19 March 2019 - Article
The Charity Commission (the ‘Commission’) has published the results of its 18-month Inquiry into the Mohiuddin Trust (the ‘Charity’), which was previously known as the Al Ehya Trust. The Charity provides financial and educational support to four educational establishments in the earthquake area of Kashmir.
The majority of the Charity’s funding has come from donations received as a result of popular television appeals. The Inquiry was launched after members of the public complained to the Commission in May 2006 that one of the trustees had misappropriated charity money and was benefiting personally from the Charity’s funds.
Significant focal points within the Inquiry included:
- A loan of £150,000 to a TV company of which two of the Charity trustees were directors. The trustees maintained that the loan represented an investment by the Charity but could not evidence any professional advice they had received to support this.
- Unauthorised payments of up to £90,000 to the Charity’s Secretary (one of the trustees). He argued that due to the Charity’s financial difficulties he had paid some of the Charity’s costs from his own funds and was being reimbursed but could not produce complete documentation to verify this.
- Wider financial and administrative mismanagement at the Charity:
- Of three trustees, one spent large periods of time overseas and another had little or no involvement with the management of the Charity. The Secretary was therefore left largely unsupervised for long periods of time;
- Annual accounts were not submitted to the Charity Commission or Companies House, and financial records for 2005 were missing. Cheque stubs did not match copy cheques produced by the banks, and cheques were pre-signed by the Secretary. The Charity was not able to produce a breakdown of how its funds were used overseas.
The Commission’s conclusions included:
- That the two trustees had a clear conflict of interest in lending money from the Charity to a company of which they were directors and had not satisfactorily demonstrated that the conflict had been managed.
- That there had been serious breaches of financial controls, that record keeping was poor, and the trustees did not comply with the terms of the Charity’s governing document in relation to the administration of the Charity
- There were insufficient trustees acting in the management of the Charity to properly make decisions.
Points of practice for all charities
While the failings in management at the Charity were particularly serious, the Inquiry serves as a reminder of certain fundamental principles relevant to all charities.
- Trustees ‘have and must accept ultimate responsibility for directing the affairs of a charity, and ensuring that it is solvent, well-run, and delivering the charitable outcomes for the benefit of the public for which it has been set up.’
- In relation to any conflict of interest existing in relation to a trustee’s role, ‘charity trustees must not let their personal interests conflict with their duty to act in the best interests of the charity.’
- Charities must also ensure that there are ‘robust and adequate financial controls’ in place to properly manage and protect the charity’s property: ‘An effective charity has the financial and other resources needed to deliver its purposes and mission, and controls and uses them to achieve its full potential.’
- The Commission also emphasised, in relation to the trustees’ decision to loan funds to the TV company, the need to obtain professional advice in relation to certain transactions: ‘When considering certain complex, significant or high risk decisions it is difficult to see how trustees could discharge their legal duties without taking and properly considering professional advice as they would be exposing the charity and its property to significant risk by failing to do so.’
The Commission’s Inquiry Report can be read in full here.