UK: Charity Commission Inquiry Report On Human Aid UK: Insufficient Due Diligence And Monitoring Put Charity Assets At Risk

On 3 March 2017, the Charity Commission published a report of its statutory inquiry into Human Aid UK - an international humanitarian charity which strives to alleviate the suffering of the oppressed and achieves this goal through its partnerships with other organisations in other parts of the world, including Africa, Syria and other parts of the Middle East. The inquiry was opened after visits to the Charity raised concerns with respect to its controls on fundraising and on monitoring the end use of charitable funds. The inquiry concluded that, while the Charity acted on advice from the Commission with respect to controls on fundraising, the Charity did not exercise sufficient due diligence and monitoring the end use of charitable funds with its dedicated partners in high risk areas. This insufficient oversight put the Charity's assets at risk.

The Commission's engagement with the Charity began in 2013 when a pre-investigation assessment case was opened with respect to controls on fundraising. As a result of the monitoring case, a number of issues arose regarding controls around fundraising and the end use of the charitable funds which the Commission determined required further examination.

On 15 August 2014, the Commission opened a statutory inquiry into the Charity under section 46 of the Charities Act 2011. The inquiry was opened to examine:

• The financial controls and management of the Charity; and
• Whether the trustees had complied with and fulfilled their duties and responsibilities as trustees under charity law.

The Commission focused its inquiry on two areas with respect to the financial controls and management of the Charity: fundraising and the Charity's activities in Turkey and Syria.

Fundraising: During the Commission's monitoring case, it raised several concerns regarding the charity's approach to fundraising. The Commission found that the lack of control, specifically around street collections, was putting the Charity's assets, including its reputation, at risk. The Commission considered two separate incidents of unlicensed street collections which took place in 2013 and 2014. The Commission provided advice and guidance to the trustees at the time regarding the importance of maintaining a full audit trail, not only relating to the funds collected by volunteers but also for the Charity's fundraising materials, such as collection buckets, ID badges and charity branded clothing.

The Charity informed the Commission that new procedures around fundraising had been introduced in order to address the regulatory concerns, and during the inquiry the Commission found evidence that the new procedures and records documenting the process were being implemented. The Commission further recommended that the Charity use its website and social media presence to advertise the dates and locations of the Charity's official fundraising collections to further mitigate unlicensed street collections. During the concluding stages of the inquiry, the trustees confirmed the Charity's policy to publish details about all fundraising collections on its website and/or social media pages. Additionally, the Charity is using its website to inform donors about 'how to spot a fake collector'.

Activities in Turkey and Syria: The Charity provides aid to people affected by the crisis in Syria, which is a high risk area. Concerns were raised during the monitoring case with respect to financial policies to protect the Charity's assets. In addition to extensive correspondence between the trustees and the Commission and inspections of the Charity's records during the inquiry, the Commission also met with the trustees and a representative of the Charity based in Turkey. The Commission analysed two projects in Syria in particular relating to an EMS convoy service which the Charity carried out with a Turkish partner organisation and a baby milk delivery project carried out with another UK organisation.

Due Diligence: The Commission found that there was a lack of adequate due diligence undertaken by the Charity in relation to its dealings with the Turkish partner organisation and this meant they could not show proper due diligence had taken place in compliance with their duties in what was a high risk activity.

With respect to the EMS convoy project, the inquiry examined how the funds from the UK were applied to the projects in Turkey and Syria. The Commission was able to confirm that the Charity has a memorandum of understanding in place with the Turkish partner organisation and that, for each project, the Charity has a contract to specify protocols and the roles of each organisation. The Commission also examined the Charity's records, which detail the financial transactions with its Turkish partner organisation and evidences the end use of the Charity's funds and goods.

The inquiry did not find evidence of misappropriation of Charity funds. The records showed that the majority of the Charity's funds could be traced from the Charity's bank statements through to payment requisition forms, confirmation of payment forms and completion reports, with pictures and, in some cases, video footage supporting the projects.

Despite this, the records to evidence the Charity's due diligence and the monitoring of the end use of funds for activities in Turkey and Syria were incomplete. A second records inspection revealed that the Charity had partner contracts in place to manage projects carried out by third parties and that some due diligence checks were carried out and recorded on due diligence forms. However, the due diligence forms were insufficiently vague and had little to no supporting documentation to support the answers in the form.

Monitoring end use of funds: The Commission found that the Charity's records and systems regarding its activities in Turkey and Syria did not sufficiently account for the proper end use of all the funds transferred from the Charity to partner organisations.

Specifically, based on the records provided to the Commission in relation to the EMS convoy project and the baby milk project, the Commission found that the Charity's records were insufficient. The Commission could not verify that the project costs incurred by the Turkish partner organisation in delivering its part of the EMS convoy and be satisfied the funds were used in furtherance of charitable activities. Further, the records and systems in relation to the baby milk project did not demonstrate that the trustees could monitor and fully verify the proper end use of the Charity's funds through its partners. As a result, the Commission determined that the Charity had failed to ensure that contractual obligations imposed on both the Turkish and UK partner organisations in relation to the projects were complied with.

The Commission noted that a charity needs to hold appropriate expenditure and monitoring records and have adequate systems and procedures in place to request, analyse, record and hold these on a systematic and regular basis. This is especially important when a charity works with or through partners or works in high risk areas.

The poor maintenance of the Charity's records and lack of documentation to evidence in particular that the Charity had carried out properly due diligence and monitoring of the EMS convoy and baby milk project expenditure lead the Commission to conclude that the Charity cannot prove that the trustees have fulfilled their duties and responsibilities under charity law.

Conclusions by the Commission: The Charity had acted on some of the regulatory advice and guidance provided immediately prior to the inquiry on financial controls and management of the Charity's fundraising. However, the inquiry identified further concerns that the Charity had not exercised sufficient oversight of its work with partners, particularly in high risk and conflict areas.

From the examination of the records which were available, there was no evidence of misapplication of Charity funds. However, there was an overall lack of adequate documentation to evidence the Charity's due diligence and monitoring of the end use of all the Charity's funds. As a result, the trustees failed to adequately protect the Charity, which is mismanagement in the administration of the Charity in this regard. The Commission has exercised its powers and directed the trustees to carry out a number of actions to address compliance with trustee duties, due diligence and record keeping. The Charity is being monitored by the Commission to ensure compliance with the order.

The report also provided detailed guidance for the wider sector to consider in relation to managing volunteers, due diligence and monitoring, which can be found here.

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