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Charity commission inquiry into charity which made non-charitable payments:

The Charity Commission has published findings of an inquiry, which includes:

“The Commission concluded that the charity’s trustees had failed to fulfil their duties to protect the charity and its assets and failed to demonstrate any effective oversight of senior staff leading to the serious misconduct and / or mismanagement, including misuse of funds and other assets.  The charity (which is no longer registered and had its bank accounts frozen in 2015) operated an Evangelical Church in Croydon.

During the inquiry, the regulator found evidence that the charity spent approximately £95,000 on trips overseas without any authorisation or clear charitable purpose.  The trips, to locations including Italy, Greece and Austria, were led by former pastor.  It also uncovered that day-to-day living expenses such as food, domestic purchases, medical bills, vets’ bills, and gym memberships, all of which appeared to be of a personal nature, were claimed and paid out by the charity in the absence of any expense policy or clear financial controls.

The inquiry also found that cheques totalling £300,000 had been paid to the charity’s former pastor between 2014 and 2015.  £225,000 of the £300,000 had been transferred out of the charity’s account and placed into a personal account to reduce monthly mortgage interest payments before being transferred back to the charity.  The regulator discovered that no guarantee had been obtained or security measures put in place prior to transferring the significant sum, placing the funds at considerable risk.

The regulator’s investigation also found that most of the charity’s spending was incorrectly categorised and lacked sufficient information to prove it was for charitable purposes.  This failure resulted in the charity being liable to pay £543,285.82 in additional taxes.”

Whilst cases such as this are unusual, it does highlight the need, when acting for a charity (particularly as an auditor) of the need to:

  • Ensure that the accounting system includes adequate controls;
  • Ensure that amounts receivable are expected to be recovered; and
  • Consider whether there is any liability to corporation tax arising as a result of expenditure not being charitable in nature.