Regulator Closes Charities After Eight-Year Inquiry

Two Christian charities have been shut down following an eight-year investigation by the Charity Commission into accusations of poor governance and evidence of “serious mismanagement and misconduct” by its trustees.

The Charity Commission began its investigation into Saint Stephen the Great Charitable Trust and Saint Stephen the Great, a company that operated alongside it, after receiving complaints that trustees had acted in their own interests. The regulator says it has protected £3.2m of charitable funds through its inquiry, which found that trustees had awarded contracts to companies of which they were directors.

The investigation found that in 2007 directors of the charitable company – three of whom were members of the same family – contracted a company in the United States, which was not identified in the report, to provide it with management services for £20,000 a month. Some of the trust’s trustees were directors of the American firm. The following year, the charitable company’s directors also agreed to accept a loan from the American entity, according to the report.

Previously, in 2006, the trust had signed a deal with the Society for Promoting Christian Knowledge (SPCK) to transfer 22 Christian bookshops run by the SPCK to the trust for free. In return, the trust was given five freehold shops, granted leases of six shops on a peppercorn rent and assigned the leaseholds of the 11 other shops. The charitable company then contracted three management companies to run the bookshops. One of the trustees and another family member were also directors of these companies.

Investigation identifies self-dealing and loyalty issues

The commission’s report identifies many instances which raised issues about loyalty and conflict of interest, and the potential for trustee benefit and self-dealing by some trust and company trustees.

In summary, the commission said “there had been serious mismanagement and misconduct of the trust’s and company’s trustees”.

It was concluded that the charity ought to be wound up and its assets transferred to other charities. It was removed from the Register of Charities in March 2014.

Regulator urges caution about potential for conflicts of interest

Michelle Russell, the Charity Commission’s director of investigations, monitoring and enforcement, said it was a long investigation stymied by poor record-keeping and complicated by the number of claims and connected party companies and transactions.

“This case is a clear reminder for charities of how difficult it can be to manage its business and deal with conflicts of interest properly where there are a number of different companies involved in running different aspects of the charity’s activities and there are a number of related and/or conflicted trustees,” she said.

“Charities should be clear about which body has what role – especially when contractual liabilities are created. Trustee boards should ensure that there are an adequate number of un-conflicted trustees who properly scrutinise third party transactions and appropriate policies and procedures which are followed to actively manage any potential situations in which their personal interests could conflict with their duties as trustees,” added Russell.

Sam Richardson, chief executive of SPCK, has said he regrets that the bookshops were mismanaged by the trust – but added that SPCK has since refocused on its publishing work and “has grown to be the UK’s leading publisher of Christian books.”

Thinktank calls on regulator to let charities pay trustees

A report from the NPC thinktank says the Charity Commission should reconsider its guidelines on payment of trustees in order to prevent “coasting” and to encourage focus on ensuring the greatest impact.

The thinktank believes that the regulator actively discourages boards from remunerating trustees and suggests it should instead invite charities to make the case for payment where this is will likely lead to improved governance. The NPC also suggests that remunerating boards may enable charities to attract more diverse board membership, particularly individuals “who may not be able to afford to the hidden costs – including precious time – of being a trustee.”

Charity law experts

IBB Solicitors’ specialist Charities legal team has over 50 years’ combined experience in delivering practical commercial advice to charities and not for profit organisations and those who work with them. For advice, please contact a member of the team on 01895 207809 or email charities@ibblaw.co.uk.