularly when donors were not made aware of the charity’s arrangement with the Agency or the costs involved. Charities are expected to be transparent with their donors in their fundraising activities, particularly where someone is not employed directly by the charity and fees or commission are deducted, from the money collected or raised. The inquiry notes that the trustees did take appropriate steps in May 2017 to address this issue and ensure relevant information outlining the arrangement with the Agency was provided in mailing material sent under the Agreement.

The inquiry also found that the charity’s accounts did not adequately convey to potential donors the extent to which donated funds may be applied directly for charitable purposes. Although some references were made in the charity’s accounts to the Agency, it was not made clear the proportion of the funds raised under the Agreement were consumed by the costs and fees associated with it or the amount that the Charity was able to able use in furtherance of its purposes.

The control of fundraising costs incurred under the terms of the agreement and the proportion of fundraising income applied directly for charitable purposes

The inquiry found that the trustees did not exercise adequate oversight over the performance of the Agreement, particularly where that performance fell short of projections. The overall performance of the Agreement, with just 18% of the total funds raised being transferred to the charity to be used in furtherance of the charity’s purposes, is a very poor overall return and significantly affected the charity’s ability to operate effectively. However, the inquiry found no evidence that the trustees displayed any meaningful oversight of the performance of the Agreement or took reasonable steps to address its poor performance. The inquiry found that the trustees failed to act in accordance with their duties in respect to the Agreement which demonstrated mismanagement and/or misconduct in the administration of the charity.

Conclusions

The Commission identified comprehensive failures in governance and financial management at the charity which resulted in its funds being placed at undue risk and allowed significant losses to occur. Whilst the Chair bore the majority of responsibility, having had operational responsibility of the charity, having managed its resources and being responsible for some of the losses described, the trustees bear collective responsibility for the failures and weaknesses identified at the charity. It is the Commission’s view that the trustees collectively failed to understand their legal duties as trustees and appreciate the importance of acting at all times in accordance with them.

The trustees were aware, by way of advice from audits preceding the opening of the inquiry, that there were significant issues in how the charity and its finances were being managed and that changes in how it operated were necessary. However, the trustees did not demonstrate that they were willing or able to make the required changes or to operate the charity in accordance with their duties and legal requirements. The Commission concluded that the trustees’ collective failure to address the deficiencies identified, to fully cooperate and engage with the inquiry and to comply with orders/directions amounted to misconduct and/or mismanagement in the administration of the charity.

The IMs determined that it was appropriate to wind up the charity on the basis that it was not feasible or viable to address the significant underlying issues at the charity, even if a new trustee board were to have been identified and appointed particularly given that the charity was operated from the chair’s property. The IMs oversaw the distribution of the charity’s residual funds, which totalled £407,000, to ten different charities with similar purposes working in Lincolnshire and surrounding areas. The Commission thereby ensured that these funds were protected against the risks evident within the charity and secured a proper application of them for the purposes of the charity.

Based on the Commission’s findings, the Chair and one other trustee were disqualified from acting as trustees under section 181A of the Act, with the Chair being disqualified for the maximum period available of 15 years.

Regulatory Action Taken

During the course of the inquiry a number of directions were made under sections 47 and 52 of the Act to gather information relevant to the inquiry.

On 30 August 2017, an Order was made under section 84 of the Act, requiring the trustees to carry out certain actions to address identified issues in the governance and administration of the charity.

On 9 August 2018, an Order was made under section 76(3)(f) of the Act restricting the trustees from entering into certain transactions without the Commission’s prior written consent.

On 6 November 2018, an Order was made under section 76(3)(d) of the Act to prevent the Charity’s bank from parting with its funds without the prior approval of the Commission in order to protect the charity’s funds.

On 3 September 2020, the Commission exercised its powers under section 181A of the Act and disqualified two of the charity trustees. The Chair of trustees was disqualified from acting as a charity trustee or in a senior management function of a charity for 15 years. The second trustee was disqualified for 10 years.

On 22 September a voluntary undertaking was made by one of the other former trustees asserting that they would not act as a charity trustee for a period of five years.

Appointment of Interim Managers (IMs)

In January 2019, the inquiry used its temporary protective powers under section 76(3)(g) of the Act to appoint Phil Watts and Sarah Tomlinson of Anthony Collins LLP as IMs of the charity to take over the management and administration of the charity and its property to the exclusion of the trustees and to take any steps necessary to secure the property of the charity.

On 20 August 2019, the Order to appoint the IMs was varied by an Order under section 337(6) of the Act to enable the IMs to take steps to wind the charity up. The Chair of the trustees appealed to the First Tier Tribunal (Charity) against the variation Order. This appeal was heard on 22 November 2019. The appeal was dismissed.

On 16 July 2021, the Order to appoint the IMs was revoked by an Order under section 337(6) of the Act after they fulfilled the terms of their appointment and concluded the winding up of the charity. The total costs of the IMs appointment amounted to £124,187, inclusive of all VAT and disbursements. The cost of the IM’s appointment was met out of the charity’s funds.

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.

An effective trustee body acts in the best interests of the charity and its beneficiaries, understands its responsibilities and has systems and policies in place to exercise them properly, with clear and robust reporting procedures and lines of accountability.

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.

Charity trustees have a general duty to manage their charity’s resources responsibly, reasonably and honestly. This means not exposing their charity’s assets, beneficiaries or reputation to undue risk. It is about exercising sound judgement and then taking decisions that a reasonable body of trustees would do.

Charity trustees are responsible for governing their charity and making decisions about how it should be run. Making decisions is one of the most important parts of the trustees’ role. Trustees can be confident about decision making if they understand their role and responsibilities, know how to make decisions effectively, are ready to be accountable to people with an interest in their charity, and follow the 7 principles that the courts have developed for reviewing decisions made by trustees.

Trustees must:

• act within their powers
• act in good faith and only in the interests of the charity
• make sure they are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

It is important that charity trustees apply these 7 principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction.

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.

Further guidance and advice on conflicts of interest can be found on GOV.UK.

Financial Controls

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.

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.

Working with Third Parties

Where a charity is working with a third party to raise funds, compliance with trustee duties means having effective systems in place to keep control of the fundraising, and taking steps to properly protect the charity’s interests, assets and reputation. It also means compliance with relevant legal rules, including those designed to make third party fundraising arrangements transparent to donors, supporters and the public.

Situations that are of particular concern and which should be avoided are those that include one or more of the following characteristics:

• arrangements with a third party fundraiser which bear all the hallmarks of a professional fundraiser arrangement, but which are structured to avoid the legal rules; the fundraiser may be described as an adviser or consultant in the contract even though in reality they are really controlling the solicitation of funds on the charity’s behalf - these arrangements can also mean that it is not clear to the donor that the fundraising is being delivered by, or with the significant involvement of, a third party at a significant cost to the charity
• medium or long term contracts that have very limited termination or adjustment provisions
• arrangements in which the charity only benefits from the arrangement at the very end of the contract term, and where there is the possibility that the charity will not benefit at all
• arrangements where the fees received by, or payments made to third party fundraisers damage public trust and confidence in that charity

When working with third party fundraisers, trustees must:

• comply with specific legal requirements which apply when the third party fundraiser meets the definition of a professional fundraiser or commercial participator; these rules promote transparency, protect potential donors, and give them a fair indication of the extent to which the charity (or charities) will benefit from the fundraising
• ensure that the arrangement is set up and controlled in a way which is in the best interests of the charity, and which protects its assets and reputation; the commission’s guidance - Charity fundraising: a guide to trustee duties (CC20) sets out the issues which trustees should consider to make sure that the potential benefits of working with the other organisation are appropriately balanced with proper attention to protecting their charity’s interests

1. Direct mail fundraising is sending mail to the public with the aim of raising money. There are 2 types of direct mail fundraising: donor renewal mail and donor acquisition mail. Donor renewal, or warm, mail is sent to existing donors whereas donor acquisition, or cold, mail is sent to people who have no prior involvement with the charity. In order to establish a list of warm donors, direct mailing programmes require considerable initial investment and resources in order to work successfully. ↩