Charity Commission disqualifies charity trustees who received almost £500,000 of unauthorised payments

The Charity Commission has, pursuant to its powers under section 181A of the Charities Act 2011 (the "CA"), disqualified three former trustees of Kingdom Life Ministries (charity registration number 1109664) following a statutory inquiry which found the former trustees received unauthorised payments totalling £456,853.68 between 1 June 2013 and 13 November 2018.

The charity was initially included in the double defaulters class inquiry for the trustees' failure to file accounts and annual returns for the financial years ending 31 March 2014 (which were submitted 681 days late) and 31 May 2015 (which were submitted 371 days late). During the inquiry, the charity also failed to file its accounts and annual returns for the financial year ending 31 May 2016. The Commission subsequently opened the statutory inquiry into the charity on 9 June 2017 to examine the reasons for the trustees' continuous late filing of accounting information. The scope of the inquiry was to examine: (i) the extent to which the trustees were complying with their legal duties in relation to the administration, governance and management of the charity and in particular, the trustees' compliance with their legal obligations to prepare and file the charity's information returns; and (ii) the extent to which the trustees complied with previously issued regulatory guidance.

The Charity Commission's Findings

The inquiry made a number of findings which the Charity Commission concluded was evidence of misconduct and/or mismanagement in the administration of the charity. These included:

• The trustees had decided in 2013 that they would receive a weekly remuneration of £200 (paid to two trustees) and £90 (paid to the third). This was in breach of the charity's governing document which states that "no trustee shall be appointed to any office of the Charity paid by salary or fees to receive any remuneration or other benefit in money or money's worth from the Charity".
• The weekly payments continued notwithstanding the Commission's repeated advice and guidance that the payments should stop immediately.
• The inquiry repeatedly requested the trustees to provide supporting documents in relation to payments which the trustees claimed were reimbursements. That information (a number of invoices relating to construction work, international flights and video production) was provided after the trustees were informed of the closure of the inquiry's investigative phase. The Commission found the invoices could not be reconciled with the charity's bank statements.
• The charity's financial records did not properly account for its income and expenditure for the financial years ending 31 May 2013 to 31 May 2017, and it was not possible to establish from the charity's records how cash withdrawals furthered its objects.
• The inquiry found a number of failures to manage conflicts of interests, including the trustees deciding their own remuneration and making payments from the charity to individuals connected to the trustees. The trustees also failed to have a written policy or procedure for managing conflicts of interest and found that conflicts were not being identified, recorded and managed. The trustees also failed to ensure there were sufficient (indeed, any) un-conflicted trustees which meant it was impossible for the trustees to make valid decisions in relation to their remuneration and manage the conflicts of interest.
• The trustees consistently failed to comply with statutory orders and directions issued during the course of the inquiry.

Regulatory action

In light of the findings above, the Commission exercised a number of its statutory powers during the inquiry to protect the charity and its assets, and ensure the charity's funds were applied solely for charitable purposes. In particular, the Commission:

• Made an order under section 76(3)(f) of the CA directing the trustees not to enter into any financial transactions or otherwise part with the charity's property and/or funds without the Commission's written approval;
• Made orders under section 84 of the CA (i) directing the trustees to review the charity's policies and procedures; (ii) directing the trustees to pay all existing and future charitable funds into the charity's bank account; and (iii) directing the new trustees that replaced the former trustees to take specific actions in relation to the charity's accounts and financial management;
• Issued an official warning requesting the trustees to comply with previous orders and directions and to file outstanding statutory accounting information; and
• Disqualified the former trustees from being charity trustees and from holding an office or employment in a charity with senior management functions for 10 years each under section 181A of the CA.

Comments

The results of the inquiry are a reminder of the importance of maintaining accurate accounting records and ensuring accounting information is filed on time. Trustees have a statutory duty (under section 130 of the CA) to ensure they keep accounting records which are sufficient to show and explain all the charity's transactions and, with reasonable accuracy, the financial position of the charity at any time.

Trustees must also ensure that their records, including their accounting records and records of decisions, are sufficiently detailed so that it is clear how the charity's expenditure furthers its objects. With regard to the remuneration of trustees, the Charity Commission emphasized in its report on the inquiry 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. Such legal authority may come from the charity's governing document or (if there is no such provision in the governing document) the Commission or the Courts. As for reimbursements to trustees, the Commission emphasized that charities should generally not be paying round or lump sums to reimburse trustees but the exact amounts incurred.

The inquiry also highlights the importance of ensuring there are proper policies and procedures in place for identifying, recording and managing conflicts of interests and loyalty. Trustees should absent themselves from decisions that relate to them, such as their remuneration, and ensure that there is always a sufficient number of non-conflicted trustees who are able to make a valid, quorate decision.