Muffin Pug Rescue, now named Pug Life Rescue ('the Charity'), is a charitable incorporated organisation with the charitable aims of relieving the suffering of pugs in need and to rehome them, and to promote the humane treatment of pugs and provide education on dog welfare.
In February 2021, the Charity Commission opened a regulatory compliance case as a result of repeated failures by the Charity in submitting their accounts and annual returns to the Charity Commission. Three regulatory compliance cases were opened against the Charity for this reason, however the only time this information was submitted by the Charity was for the financial year ending 30 April 2016.
The Charity Commission further identified concerns regarding the Charity's governance and financial controls. Between April 2019 to February 2022, the Charity operated with only 2 trustees, a mother and her son, despite the Charity's governing document requiring there to be at least three trustees. Accordingly, the Charity was unable to manage conflicts of interest, particularly as both trustees were signatories to the Charity's bank accounts.
On 26 May 2022 the Charity Commission opened a statutory inquiry into the Charity under section 46 of the Charities Act 2011 (the 'Act'), in order to investigate the trustees' compliance with their legal obligations for preparing the charity's financial documents, possible misappropriation and/or misapplication of the Charity's funds, whether the trustees had avoided or adequately managed potential conflicts of interest and whether there had been any unauthorised direct or indirect private benefit.
The inquiry found that the trustees had repeatedly failed to comply with their filing obligations across several financial years. While the trustees had appointed an accounting firm to produce the Charity's overdue financial accounts, despite numerous requests, they failed to produce the financial information required for their completion. The Charity Commission found evidence of misconduct and/or mismanagement in the administration of the Charity and the two trustees were suspended from acting as trustees under section 76(3)(a) of the Act on 14 December 2022. They were later removed as trustees under section 79(3) of the Act in May 2023. New trustees were appointed to begin the process of gathering all the information required through a new accounting firm to submit the outstanding financial information to the Charity Commission.
The new accounting firm submitted a Matters of Material Significance report to the Charity Commission, raising significant issues regarding the Charity's finances:
- the Charity failed to comply with HMRC requirements, including the payment of staff wages and the provision of benefits in kind to trustees; and
- erroneous Gift Aid claims were submitted by a former trustee from the years 2017-2021, which resulted in the charity owing HMRC £213,567 in Gift Aid.
The inquiry further found several instances of non-charitable expenditure made from the Charity's bank account, such as for dining and jewellery, including a £7000 watch purchased in the name of one of the trustees. From bank statements, the inquiry discovered that payments totalling £583,363.53 were made from the Charity; a substantial sum that should be supported by the Charity's records. The two trustees, however, were unable to provide evidence for most of the expenditure. Various other accounting issues were uncovered and ultimately the two trustees were permanently removed from their positions under section 79(4) of the Act and can no longer serve as officers, agents or employees of the charity. Further, they have been disqualified from being a trustee or senior manager of any charity under section 178 of the Act. Both trustees were removed from the Charity's bank mandate under section 85 of the Act.
This inquiry highlights the duties of charity trustees to protect the property of their charity and to ensure that it is applied only to further its charitable objects. To comply with this duty, trustees must ensure that there are adequate financial and administrative controls over the use of the charity's assets, that charitable and personal expenditure is not mixed, and that there are sufficient trustees or systems in place to effectively manage a conflict of interest. If the charity's governing document does not provide suitable mechanisms for managing conflicts of interest, a conflicts policy should be put in place. Failure to take these steps can amount to misconduct and/or mismanagement by the trustees.
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