In September the Charity Commission produced a report following its investigation into incidents of mismanagement and an arrest on suspicion of fraud at the Veterans Charity and the appointment of new trustees to 'reconstruct' the Charity.
The report is an interesting case study of how a charity in significant difficulty can be restored to health. It also raises issues relating to charity management and finances for other trustees to take on board.
Facts of the case
The Veterans Charity provides urgent short term support to military veterans in need, formed to commemorate the 65th anniversary of the D-Day landings in 2018.
The Charity Commission became involved with the Veterans Charity in 2014 in relation to a number of compliance concerns, particularly regarding the charity’s financial controls, which culminated in a police investigation into its CEO and a trial.
The Charity Commission summarises in its final case report its initial concerns regarding the charity’s activities, being evidence:
- ...of both poor governance and poor financial management of the charity and its affairs
- [that] the standard of the charity’s record keeping was very poor, and the charity had not retained its financial records for the required period
- [that] the original trustees failed to exercise reasonable care and prudence in relation to some of the charity’s fundraising activities which exposed the charity to undue risks, including misappropriation of its funds
- [that] the original trustees did not exercise sufficient oversight or control over the charity’s expenditure incurred by the CEO and were unable to demonstrate that all of the charity’s expenditure was a proper application of the charity’s funds in furtherance of its charitable purposes
The Charity also did not have the minimum number of trustees required by its governing document, and its board was therefore inquorate for a period to make decisions.
The Charity Commission took a novel approach to improving the health of the charity before concluding its inquiry. The Charity Commission chose to identify volunteer trustees, one a charity law specialist and one with a military and counter-fraud background, to act as trustees as an alternative to appointing interim managers.
The Charity Commission's report on the process of this ‘reconstruction’ suggests that in large part it has been a success. It notes that the new trustees of the charity improved the charity’s compliance by taking forward:
'the removal of the CEO as a signatory on the charity’s bank account, the amendment of the charity’s governing document (which included the expansion of the charity’s objects), the formulation and drafting of new governance and fundraising policies and procedures and the implementation of strategies to enable the charity to continue operating.'
The end result is positive for the charity and its beneficiaries. The process enabled the charity to continue its work where possible while the ongoing ‘reconstruction’ and legal proceedings took place.
Lessons for other Charities
This report demonstrates good practice in the work of those trustees appointed by the Commission. By drawing up appropriate policies the trustees_ introduced new processes and procedures which allowed the trustees to exercise proper oversight of the charity’s finances and governance and provided the Commission with assurance that the previously identified weaknesses had been adequately addressed._
The report also provides helpful reminders on proper fundraising and financial control practices. In particular, we note the Commission’s analysis that someone paid reasonable expenses for charity work as a fixed day rate would not be treated as a volunteer.
Finally, it provides an insight into how the Charity Commission approaches its use of the statutory power, brought in by the Charities (Protection and Social Investment) Act 2016 to remove or disqualify trustees. The Charity Commission will consider ‘mitigating factors’, in this case the relevant trustee’s co-operation with the Charity Commission’s and the ‘good faith’ of his failings.
