Decision

Charity Inquiry: Ummah Welfare Foundation

Published 12 March 2020

This decision was withdrawn on 16 March 2022

This Inquiry has been archived as it is over 2 years old.

The charity

The charity was registered with the Commission on 14 December 2012. It is governed by a Memorandum and Articles of Association incorporated on 26 September 2012.

The charity is based in Oldham, operating in Manchester and Blackburn, as well as Bangladesh, India and Pakistan. Its objects are the relief of poverty and sickness and the advancement of education anywhere in the world.

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

Background

The Commission first wrote to the trustees on 7 June 2013 to confirm that the charity had been selected for a compliance visit. This was because the charity had only two trustees and it was operating in high risk areas overseas.

During a visit on 26 June 2013, which included an inspection of the books and records, serious concerns were identified regarding the governance and financial management of the charity. The former chair of trustees, Mr Sahail Ahmed was the only trustee present at the visit.

Whilst some records for the charity’s income were maintained, concerns with regards to receipts and records for expenditure were raised. Mr Sahail Ahmed was given regulatory advice and guidance by the Commission, in respect of the legal requirement to ensure records, including receipts and expenditure records, were kept demonstrating funds are applied in furtherance of the charity’s objects.

The Commission was also concerned that charitable funds were transferred overseas in cash, including to high risk areas, with no apparent checks being undertaken to ensure the money was being spent as intended.

In addition, Mr Sahail Ahmed had reimbursed his own expenses from charitable funds and was making decisions regarding the charity, without reference to the other trustee. Mr Sahail Ahmed was given advice and guidance in respect of the issues raised.

The two trustees were provided with further specific written guidance on 3 July 2013 about the financial and administrative responsibilities of being a charity trustee. The advice included the risks of the charity operating with just two trustees, authorisation of expenses, record keeping and ensuring that all charity expenditure is properly accounted for and in accordance with the charity’s purpose.

The Commission subsequently used its statutory information gathering powers under the Charities Act 2011(‘the Act’) to obtain the charity’s bank statements.

Analysis of the statements identified concerns regarding the high levels of cash withdrawals from the charity’s bank account. It was noted that the volume of cash withdrawals had increased significantly since the Commission’s visit, despite the advice and guidance provided.

A second meeting took place on 22 May 2014, to establish whether improvements had been made. This meeting identified that the trustees had not implemented the advice and guidance provided by the Commission. Consequently, on 6 August 2014, a statutory inquiry was opened into the charity under section 46 of the Act.

Scope of the Investigation

The issues examined by the inquiry included:

• the financial management, administration and governance of the charity by the charity trustees, including the financial controls at the charity
• whether charitable funds had been applied outside of the objects of the charity
• whether or not the trustees had complied with and fulfilled their duties and responsibilities as trustees under charity law

The inquiry closed with the publication of this report.

Findings

The financial management, administration and governance of the charity by the charity trustees, including the financial controls at the charity

Board of Trustees

The charity’s constitution requires that there are three trustees. The inquiry found that the charity had operated with two trustees from 10 February 2013 to 1 July 2015, when the current trustees were appointed, and thus did not have a properly constituted board of trustees throughout the period.

Furthermore, examination of the minutes from trustee meetings held between June and August 2013 show that Mr Sahail Ahmed had been the only trustee in attendance at any of the meetings.

The inquiry found that Mr Sahail Ahmed, at the time the inquiry was opened, was not fulfilling his basic obligations as a charity trustee, as detailed in this report, and that he failed to take on board the advice and guidance provided to him by the Commission. He was subsequently suspended from his position as charity trustee on 21 August 2014 and removed permanently from his role as trustee on 18 December 2015.

The three current trustees were appointed on 1 July 2015. Two of them met with the inquiry on 1 September 2015, when they received advice and guidance about their responsibilites as trustees and written guidance was provided to the chair by email.

On 3 May 2019 the inquiry met and undertook interviews with each of the current trustees.

The inquiry found that two of the trustees had little knowledge of their trustee duties in respect of the charity’s governing document, company and charity law and they had inadequate oversight and engagement with the day-to-day running of the charity, deferring much of the decision making and administration to the third trustee, who accepted he did not have the capacity to manage all of the responsibilities alone.

Additionally, two of the current trustees are married to each other but there was no recognition by any of the trustees that this could make the management of any conflicts of interest in the future difficult/impossible, as there was no conflicts of interest policy.

The current trustees have been directed in an order, made under section 84 of the Act, to review their trustee board, increase the number of trustees and introduce a conflicts of interest policy.

Financial Controls

At the opening of the inquiry the charity had no policies or controls in place to assist the trustees in their financial management of the charity.

The inquiry found that all withdrawals from the charity’s account were in cash. Operating with cash, particularly overseas, poses inherent risks to a charity’s funds. As a result, the inquiry issued an order to safeguard funds held in the charity’s bank account.

Analysis of the charity’s bank statements for the period 16 April 2013 to 16 January 2014 showed that Mr Sahail Ahmed had made cash withdrawals totalling £45,167, with £36,910 of this having been withdrawn after the first meeting with the Commission, despite the advice and guidance provided to him. Four of the withdrawals were for £8,000 or more, from four different bank branches, over a six-day period.

Mr Sahail Ahmed kept a large proportion of the charity’s funds, approximately £24,000 or more, in cash at his home for up to three months between October and December 2013, putting charity funds at unnecessary risk.

On 1 May 2018, the current trustees expended £1,950 of charity funds providing medical treatment to a beneficiary in Pakistan. The inquiry found that the trustees had failed to ensure the charity funds were not put at risk, in particular by using one of the trustee’s personal bank account to transfer the money overseas and then making the final stage of payment to the beneficiary as a cash payment to a third party.

The current trustees have been provided with regulatory advice and guidance and directed in an section 84 order to ensure that records are kept to show that the charity’s financial controls policy, which the trustees implemented in June 2018, is being properly adhered to, due dilligence undertaken and appropriate records kept. The order, and the trustees’ compliance with it, is subject to ongoing monitoring by the Commission.

Whether charitable funds have been applied outside of the objects of the Charity

The trustees were unable to produce receipts or invoices, at the meeting with the Commission in May 2014, to demonstrate that cash withdrawals, totalling £45,167, had been applied in furtherance of the charity’s objects. However, the inquiry does accept that the receipts for this expenditure were eventually produced, some three years after they were requested, after Mr Sahail Ahmed travelled to Pakistan to obtain them.

The inquiry found that on 27 October 2016, £2,500 cash was withdrawn from the charity’s bank account, using a cheque signed by each of the current trustees. The trustees were unable to account for the expenditure or demonstrate it had been applied to further the charity’s purpose; the trustees all agreed that they would reimburse the charity.

The Commission directed its repayment in the section 84 order made on 15 August 2019. This demonstrates a failure by the trustees to act on advice provided to them about the financial management of the charity’s finances. The trustees have commenced repaying the monies and signed an undertaking detailing their personal liabilities in this respect.

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

As detailed in this report, the inquiry found that when the inquiry opened there were insufficient trustees and those appointed as trustees were not fulfilling their duties as required by charity law. This resulted in the chair of trustees being removed permanently as a trustee.

In July 2015 the new trustee board was appointed but the inquiry found that they too were not fulfilling their full responsibilities as trustees under charity and company law. They failed to keep adequate records of their decision making or of the charity’s income and expenditure and they had poor financial controls in place.

The inquiry has issued the current trustees with a section 84 order and acknowledges they have now taken a series of steps to improve and strengthen these areas. Their continued progress will be subject to ongoing monitoring by the Commission.

Conclusions

The inquiry concluded that the general governance and financial management of the charity from February 2013 to August 2014 had been inadequate. During this time the charity and its finances had been under the sole control of one of the two registered trustees, Mr Sahail Ahmed.

During this time Mr Sahail Ahmed authorised his own expenses, failed to undertake due diligence in respect of authorising expenditure overseas, failed to keep adequate records of the decision-making processes and failed to properly account for expenditure. Consequently, the inquiry concluded that Mr Sahail Ahmed had been primarily responsible for the mismanagement and misconduct in the administration of the charity up until the date of his suspension and this led to the inquiry’s decision to remove him as a charity trustee.

The current trustees have not demonstrated adequate financial control or oversight of the charity. However, the inquiry concluded that, although the charity’s administration, governance and management were not fit for purpose at the time of opening the inquiry, the current trustees have recently taken a series of steps to improve and strengthen these areas.

The inquiry has issued the current trustees with an order, dated 15 August 2019, under section 84(2) of the Act, directing them to take a number of actions. The actions are due to be completed by 14 August 2020. If the trustees fail to comply with the order the Commission may consider what, if any further remedial or regulatory action is required.

Regulatory Action Taken

On 21 August 2014, the inquiry made an order under section 76(3)(d) of the Act to safeguard funds held in the charity’s bank account.

Between the 21 August 2014 and 17 January 2017, the inquiry made twelve orders, under section 52 of the act, to the charity’s bank to obtain bank statements / documents.

On 21 August 2014, the inquiry made an order under section 76(3)(a) of the Act to suspend Mr Sahail Ahmed as a trustee.

On 11 November 2014 the inquiry made an order under section 52(1) of the Act to obtain documents from a trustee.

On 22 January 2015 the inquiry made an order under section 47(2)(c) of the Act directing a trustee to meet with the Commission.

Between 02 June 2015 and 14 May 2019, the inquiry made seven orders, under S47(2) of the Act, directing the trustees to provide information to the Commission.

On 18 December 2015, the inquiry made an order under Section 79(2)(a) of the Act, to remove Mr Sahail Ahmed as a charity trustee.

On 23 June 2016 and 29 January 2019, the inquiry made orders under section 47 of the Act, directing a third party to supply information / documents to the Commission.

On 1 September 2016, the inquiry made an order under section 337(6) of the Act, revoking the order made to the charity’s bank under section 76(3)(d) on 21 August 2014.

Between 9 January 2018 and 28 November 2018, the inquiry made four orders, under section 47 of the Act, to the charity’s bank to obtain documents.

On 15 August 2019 the inquiry made an order under section 84 of the Act, directing the trustees to take specified actions, within set timeframes, with regards to the management and administration of the charity, as outlined in this report. The actions are due to be fully completed by 14 August 2020.

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 charity is run by a properly appointed, clearly identifiable board or trustee body with at least the minimum number of trustees, as required by its governing document. Holding the position of trustee in name but failing to fulfil the legal duties and responsibilities of a trustee may amount to misconduct and mismanagement in the administration of a charity.

Proper financial controls are a necessary feature of any well-run organisation. Trustees should ensure that adequate financial controls and policies are put in place and that enough information is reported back at trustee meetings, to satisfy them that the controls are being properly implemented.

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. This is key to ensuring public trust and confidence in charities.

Trustees must also be able to demonstrate that they have monitored funds to ensure that not only have they been transferred from a charity’s bank account to the relevant beneficiary, but also that once they have reached the intended destination, their end use was verified to ensure that those funds had been used for the purposes for which they were intended.