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The Charity

Resham Helping Hand (鈥榯he charity鈥�) was a private company limited by guarantee, incorporated on 3 April 2007. It was entered onto the register of charities (鈥榯he register鈥�) on 23 July 2007. The charity was governed by its memorandum and articles of association dated 7 April 2007. The charity ceased to exist following its dissolution and was .

The charity had objects to relieve financial hardship, relieve sickness, and support victims of natural disasters. In carrying out its activities the charity operated exclusively in Pakistan.

Background and Issues under Investigation

On 24 January 2018, the Commission wrote to the charity鈥檚 trustees informing them that the Commission was considering removing the charity from the register as its income and expenditure had fallen below 拢5,000 over the previous 5 years. To assist the Commission to decide whether the charity should be removed from the register, the Commission required the trustees to provide information and copy documents in relation to the charity鈥檚 income, expenditure, and activities.

On 15 February 2018, the Commission further wrote to the charity鈥檚 trustees having received no reply to its earlier correspondence.

On 20 February 2018, the trustees provided their response to the Commission, along with accounting documentation for 2015, 2016, and 2017. As a result, on 2 August 2018 the Commission carried out a monitoring inspection at the charity鈥檚 premises. During the monitoring inspection, the Commission became aware that a large proportion of the charity鈥檚 expenditure went towards renovating four properties purchased by the charity to improve the market value of the properties. A number of regulatory concerns were also identified in relation to the trustees鈥� management and administration of the charity. This included, but was not limited to, the trustees鈥� failure to evidence how the charity鈥檚 funds had been spent in Pakistan. On 13 September 2018, the Commission issued the charity鈥檚 trustees with an action plan (鈥榯he 2018 action plan鈥�) under section 15(2) of the Charities Act 2011 (鈥榯he Act鈥�).

The action plan was designed to improve the management and administration of the charity, and to ensure that the trustees complied with their legal duties and acted in the best interests of the charity. The action plan required the trustees to complete the specified actions by 13 March 2019 (6 months in total), after which the Commission would review the trustees鈥� compliance in completing those actions.

In order to assess the trustee鈥檚 compliance with the action plan, the Commission made repeated attempts to contact the trustees to no avail. As a result of their failure to cooperate, the Commission compelled the trustees to provide the required information by way of an order, made on 20 May 2019, pursuant to section 52 of the Act. The trustees then responded to the Commission 鈥� some three months after the date stipulated in the action plan for those actions to have been completed.

On 16 July 2019 the Commission informed the trustees that they had failed to fully comply with the action plan. The failure to comply fully with an action plan of the Commission is misconduct and/or mismanagement in the administration of the charity. The Commission conducted a further monitoring inspection at the charity鈥檚 premises on 20 August 2019.

On 7 January 2020, the Commission opened a statutory inquiry (鈥榯he inquiry鈥�) into the charity under section 46 of the Act.

The inquiry was opened to examine the following regulatory concerns:

• governance
• the financial controls and management of the charity and whether its funds have been properly expended solely for exclusively charitable purposes and can be accounted for
• compliance with legal duties
• conduct of the trustees

The Commission announced its inquiry into the charity on 30 January 2020.

The inquiry closed with the publication of this report.

Findings

Governance

The inquiry found that the charity was not properly managed and had little to no governance infrastructure in place or policies or controls to assist the trustees to manage the charity.

The former trustees (鈥榯he trustees鈥�) failed to demonstrate that they were acting in accordance with the charity鈥檚 governing document, including failing to keep adequate accounting records to explain how the charity鈥檚 funds were being spent, and failing to ensure that the charity was being properly managed and administered.

The inquiry saw insufficient evidence that the trustees were able or willing to discharge their legal duties and responsibilities and act in the best interests of the charity. This included (i) the trustees鈥� failure to take the specified actions set out in the 2018 action plan, and (ii) the trustees鈥� failure to co-operate with the Commission. The inability or unwillingness of the trustees to act in accordance with their legal duties and in the best interests of the charity, contributed to the misconduct and/or mismanagement in the administration of the charity.

Following regulatory action taken by the inquiry, the trustees acknowledged that there had been 鈥渨eaknesses and shortcomings鈥� on their part and that they were not experienced or knowledgeable enough to remain in office without significant training and support.

An Interim Manager (鈥業M鈥�) was appointed using the Commission鈥檚 powers under section 76(3)(g) of the Act. From 8 April 2020 until the charity鈥檚 dissolution on 16 May 2023, the charity was managed by Mr Andrew Wilkinson of Shakespeare Martineau LLP acting as IM.

During the course of his appointment, the IM determined that the trustees did not have a clear plan or strategy in terms of the charity鈥檚 future, including how they could implement the charity鈥檚 aims and objectives. The IM concluded that the charity was not viable and as such its properties should be sold, the funds transferred to another charity with similar objects, and the charity wound up and dissolved.

The financial controls and management of the charity and whether its funds have been properly expended solely for exclusively charitable purposes and can be accounted for

The inquiry found that the trustees had a disregard for, and/or lack of understanding of, the importance of proper financial controls and accountability in respect of the charity鈥檚 funds.

Despite the Commission鈥檚 concerns, and the issuing of regulatory advice and guidance, the trustees failed to implement any controls in respect of their management of the charity鈥檚 finances; including practical steps to carry out due diligence, monitoring and verification of the end use of the charity鈥檚 funds.

Overseas expenditure

The inquiry鈥檚 review of the charity鈥檚 expenditure showed that in 2017, the charity transferred 拢1,500 to Pakistan via a money service bureau. The trustees stated that the funds, which represented 35% of the charity鈥檚 expenditure for that financial year, went towards reinstating utilities at an orphanage in Pakistan. However, the trustees provided minimal evidence to sufficiently explain the end use of the funds following their withdrawal in cash in Pakistan.

Trustees are under a legal duty to ensure funds are used only in furtherance of the charity鈥檚 purposes and are legally responsible and accountable for their proper use. Trustees must be able to demonstrate that funds have been used for the purposes for which they were intended. This means they need to take reasonable and proper steps to ensure that any money or resources have reached their intended beneficiaries.

In failing to keep adequate accounting records the trustees were in breach of their legal obligations under section 386 of the Companies Act 2006 which states that every Company must keep adequate accounting records. The trustees were also in breach of article 43(2) of the charity鈥檚 governing document which required them to comply with the Companies Act. The trustees鈥� failure to comply with the law and their failure to adhere to the charity鈥檚 governing document was misconduct and/or mismanagement in the administration of the charity.

Property renovations

The charity鈥檚 total income from 30 April 2015 to 30 April 2019 was 拢13,590 and the total expenditure for the same period was 拢15,450. Whilst some funds were purportedly applied towards the charity鈥檚 objects, the inquiry found that the vast majority were spent in renovating and making improvements to five investment properties owned by the charity.

For example, for the financial year ending 31 April 2018 the charity鈥檚 declared income and expenditure was 拢2,810 and 拢2,460 respectively. For this period only 拢124, or 5.5% of the charity鈥檚 total expenditure, was applied in support of the charity鈥檚 objects. In contrast, 74% of the charity鈥檚 expenditure was expended on costs associated with the properties. Of the 拢124 that was applied in respect of the Charity鈥檚 objects, the trustees had no evidence to explain the end use of these funds. This was a further breach of their legal duties and misconduct and/or mismanagement in the administration of the charity.

For the financial year ending 30 April 2020, the charity鈥檚 income had increased significantly from 拢5,000 in the previous year to 拢150,000. This was due to the sale of two of the charity鈥檚 properties. Given the trustees鈥� failure at that time to account for the charity鈥檚 funds, the Commission was not satisfied that the trustees had the ability to manage the large increase in liquid assets. The inquiry therefore took action to safeguard the charity鈥檚 funds 鈥� see regulatory action taken for more information.

In addition to the renovation costs, the charity was incurring significant other costs associated with the properties, which were unoccupied, including council tax and insurance payments. An independent expert, commissioned as part of regulatory action taken by the inquiry, determined that the properties could not be rented out in the condition that they were in and would require further significant expenditure to be incurred by the charity to meet the requisite standard in order to let the properties.

The independent expert also stated that 鈥済iven the value of the Properties is relatively low and there is a ceiling price for properties in the Middlesbrough area, the repairs will not be cost effective and will not materially increase the capital value of the Properties nor the income that can be realised. It is unlikely to produce any return for the charity in the short to medium term. Even if the properties were brought up to standard, the total annual amount of income received for the three properties, after expenses would be low鈥�.

The trustees鈥� whole business plan for the charity鈥檚 future was predicated on the basis that the properties could be rented out to generate income which in turn would be used to fulfil its charitable purpose. The inquiry found that the trustees had been unrealistic in their belief that the properties could be rented out with minimal further expense to the charity. The properties would not only cost significant expenditure to repair, but as set out by the independent expert any income return would be limited. Overall, the inquiry concluded that the trustees did not have the necessary skills and experience required to govern the charity effectively. The inquiry therefore took regulatory action to ensure that the charity鈥檚 remaining properties were sold, and the proceeds applied to support victims of natural disasters.

On 18 June 2018, a cheque in the sum of 拢460 was made out to one of the charity鈥檚 trustees to facilitate paying a builder in cash in respect of works at one of the charity鈥檚 investment properties. However, after receiving the funds the builder did not complete the work nor return the funds to the charity. The inquiry found that the trustees had not carried out due diligence in respect of the builder, nor did they make any records in relation to the payment. When asked by the inquiry for the builder鈥檚 details, the trustees were unable to provide this information.

To ensure no funds were lost to the charity, one of the trustees repaid the funds in full. Whilst this trustee took action to ensure the charity鈥檚 funds were not lost, the inquiry concluded that the situation could have been prevented had the trustees (i) made and kept records, (ii) implemented due diligence and monitoring procedures, and (iii) had sufficient financial controls in place. The trustees鈥� failure in this regard was evidence of their misconduct and/or mismanagement in the administration of the charity.

Due diligence, monitoring and verifying the end use of charitable funds

The inquiry found that the trustees failed to undertake due diligence on those the charity worked with; the trustees also failed to ensure that the end use of the charity鈥檚 funds were monitored and verified.

In response to regulatory action taken by the inquiry, the trustees submitted material on 4 May 2020 which they asserted showed how the funds of 拢1,500 had been spent in Pakistan in 2017. This material, which consisted of several photographs and an undated letter, had not been made available to the inquiry when requested from the trustees earlier. The inquiry concluded that the documentation provided was insufficient to show and explain the charity鈥檚 expenditure.

The trustees鈥� failure to ensure that due diligence, monitoring and verification was carried out generally was evidence of their misconduct and/or mismanagement in the administration of the charity.

Compliance with legal duties

The inquiry found that there was evidence of misconduct and/or mismanagement in the charity鈥檚 administration by the trustees. There was evidence of poor management of, and lack of records relating to the charity鈥檚 expenditure.

There were wider failings in relation to the trustees鈥� financial management and overall governance of the charity.

As a result, the inquiry found that the trustees had not complied with or fulfilled their duties and responsibilities as trustees under the law.

Conduct of the trustees

The inquiry found that the conduct of the trustees fell below the standard that the Commission expects of trustees and that there had been misconduct and/or mismanagement in the administration of the charity.

The inquiry also found that the trustees, at certain times, failed to cooperate with the Commission as outlined above; their inaction in this regard was neither reasonable nor responsible.

Conclusions

Trustees play a crucial role in the governance of charities and are required to use their skills, knowledge, and experience to run their charity well and in its best interests. This was not the case in respect of this charity.

The Commission concluded that there was misconduct and/or mismanagement in the administration of the charity by the trustees.

The Commission further concluded that the charity鈥檚 purposes could be promoted more effectively if it ceased to operate. The Commission therefore directed that the charity be wound up and dissolved.

Regulatory Action Taken

On 7 January 2020, the inquiry was opened into the charity pursuant to section 46 of the Act. On 4 May 2020, the trustees challenged the Commission鈥檚 decision to open the inquiry. The Commission appointed a senior member of staff (鈥榯he reviewer鈥�) to conduct the review in line with the Commission鈥檚 decision review process. Having considered representations made by the trustees, the reviewer concluded that the Commission鈥檚 decision to institute the inquiry was reasonable, proportionate, and lawful.

The inquiry exercised the Commission鈥檚 regulatory powers under section 47 of the Act on multiple occasions to obtain information and copy documents, including from the trustees and the charity鈥檚 bank.

On 7 January 2020 an order was made under section 76(3)(f) of the Act restricting certain transactions that the trustees could enter into without the prior authorisation of the Commission. This order prohibited the trustees from making overseas transfers, payments to trustees or related parties, and withdrawing cash from the charity鈥檚 bank account.

Appointment of the Interim Manager

On 8 April 2020, the inquiry exercised the Commission鈥檚 powers under section 76(3)(g) of the Act to appoint Mr Andrew Wilkinson of Shakespeare Martineau LLP as IM to the charity. The IM was appointed to the exclusion of the trustees.

The IM was appointed to:

• consider the viability of the charity and the suitability of the then trustees鈥� ability to run the charity in compliance with their legal duties

• if it was determined that the charity is viable, make recommendations to the trustees on necessary actions required to secure compliance with legal requirements and standards

• if it was determined that the charity could not continue in its current form, secure the property of the charity, apply it in line with the charitable objects and wind up the charity in accordance with the charity鈥檚 governing document

On 4 September 2020, the trustees appealed the Commission鈥檚 decision to appoint the IM by way of an appeal to the First-Tier Tribunal (Charity) (鈥榯he tribunal鈥�). The tribunal appeal proceedings were stayed to allow the Commission to conduct a decision review of its decision; this was undertaken by the same reviewer mentioned above. The reviewer considered both written and oral representations against the issuing of the order from the trustees. The outcome of the decision review concluded that the statutory grounds under the Act to issue the order appointing the IM had been met. Following the outcome of the decision review, the trustees did not pursue their appeal in the tribunal.

The following actions were taken by the IM during the course of his appointment:

• a review of the charity鈥檚 general governance which identified that the trustees did not have a clear plan or strategy in terms of the charity鈥檚 future and how to implement the charity鈥檚 aims and objectives

• commissioned an independent review of the charity鈥檚 property portfolio

• conducted an assessment of the viability of the charity and determined that the charity should be wound up

• liquidated the charity鈥檚 assets and transferred the funds to a registered charity, with similar objects

• wound up the charity in compliance with the charity鈥檚 governing document and the Commission鈥檚 order

On 5 April 2021, the inquiry informed the trustees of its proposal to issue an order under section 84B of the Act directing the IM to wind up and dissolve the charity. On 30 March 2021, the Commission published a public notice, pursuant to section 84(B)(4) of the Act, of its intention to issue the order under section 84B(2) of the Act. It was published on the Commission鈥檚 website for a period of 60 days.

On 8 June 2021, following no representations being received, the inquiry exercised the Commission鈥檚 powers under section 84B of the Act to direct the IM to wind up and dissolve the charity.

On 16 May 2023, the charity was wound up and removed from the register. Prior to winding up, the IM applied 拢327,738.77 of the charity鈥檚 funds to a registered charity with similar objects.

The costs of the IM鈥檚 appointment totalled (including VAT and disbursements) 拢55,199.50.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the inquiry that may have relevance for other charities.

It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report but is included because of their wider applicability and interest to the charity sector.

Trustees鈥� accounting and financial duties

Trustees must ensure that their charity has adequate financial controls in place. It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities.

The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on the Commission鈥檚 website. There is also a self-checklist for trustees which has been produced to enable trustees to evaluate their charity鈥檚 performance against the legal requirements and good practice recommendations set out in the guidance.

Due diligence, monitoring, and verification

Charity trustees are legally responsible for ensuring charitable funds are used properly for legitimate charitable purposes and not misused for financial crime, terrorist, or other criminal purposes. Trustees are publicly accountable and have duties and responsibilities under charity law to safeguard their charity, its funds, property and beneficiaries.

Due diligence is an important part of trustee duties and is essential in order to be assured of the provenance of charitable funds and confident that they know the people and organisations the charity works with and can identify and manage associated risks. It is vital that trustees have robust due diligence processes and ensure that these are consistently implemented.

Monitoring is a vital step in ensuring that a charity鈥檚 funds or property reach their proper destination and are used how the charity intended. The type and depth of monitoring may vary depending on the type of project, the location and the sums of money involved. It is vital that trustees have robust monitoring process in place including documentation (reports, receipts invoices) in addition to photographs and video.

The Commission has published guidance for trustees in respect of due diligence, monitoring and verifying the end use of charitable funds.

Governance

Trustees are representatives of the charity they govern or the charitable funds they are responsible for, in the charity sector. Trustees must be aware of and act in accordance with their legal duties. The conduct of trustees can be a key driver of public trust and confidence in the charity sector. When the conduct of trustees falls below the standards expected there can be damage to the reputation of individual trustees, the charity and possibly the wider charity sector.

All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken. A failure to implement internal policies (and follow them) can put assets, beneficiaries, and a charity鈥檚 reputation at risk.