Following a Charity Inquiry (details of which are accessible here: Charity Inquiry: Achiezer - GOV.UK (www.gov.uk)) opened on 11 November 2013,
The Charity Commission removed the charity known as “Achiezer” from the register of charities on 07 April 2022, after being registered with them for almost 58 years.
Achiezer’s trustees comprised three brothers. Charities should always be careful where there is a close relationship between trustees and also where trustees introduce another entity to the charity, in which the same trustees also have a financial or other interest. The main issues arising from the Inquiry that have wider implications for the sector can be briefly discussed.
For five years in a row the trustees had failed to file the charity’s end of year reports and accounts on time and later on also failed to comply with a s.84 Charities Act 2011 Order also to file their end of year reports and accounts on time. Beneficiaries and the general public should expect any charity to be accountable for its financial affairs to see the charity is being properly looked after by its trustees. Trustees should also be warned that in failing to file accounts within a deadline ordered by the Commission they could be committing a criminal offence under s.173 Charities Act 2011.
Payments totalling £129,800.00 over a period of two and a half years had gone from the charity to a property development company called Dasim Partners of which two of the brother trustees were also partners. It was not clear what the purpose of the transactions was and there were no other trustees to query the need for making the payments and how beneficial it would be for the charity.
The brother trustees also had numerous other business interests in related companies with complicated relationships to the charity and opportunities for conflicts of interests to arise. Again, without any other trustees beyond the brothers themselves, it was possible for the charity to be losing out financially and in other ways because of the trustees’ transactions with their business interests.
Over a period of almost two years the charity also became liable for unpaid business rates towards the local authority. On appeal by the trustees arguing the charity should have attracted 80% charitable relief the Court found that the premises in question were not occupied wholly or mainly for charitable purposes and so the charity was liable for the rates plus costs. In the end, a trustee had been attempting to ease his own personal business liabilities ultimately at the expense of the charity he was supposed to be managing.
Moreover, the landlord of those premises was Potential Investment Portfolio of which one of the brother trustees was partner. Without letting those premises, Potential Investment Portfolio would have had liability for business rates so he wanted the charity to be the tenant to then be liable and to claim exemption under charitable relief, without genuinely using the premises for the charity.
When the charity did file its end of year reports and accounts, they showed up a £100,000.00 interest free loan which then appeared in a subsequent year as a donation from Finsbury Trust. The trustees claimed the loan was converted to a donation yet could not produce any documents relating to the transaction nor could they show the money in any bank statements or even identify Finsbury Trust.
The trustees had failed to keep a bank account in the charity’s name. The charity was supposed to receive rental income from 18 properties the freeholds of which it was registered proprietor. Instead, rents were paid via estate agents to Dasim Partners which then did not account for the profits to the charity or at least this could not be readily traced due to the lack of an ongoing charity bank account.
It is important that trustees of a charity always be aware what the boundaries are between the charity and any other organisations and businesses they may have an interest in. Conflicts of interests will often arise but it is being aware of those opportunities and knowing how to manage them that will save the day. Conflicts can particularly be prevalent where there are small numbers of trustees, where they are closely related with one another, and are interested in organisations and businesses which themselves transact with the charity. It is vital to get advice early on from an expert to avoid regulatory action in the first instance, or for help moving forward should you receive adverse correspondence from the Charity Commission.
Trustees should be aware what their statutory and regulatory obligations are including in terms of filing reports and accounts within deadlines. Failing to do so could constitute a criminal offence as well as being general mismanagement and misconduct in the trustees’ fiduciary duties towards the charity and its beneficiaries.
You should also know about business rates and not make ill-informed decisions on the charity’s behalf which you think will save the charity money and end up costing more later on. Not all use of a premises for the charity will qualify for an exemption under charitable relief and sometimes it will be a Court that has to decide whether the threshold of use has been reached so again it is better to consult with an expert to minimise falling foul of the relevant rules.
At Third Sector Experts we can help you as a trustee or board of trustees not only in setting up your charity from scratch but also offering bespoke guidance as to the better management of the charity once it is up and running, helping you to identify potential conflicts of interest and having in place policies and procedures that can minimise any risk of the conflicts becoming live.
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