The Charity Commission issued an order to a charity operating in Iraq, the Orphan Relief Fund, to wind up and dissolve after over £1 million of charity funds could not be accounted for.
The charity first came under scrutiny in 2017 when the Commission undertook a compliance visit to its premises. The charity had been identified for a visit as it operated solely in Iraq, which is considered a high risk area by the Commission. Upon review of the charity’s financial records, the Commission identified serious concerns in terms of the administration and management of the charity.
The Commission opened its inquiry on 22 August 2017, which lead to findings of misconduct and/or mismanagement in the administration of the charity on a number of different points.
Financial controls and management
During the inspection of the charity prior to the opening of the inquiry, the trustees had been unable to produce documentation to evidence how the majority of its funds had been spent. Between 2015 and 2017, £998,746 was transferred out of the charity’s bank account. The trustees told the Commission these funds had been sent to an Iraqi based charity and that little record keeping was done by either charity. The Commission used its statutory powers to compel the trustees to provide all records relating to its overseas expenditure from 2015, however the trustees were unable to provide any evidence as to how the funds were spent.
Furthermore, the Commission found that the charity transferred a further £88,515 to overseas accounts following their initial visit to the charity. In response, the bank accounts of the charity were frozen by the Commission exercising the statutory power under s76 of the Charities Act and the trustees were forbidden to enter into any credit transaction on behalf of the charity.
The Charity’s bank statements also showed that regular payments had been made to the Chair’s personal credit card. The Chair initially claimed this card was only used for the charity, but later conceded that it was for personal use. The Commission identified that £10,315 of the funds transferred was for the Chair’s personal expenditure and although the Chair told the inquiry he had returned the funds there was no evidence to support this.
The Commission noted that trustees must implement robust financial controls appropriate to their charity and keep adequate records of decision making. Trustees of charities working internationally need to take extra measures as there is a higher risk that funds will not be used properly or reach beneficiaries, particularly as the trustees are often not in the country to check how funds have been spent. The Commission also noted that, although working with partner organisations can be an effective way of delivering a project, it does not alleviate a charity’s responsibility for ensuring the charity funds are properly used.
Governance of the charity
The charity had no governance processes or policies in place to assist the trustees in exercising their duties. The Commission identified that the Chair was the only trustee who played a role in the management and administration of the charity and decisions were taken solely by him. The other four trustees in place until 2017 were all related to the Chair and there was no evidence they played any active role in the charity. As a result, there were insufficient checks and balances on the Chair, which contributed to the finds of misconduct and/or mismanagement.
The Commission stressed that trustees are jointly and equally responsible for their charity and in order to meet their statutory duties, must contribute to its management.
Filing of accounts and annual returns
During a review of the charity’s accounts as part of the inquiry, the Commission found that they were not compliant with the Charities Act as they did not include all the disclosures required. The trustees had also failed to file the accounts on time for two reporting periods.
Given the serious failures of the charity, the inquiry concluded that the purposes of the charity would be promoted more effectively if the charity ceased to operate, and issued an order to wind up the charity. Four of the trustees resigned from the charity before the conclusion of the inquiry and each was disqualified by the Commission for a period of eight years. The Chair of the charity was removed by the Commission and is therefore disqualified from acting as a trustee.