COMPLIANCE. Inquiry Report Essex Islamic Trust. Registered Charity Number

Transcription

1 COMPLIANCE Inquiry Report Essex Islamic Trust Registered Charity Number

2 This is a statement of the results of an Inquiry into Essex Islamic Trust (registered charity number ) Published on 12 February 2010 The Charity The Essex Islamic Trust ( the charity ) was registered as a charity on 24 January 1995 and it was removed from the Central Register of Charities on 12 November The charity was governed by a Trust Deed dated 2 August The charity s objects, briefly, were to: advance the religion of Islam; to advance the education of British Muslims; to provide or assist in the provision of facilities of social welfare; and the relief of poverty, sickness and distress. In practice the charity ran Islamic education classes and prayer sessions from properties in Romford, in the London Borough of Havering. The charity also attended various local education and police liaison groups and through this the charity offered a perspective of what it was like being a Muslim living in Britain. The income of the charity for the financial year ending March 2008 was 205. Prior to this the income of the charity for the financial year ending March 2007 was 20,862. Source of Concern In August 2006, the Commission received a complaint from a member of the public. The complaint centred on properties linked to the charity. The complainant was concerned that following an appeal by the charity for money to purchase a property to be used as a mosque, a property had been purchased but the Land Registry documents showed that the Chair of the charity was the registered owner and the charity s interest could not be seen. The complainant was concerned that property owned by the charity had improperly passed to the trustees of the charity as if it were their own. The Commission established there were a total of three properties connected to the charity, via the trustees, and that the three trustees of the charity were all related. Two of the trustees were married to each other and the third trustee was their daughter. The properties connected to the charity were as follows: Property A. This property was the family home of the trustees and used as a correspondence address for the charity. Property B. This property was owned by a trustee and from which the charity held Friday prayers. Property C. This property was purchased shortly after the charity made an appeal for funds to establish a mosque and is the one about which the complaint referred. The charity carried out its education classes from this property. 1

3 8. 9. In 2003 the Commission had engaged with the charity and provided regulatory advice about managing conflicts of interest given that the trustees were all related. The Commission recommended to the trustees that they should consider increasing their number or take other steps to manage any possible conflicts of interest. The charity responded by stating they were sure conflicts of interest would not arise. As a result of the complaint received the Commission opened a Regulatory Compliance Case to investigate the matter further and engaged with the charity in order to obtain information about the property purchased and whether it had in fact been purchased for the benefit of the charity. The investigation was also concerned with how the charity had managed its conflicts of interest since the Commission s last engagement with the trustees. 10. A meeting took place between the Commission and the Chair of the charity trustees on 2 May At that meeting the Chair of the charity explained that the mosque appeal had been unsuccessful and he and his family had decided to buy a property in their personal capacities. He said that the property was purchased with his family s own money but in any case he no longer owned the property as it had been transferred to a private family charitable trust ( the private trust ) called the KS Social and Welfare Education Trust. This trust was not registered with the Commission. 11. The charity s accounts submitted to the Commission showed that 12,250 for the financial year ending March 2004 and 12,220 for the financial year ending March 2005 had been paid in rent. There was no reference in these accounts to any related party transactions. The Chair confirmed that the rent paid was for property C but claimed that because the property had since been transferred to the private trust his family had not benefitted from this transaction. 12. The Chair was unable to provide evidence that property C had been transferred to the private trust and was no longer owned by him. 13. The Commission used its powers under section 9 of the Charities Act 1993 to obtain details of the charity s bank transactions. These revealed a number of large cash withdrawals from the charity s bank account ranging from 500 to 10,000 over the three previous years and an explanation was sought as to what these payments were for. The Commission also sought information on how the charity trustees managed the conflicts of interest given that all the trustees were related. 14. In response to questions about how the charity trustees managed the conflicts of interest, the Chair confirmed that the charity would appoint further trustees who were independent from the current trustees. The Chair explained that the cash withdrawals represented payments towards stamps for fundraising and rent for property C. Commission Inquiry 15. In light of the Commission s view that the responses provided were inadequate and the growing seriousness of the concerns, the Commission opened a Statutory Inquiry under section 8 of the Charities Act The Inquiry was opened to investigate further the concerns that had developed about the lack of clarity in the financial transactions of the charity and also the use of charity funds to pay rent for property C, which appeared to be owned by the Chair. 2

4 Issues 16. The Inquiry focused on: Whether charity funds had been used to purchase a property. Whether there had been unauthorised trustee benefits. The general and financial record-keeping of the charity. Whether the charity was being administered by all the trustees equally and jointly. Whether the charity was able to manage any conflicts of interest that had arisen. The ability of the charity to continue to function. Timescale of Inquiry 17. The Inquiry was opened on 7 September 2007 and the Commission s substantive investigations concluded on 12 November This investigation was delayed by the slow progress and sustained non co-operation of the trustees in responding to the issues of concern and was placed on hold pending the outcome of three complaints raised by the Chair of the charity about the handling of the investigation. The Inquiry concluded with the publication of this report on 12 February Findings Whether charity funds had been used to purchase a property. 18. The Inquiry found no evidence that any charity funds had been used to purchase property C. Whether there had been unauthorised trustee benefits. 19. The Inquiry found that property C had not been transferred to a private trust as the Chair had stated. In February 2008 the Chair confirmed that he had now taken legal advice which had advised him that the property was in fact owned by him and also by this time, three other members of his family, including the two other trustees. The Inquiry corroborated this by accessing Land Registry documents that confirmed the same. 20. The Inquiry found that the trustees of the charity had decided to rent property C at a rent of 235 per week. 21. The Inquiry found that the trustees had no evidence to demonstrate they had taken steps to satisfy themselves that this was a reasonable amount to pay for the rent of this property and whether this transaction was in the best interests of the charity. 22. The Inquiry found that the only people party to this decision were the trustees themselves. This therefore was self-dealing. 23. The Inquiry found that a minimum of 39,715 of the charity s funds had been paid to the private trust in the period 1 January 2004 to 1 November 2007 in rent for property C. 3

5 24. The Inquiry found that the trustees, in receiving payments from the charity for a property which they jointly owned, had received benefits that were not authorised by the charity s governing document or the Commission. 25. The trustees informed the Inquiry that, following the concerns raised, they had stopped receiving any payments in rent for the property connected to them since November The general and financial record keeping of the charity 26. The Chair was advised at the meeting in May 2007 of the need to improve the charity s record keeping. When the Inquiry met with the trustees to carry out a full books and records inspection to test this on 19 November 2007 the trustees explained that this was not possible as a result of a burglary and that many of the charity s records had been stolen in that burglary. A letter from the police dated August 2007 confirmed that they had received a report of this burglary. The trustees further produced a letter from the police dated September 2007 that showed that one of the properties from which the charity operated had also been targeted by an arson attack and records had been lost. 27. The Inquiry met with the Chair of the charity on 3 December 2008 to establish the progress that the charity had made following the advice given at the previous meetings, which made absolutely clear the importance of keeping accurate books and records to demonstrate the activities of the charity. Despite indicating that he would provide the latest books and records of the charity, none were provided by him. 28. The Inquiry found that even though evidence was provided to show that some records had been lost in the burglary and arson attack, the charity trustees kept inadequate records of their activities or decision-making in the period after these events and the trustees could not account with evidence for all of the charity s financial transactions. 29. Further, in May 2009 the Inquiry, having used its powers again under section 9 of the Charities Act 1993, learnt that during Ramadhan 2008 the charity had received into its bank account the sum of 9405, which was immediately withdrawn in cash. When questioned about how these funds had been spent, the trustees could not provide any evidence or receipts to demonstrate the expenditure. Whether the charity was being administered by all the trustees equally and jointly. 30. The Inquiry found that the trustees did not act collectively or share responsibility for the management and control of the administration of the charity. The Inquiry endeavoured to meet with the other trustees but all correspondence came through the Chair. The evidence gathered by the Inquiry shows that the Chair of the charity dominated the charity to the exclusion of the other trustees. Whether the charity was able to manage any conflicts of interest that had arisen. 31. The Inquiry found that because the charity trustees were all members of the same family and because decision-making was dominated by the Chair, there was no independence in the charity which reduced its ability to manage any conflicts of interest. 32. The Chair of the trustees acknowledged in July 2007 that the charity would respond to the Commission s concerns about its ability to manage such conflicts and would appoint additional trustees. The charity failed to appoint any trustees despite advising the Commission on more than one occasion that it would do so. 4

6 33. The Inquiry found that the charity had an inadequate conflict of interest policy and the trustees could not demonstrate they had managed the conflict of interest that was present or placed the interests of the charity ahead of their own. 34. The Inquiry found that the trustees had not considered to any degree whether the decision to use the funds of the charity to rent property C amounted to a conflict of interest. In fact, the Chair of the trustees was initially adamant that there had not been a conflict of interest present because the property was not owned by the trustees but by a private trust. Evidence received from the Land Registry recorded the owners of property C as the trustees and another family member in their personal capacity. This position was confirmed by the Chair s legal advisers. The ability of the charity to continue to function. 35. The Inquiry worked with the Chair of the charity to attempt to place the charity on a proper footing. The Inquiry s view was that the only way the trustees could comply with their legal obligations was to appoint four additional trustees so that decision-making was not conflicted by the trustees membership of the same family. 36. An independent charity called Reach Volunteering ( Reach ) agreed to work with the trustees so that the charity could adopt a robust business plan and policies that would allow it to be governed properly in the future. Reach also offered assistance in trying to find new trustees from their bank of retired and experienced individuals who wanted to be trustees of charities. 37. The Inquiry found that trustees did not engage to a satisfactory level with Reach to enable any meaningful progress and this led to concerns about the ability of the organisation to continue to function as a registered charity. Conduct of Inquiry 38. The Inquiry made numerous attempts to work with the trustees to resolve the difficulties encountered within the charity. The Inquiry met twice with the Chair of the charity in May 2007 and December 2008, and once with all three trustees in November The Commission attempted to conduct a books and records inspection with the trustees at the November 2007 meeting but this was not possible on account of the burglary and arson attack. 39. The Inquiry wrote to the trustees on numerous occasions to provide regulatory advice and guidance to the charity to regularise its position. Having discussed the concerns with the Chair of the charity at length the Inquiry proposed that the difficulties in the charity could be overcome if the charity appointed four independent trustees so that the Commission could be satisfied that future decision making of the charity was not conflicted and dominated by the Chair and his family members. 40. The Inquiry researched appropriate organisations that might be able to assist the charity to secure new trustees and help the charity put in place good governance measures in order to achieve the objects for which it was established. 41. The failure to make progress in these matters significantly hindered the Inquiry s efforts to regularise the position of the organisation. As a result the Inquiry considered whether it needed to use its formal regulatory powers under the 1993 and 2006 Charities Acts as the most proportionate response to the concerns that remained, for example to appoint new trustees. 5

7 42. However whilst this was taking place, the trustees decided to dissolve the charity in accordance with the dissolution clause in their governing document. As a result on 12 November 2009 the charity was removed from the Central Register of Charities. 43. The Inquiry was frustrated by the misleading information provided by the Chair about who owned property C, the distraction of the private trust and by a failure by the Chair to fully co-operate with the Inquiry. 44. The Inquiry s progress was also delayed by three complaints being received about the handling of the investigation from the Chair. The complaints were examined thoroughly by senior managers within the Commission, who were independent from the Inquiry in accordance with the Commission s complaint handling procedures. None of the complaints raised by the Chair of the charity were upheld. Conclusions 45. The Commission found that there had been mismanagement in the administration of this charity. The charity trustees were unable to produce any financial records or records of their decision making processes nor could they account for the use of significant funds withdrawn from the charity s bank account. The Inquiry advised the trustees at the meeting in May 2007 that the standard of record keeping was not satisfactory and needed to be improved and provided advice booklets Charities and Meetings (CC48) and The Hallmarks of an Effective Charity (CC60) to assist. Notwithstanding the burglary and arson attacks, the trustees had therefore failed in their duty to keep proper books and records following the clear advice provided. The Inquiry is extremely critical of the trustees in this regard. 46. The Commission found that the charity s trustees had failed to act in the best interests of the charity and could not demonstrate that they had considered and managed the conflicts of interests that were present because they were all related and owned a property which the charity rented. 47. The Commission found that there had been a clear breach of trust in this charity as a result of the unauthorised trustee benefits that had taken place, and crucially that the charity trustees failed to adequately resolve this. Regulatory action taken 48. The Commission exercised its statutory powers on numerous occasions during the course of the Inquiry by issuing Orders under section 9 of the Charities Act 1993 to obtain copies of documents, cheques and statements relating to charity s bank accounts. 49. The bank statements received indicated that the charity had minimal funds by the time that the Inquiry had been opened; therefore the Commission did not regard it as proportionate to use its other statutory powers to consider either freezing the charity s bank accounts or taking action against the trustees despite the mismanagement that had been uncovered. The Commission chose to engage with the trustees to attempt to place the charity on a proper footing. 6

8 50. The Commission decided not to take action to recover the funds from the trustees which they had received in rent as the owners of property C. The Inquiry established from the Chair of the charity that the property was used for the various education classes the charity carried out and therefore the charity had received some benefit from the transaction. Impact of Commission intervention 51. The Inquiry identified a charity lacking effective governance and management and attempted to improve the governance and administration of the charity to ensure that the charity was restored to proper standards of governance. With the charity trustees having made the decision to dissolve the charity the public are no longer exposed to an ineffective and mismanaged charity. The Commission has removed the charity from the Register of Charities. Resources applied 52. The Commission adopted a multi-disciplinary team working approach on this investigation both before and during the Inquiry. The team consisted of investigators, lawyers and accountants. The Commission s Customer Services team were also involved in reviewing the case following complaints being received from the Chair of the charity. Actions required by the trustees 53. The charity s trustees decided that they wished the charity to dissolve. At the point of dissolution there were remaining funds of The Commission instructed the trustees to ensure that the remaining funds of the charity were applied in accordance with its governing document and that they keep records to demonstrate this for a period of six years. Issues for the wider sector 54. Every charity needs an effective trustee body which has control over the administration of the charity and acts as a whole, especially because all trustees are equal in responsibility. 55. Trustees who simply defer to the opinions and decisions of one of the charity trustees are not carrying out their duties to the charity. A case in which one trustee effectively deprives a charity of the benefit of the considered judgement of the other trustees is an example of poor governance and may amount to mismanagement in the administration of a charity. 7

9 56. A charity is entitled to the objective judgment of its trustees, exercised solely in the interests of the charity, and unaffected by the prospect of any personal advantage to themselves. Charity trustees must not put themselves in a position where their personal interests conflict or are likely to conflict with their duty to act in the best interests of the charity. The onus is on the trustees to be able to demonstrate they have acted solely in the interests of the charity. Trustees must ensure that their management of the charity is transparent, and that decisions are arrived at openly. Minutes of meetings must record any situations of potential conflict of interest, and the steps taken to manage them. Unless there is a provision in the charity s governing document or an established policy on managing conflicts, the trustees should remove themselves from taking part in such decisions. 57. Conflicts of interest are more likely when there are only a small number of trustees on the board and when trustees are related or closely connected and where there are transactions between them and the charity. The Commission strongly recommends that if members of a trustee body are related to each other, they should take the appropriate steps to manage any such conflict. 58. The law states that trustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self dealing transactions unless they have the legal authority to do so. This may come from the charity s governing document or, if there is no such provision in the governing document, the Commission or the Courts. Further information is available from Trustee expenses and payments (CC11), which can be found on our website. 59. Where there is self-dealing there is also a need to ensure transparency. The best way that this can be achieved is through making and keeping up to date records as well as involving fellow trustees in the process and recording the process in a formal manner Trustees must ensure that their charity has adequate financial and administrative controls in place, and that they comply with their statutory obligations to maintain the accounts and records of their charity. 61. Charity trustees are under a legal duty to cooperate with the Commission and the Courts have been very clear about this. Whether they do so or not maybe a relevant factor in assessing whether misconduct or mismanagement may have taken place in a charity and considering whether any regulatory action is proportionate 2. 1 adapted from the Judgement given in Dr Adu Aezick Seray-Wurie v Charity Commission and HM Attorney General [2008] EWHC 1091 (Ch) 2 Scargill and Cave v Charity Commissioners and HM Attorney General (unreported, reference CH 1997-S-No and CH 1998-S-No. 2423). 8

10 Paragraph Issue Payments to trustees Recording meetings Charity Commission guidance and relevant legal obligation Trustee expenses and payments (CC11) Charities and Meetings (CC48) 30 Good governance The Hallmarks of an Effective Charity (CC10, was CC60) Conflicts of Interest Trustees and their responsibilities A guide to conflicts of interest for charity trustees The Essential Trustee; What you need to know (CC3) 9

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12 You can obtain large-print versions of this publication from the Charity Commission on Charity Commission Telephone: Typetalk: By post: Charity Commission Direct PO Box 1227 Liverpool L69 3UG Website: