UK Charity Commission Inquiry Into Rhema Church London Finds Serious Misconduct And Mismanagement

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Following receipt of a whistle-blower report in 2010 regarding how the Charity's trustees were applying funds and belatedly filing accounts and annual returns, the Commission issued regulatory...
UK Corporate/Commercial Law
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The Charity Commission recently released the results of its statutory inquiry into Rhema Church London. The regulator's key concerns included the misappropriation and misapplication of Charity funds, which resulted in a significant tax liability for the Charity.

Following receipt of a whistle-blower report in 2010 regarding how the Charity's trustees were applying funds and belatedly filing accounts and annual returns, the Commission issued regulatory guidance to the trustees. A second whistle-blowing report was received in 2014, highlighting further wide-ranging issues and the trustees were unable to show that they had followed the regulatory advice previously issued by the Commission, and Interim Managers were appointed in 2015.

The inquiry found significant failures at the charity in its administration, governance and management. Trustees met only once a year, despite the governing documents requiring at least two meetings per year. Trustees were found not to exercise sufficient control over the management and administration of the charity, nor supervision of employees, particularly through their failure to implement financial policies and ensure compliance. In addition, trustees were found to have not taken reasonable steps to implement the guidance provided by their auditor, specifically warnings relating to staff using Charity credit cards for personal use.

Charity funds were misappropriated and misapplied for a range of non-charitable purposes, including £95,000 on overseas trips which there was no evidence that the trustees had approved, as well as spending on day-today domestic living expenses, such as gym memberships and veterinary bills, which appeared to be of a personal nature. The charity had no expenses policy in place and there was limited evidence that the trustees had taken steps to address the concerns (raised by the auditors) about this kind of spending. In addition, the inquiry identified that the charity's former pastor, was paid a total of £300,000 in relation to a mortgage he and his wife had on a property they lived in, but that was held in trust for the Charity. Robust financial policies implemented by the Interim Managers after their appointment were ignored by charity staff (including the pastor) whose employment with the charity was ultimately terminated.

The inquiry found that the charity's spending had been incorrectly categorised and lacked sufficient evidence to demonstrate that it was charitable, resulting in a significant tax liability of over £540,000 (which was eventually settled by the Interim Managers following an HMRC investigation).

The trustees had frequently failed to comply with their legal obligations in relation to the filing of the charity's accounts and annual returns on time. Their consistent failure in this respect – particularly having previously received Commission guidance – was mismanagement and / or misconduct in the administration of the charity.

Overall, the inquiry found numerous examples of misconduct and mismanagement by the trustees, as well as failures to discharge their duties to protect the best interest of the Charity and its assets. The Commission found that the trustees' behaviour was persistent and repeated over a number of years and there was no confidence that the trustees could address the issues. The Commission made the decision to wind down the Charity, and Rhema Church London was removed from the register of charities. The charity's pastor was disqualified from being a trustee and/or holding any office or employment with senior management functions in a charity for a period of ten years.

Key lessons for charity trustees

The inquiry serves as a reminder of the need for clear policies and procedures to be in place to safeguard charity funds, and for trustees to enforce such policies and procedures amongst staff. Trustees must ensure that assets are only used to support or carry out charitable purposes and trustees must be responsible for their proper use – trustees are jointly and severally liable for the decision they make, and those trustees who simply defer to the opinions and decisions of others are not fulfilling their duties. Trustees must ensure that sufficient information is reported back at trustee meetings to satisfy them that the controls are being properly implemented.

In addition, the inquiry emphasises the need for robust governance, with trustees fulfilling their duties and obligations specifically in the oversight of senior staff. It is legitimate for trustees to delegate the day-to-day management of a charity but ultimate responsibility for running the charity will remain with trustees.

For the full inquiry report, see here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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