Last month the Charity Commission published the results of its inquiry into homelessness charity the Ashley Foundation. The charity operates a number of hostels and flats for homeless people in need, and the objects of the charity are “The relief of poverty by the provision of accommodation to persons in need and in such other ways as the trustees think fit.”
The Commission opened a Regulatory Compliance case in August 2019 in order to examine concerns relating to property transactions that may have resulted in a loss to the charity and possible misapplication of the charity’s funds.
This escalated in March 2020 when one of the trustees, Lisa Edwards, successfully applied to the High Court for an interim injunction against four other trustees (including the founder and CEO and his son) on the basis that charity funds had been used to reimburse the founder’s personal spending on his credit card (for items including flat screen TVs and an Apple watch).
The injunction prevented the four trustees from taking any major decisions about the charity’s affairs, changing the charity’s bank mandate, or accessing (or preventing access by charity employees) to the charity’s IT system.
This injunction caused the Commission to investigate further, and it opened a statutory inquiry under s.46 of the Charities Act 2011 in March 2020.
Facts and Issues
The issues under investigation were:
• general concerns about the financial management and controls of the charity, and whether funds were expended solely for exclusively charitable purposes and could be properly accounted for;
• the trustees’ decision-making on the disposal of properties and agreements made with third parties;
• whether the trustees adequately managed conflicts of interest;
• if there had been any unauthorised trustee private benefit;
• whether the charity had suffered any financial loss as a result of any mismanagement and/or misconduct; and
• if the trustees of the charity had complied with their legal duties in respect of their administration, governance and management of the charity.
Misappropriation of charity’s funds
The inquiry found that charity funds were used to reimburse spending on the founder’s credit card for electrical items including an Apple Watch, a hairdryer and a tracking system. The founder explained that some of the items were gifts for people who would help the charity, which raised concerns about the operation of the charity and compliance with the Bribery Act 2010. The tracking system was apparently to be used during charity contract negotiations: the Commission stated that this was an inappropriate use of charity funds and that “[s]uch covert activity is unacceptable conduct for a charity to be involved in”.
The Commission was also informed that between August 2016 and January 2020 nearly £130,000 in cash was provided by the founder to the charity in return for blank cheques drawn on its bank account. The inquiry also found that charity funds were used on the repair and upkeep of properties not owned by the charity (including properties owned by, or inhabited by, one or more of the trustees). The charity did not have an expenses policy in place, and the Commission inquiry found that expenses including first class travel and a three-night trip to London (including expenditure in Mayfair hotels) was approved without reference to any discussion about reasonable expenses and appropriate limits.
Property transactions
The Commission looked into two issues: firstly, the sale of three charity properties and secondly, the subsequent agreements with third-parties that were put in place following the sale, which were disadvantageous to the charity.
The inquiry found that the charity sold three properties to a company in December 2017 for £4 million; that company promptly sold the properties on to another company on the same day for a price of £6.4 million. The properties were then leased out to a third company, and the charity entered into property management agreements with the third company and the charity was required to manage the properties on behalf of the leaseholder.
There were inconsistencies in the minutes of the trustee meetings about what arrangements had been agreed, and the inquiry could not find evidence in the minutes that the trustees had discussed the risks, obligations, and liabilities associated with these arrangements – in particular, the onerous terms of the management agreements (including a lack of a termination right except in certain extreme circumstances). The Commission also reviewed documents from both the solicitors and the chartered surveyors engaged by the charity to help with the transaction and found that instructions from the founder included not asking either adviser to review the terms of the agreements entered into.
Conflicts of interest
A number of issues of conflicts also arose during the inquiry, with Ashely Dribben (son of Lee Dribben) taking remuneration from third parties for his role as a charity trustee in the property transactions, as well as failure of Ashley Dribben to recuse himself (and declare a conflict) when the trustees were voting on matters relating to his father’s role as CEO of the charity.
Financial controls
The inquiry found that the charity did not have a financial controls policy in place and that one of the trustees would sign blank cheques that could be drawn on the charity’s bank account. This demonstrated insufficient management or oversight of the charity’s expenditure.
Findings and outcomes
The Commission concluded that there had been serious misconduct and/or mismanagement in the administration of the charity by three of the trustees in particular in relation to the lack of financial controls (which resulted in some personal benefit to them) and as a result of the “deliberate misuse” of charity funds to pay for repairs and upkeep of properties owned or occupied by these three trustees. The inquiry concluded that issues had been ongoing for a number of years, and that the appointment of a new trustee was a “pivotal moment” for the charity as the new trustee challenged these practises.
Conflicts of interest were not properly addressed or managed, which is also considered to be mismanagement and / or misconduct.
The failure to ensure adequate financial controls were in place meant charitable funds were misapplied and misappropriated.
The Charity Commission took action against three trustees which ultimately resulted in them being removed from their positions as trustees of the charity and disqualified from performing trustee and senior management functions in all charities in England and Wales for specified periods.
Key lessons for charity trustees
The Commission made a number of observations as part of the inquiry for charity trustees (and the sector in general) to note:
• Charity trustees have a duty to ensure that charity assets are used to further the charity’s purposes – and trustees legally cannot receive any benefit (including cash or gifts) from their charity unless they have legal authority to do so;
• Charities need an “effective trustee body” to manage and administer the charity: the Commission inquiry noted that Lee Dribben was a prominent force at the Ashley Foundation (being founder, trustee and CEO, and having been involved since the charity’s incorporation in 1997). Trustee boards need a balance of skills and experience, and it is best practice to ensure that trustees have clear terms of office;
• Trustees also must ensure that the charity has proper financial and administrative controls in place, not simply for the proper administration of the charity itself but also to maintain the public’s trust. The inquiry noted that due to the “special characteristics” of charities, robust financial controls ensure that potential donors, beneficiaries, and the public have faith that charity property is safeguarded and used appropriately;
• Charity trustees should ensure that appropriate advice is taken if required, and that advice is sought at the appropriate time; and
• Trustees must ensure that conflicts of interest are properly managed: all charity trustees have a legal duty to act in their charity’s best interests. The Commission inquiry reiterated that conflicts of interest are common, and do not mean that trustees have done anything wrong if they arise. What is important is that trustees properly manage conflicts by having procedures and policies in place to both identify and manage conflicts as they arise.
The Commission inquiry stated in the report that it “takes very seriously cases where property is lost to charity as a result of serious wrongdoing by charity trustees” and warns charity trustees that the Commission may (in line with its published restitution policy) in exceptional circumstances seek to recover lost funds in the public interest.
The full inquiry can be found here.
For further information, please contact:
Hannah Brearley, Withersworldwide
hannah.brearley@withersworldwide.com
