The Regulator for Charities in England and Wales
London Christian Family Faith Tabernacle
Registered Charity No -1015067 Removed from Register of Charities on 15 January 2008.
This is a statement of results of an inquiry under section 8 of the Charities Act 1993 as amended by the Charities Act 2006 (“the Act”) and published on 19 March 2008.
The Charity
1. London Christian Family Faith Tabernacle (‘the Charity’) was registered as a charity in November 1992 Its purposes are the advancement of the Christian faith in accordance with set doctrines, the preaching and proclamation of the Christian Gospel, the relief of persons who are in conditions of need and the advancement of education on the basis of Christian principles.
2. It is based in Haringey, London Its income in the financial year ending December 2003 was £268,667. The Charity has not supplied its accounts or annual return to the Commission since those for the financial year ending December 2003.
Source of Concern
3. In December 2005 an independent examiner engaged by the Charity reported concerns about the Charity’s financial record keeping and potential financial irregularities to the Commission. The auditor made his report in accordance with the relevant Directions and Guidance Notes 1which states that an examiner of charity accounts must inform the Charity Commission if, whilst acting in the capacity of the examiner of a charity, information or evidence is obtained which gives the examiner reasonable cause to believe that any one or more of the charity trustees has been responsible for deliberate or reckless misconduct in the administration of the charity.
Commission inquiry
4. The Commission opened an inquiry under Section 8 of the Act on 25 January 2006 because the issues highlighted by the auditor raised serious concerns relating to possible mismanagement in the way the Charity was being administered.
5. In October 2005 the charity trustees had appointed an accountant and auditor to audit the Charity's accounts for the financial year ending December 2004. It appeared to the auditor that the figures for income in the Charity's accounts for the financial years ending December 2002 and December 2003 were wrong and, if they had been correct, the accounts would have warranted independent examination or audit as required by section 43 of the 1993 Act and the Charities (Accounts and Reports) Regulations 2000. The auditor could not audit the 2004 accounts without reliable figures for the preceding years because of the need to bring forward financial information from one year to the next. The trustees asked the auditor to independently examine the Charity's accounts for the financial years ending December 2002 and 2003. A number of concerns came to light in the course of this work and these concerns formed the basis of the auditor’s report to the Commission Having assessed the auditor’s report, the Commission opened an inquiry to look at the following issues:
- A regular payment to a trustee, the Pastor, in cash
- Concern about whether purchase invoices that the Charity had paid out on were proper;
- The Charity's accounts for 2002 and 2003 had not been independently examined and were not compliant with the Charities Statement of Recommended Practice
- Unexplained loans from the Charity’s funds to trustees and members of the congregation;
- Poor financial and other record keeping.
Timescale of inquiry
6. The inquiry was opened on 25th January 2006 and closed on 29 August 2007 having taken 19 months to complete Conclusion of the inquiry was delayed in order to await the outcome of an investigation by Her Majesty’s Revenue & Customs (HMRC). Unfortunately, the Commission was unable, in this case, to meet its normal target of publishing the report on the inquiry within 3 months of its conclusion
Findings
7. Cash payments to a trustee (the Pastor). The regular cash payments to the trustee for his services as Pastor constituted a salary The Charity did not need permission from the Commission to remunerate the trustee / Pastor because the terms of the Charity’s Trust Deed allow this. However, there was no contract of employment or contract for his services and his salary was not being declared to HMRC and was not, therefore, subject to deductions of Income Tax or National Insurance.
8. Concern about validity of purchase invoices. The auditor asked the trustees for background documentation to support the payment by the Charity of sums of money to third party companies. The Commission later found that members of the Charity were the Directors of one of these companies, raising concern about possible unauthorised personal benefit and unmanaged conflicts of interest. The amounts were minor and the Charity’s financial records were inadequate
An invoice, from a supplier, was dated in 2002. However, that cannot have been the correct date because a check showed that the supplier did not incorporate as a company until 2003. The company number which appeared on the invoice in 2002 would not have been known a year before the company was incorporated. The Commission found that the trustees were unable to offer a satisfactory explanation for these inconsistencies
9. Accuracy of the Charity’s accounts for the financial years ending December 2002 and 2003. The auditor found that the Charity's accounts for 2002 and 2003, which had previously been submitted to the Commission, were seriously in error They did not accurately reflect the Charity's financial position. The auditor calculated that the Charity's actual income for the year ending December 2003 was £268,667 whereas the accounts submitted to the Commission showed an income of £204,068 This increased figure meant that the Charity's accounts for 2003 should have been subject to an audit. The trustees said that the person who had prepared the 2002 and 2003 accounts could not be traced. The Commission found that the trustees were unable to offer a satisfactory explanation for how the figures in these accounts had been arrived at.
10. Loans to trustees and members of the congregation. The trustees had agreed interest free loans from the Charity's funds to an individual trustee (the Pastor) and members of the congregation. The Pastor was lent approximately £16,000 The loans to members of the congregation were for much smaller amounts. The Commission found that the trustees could not properly and legitimately explain the loans Generally, a trustee body may make loans for one of two purposes: either to further the charity’s aims or at an appropriate rate of interest as a means of generating funds They had no clear understanding as to which of these categories, if any, the loans they had made fell into. There were no loan agreements and the trustees had no procedures to guide their decision making in this area or evidence that the loans were properly made
The Commission found that the Pastor obtained a personal benefit in obtaining a preferential loan by virtue of his position. However, the Pastor repaid the loan so there was no loss to the Charity and the trustees provided evidence that he had absented himself from the meeting where the decision to loan him money was taken
11. Inadequate financial records. The Commission found that the Charity’s financial and administrative records were inadequate. There were inconsistencies between the figures in the accounts and the figures that appeared in the Charity’s cash book for the same period. The records in connection with expenses were inadequate. There were no loan agreements and no contract of employment or contract for the Pastor’s services
Conduct of inquiry
12. The Commission inquiry team liaised with the auditor and met and corresponded with the trustees to investigate the issues. The Commission disclosed to HMRC under Section 10 of the Charities Act 1993 information likely to have a bearing on the Charity's tax liability.
Conclusion
13. The Commission concluded that the Charity suffered from poor administration and management
Regulatory action taken
14. The Commission served Orders under Section 18(iv) of the Act on the Charity’s banks in July 2006 in order to prevent payments that had not been authorised by the Commission as proper expenditure in furtherance of the Charity’s aims. During the inquiry, the Commission approved payments from the Charity’s accounts where it was satisfied that the payments were legitimate.
15. It became apparent during the course of inquiry that the congregation of the Church had dwindled and eventually the Charity dissolved. Because of this, the Commission decided that it would not be proportionate to take any further regulatory action As the Charity’s bank accounts were in deficit, the Commission discharged the Orders freezing the accounts
Impact of Commission intervention
16. It was hoped that as a result of Commission’s intervention, the Charity would be managed better but the Commission understands that the congregation dwindled to such an extent that the Charity dissolved. The Commission has a duty to remove from the Register any charity which ceases to exist or does not operate In accordance with this, this Charity has been removed from the Register of Charities.
17. The Commission notified HMRC of the Charity’s tax position and HMRC are pursuing action to recover monies owed to the public purse.
Resources applied
18. The Commission adopted a multi-disciplinary approach for dealing with this inquiry with significant input from the accountancy team.
Lessons for other charities
19. Every charity must comply with the legal requirements for the preparation of accounts and reports. In the case of some categories of charity (for example, charitable companies or those registered social landlords which are exempt charities) these requirements will be set out in legislation appropriate to that type of organisation. Charities which are not covered by specific legislation must comply with the requirements set out in Part VI of the Charities Act 1993 and, where appropriate, the related Charities (Accounts and Reports) Regulations issued in 2005.
20. Charities need to ensure the accuracy of the information in their annual returns and accounts.
21. No matter which method is used to pay salaries, trustees must ensure proper deductions are made for Income Tax and National Insurance.
22. Trustees should not benefit personally either directly or indirectly from their position within a charity unless they are authorized to do so and the arrangement is in the best interests of the charity
|
Para |
Issue |
Charity Commission Guidance and relevant legal obligation |
| 5 | Lack of independent examination of accounts | Section 43 Charities Act 1993 |
|
5 |
Payment of salaries in cash |
|
| 5 8 9 13 |
Charitable funds not accurately presented and not properly accounted for | |
|
10 |
Personal benefit to trustees |
|
| 8 11 |
Poor financial controls | CC8 Internal Financial Controls for Charities |
|
7 |
Failure to ensure proper deductions are made for Tax and National Insurance |
HMRC website www.hmrc.gov.uk |
Additional information
Provisions contained within the Charities Act 2006 which are expected to come into force on 1 April 2008 will codify and harmonise whistle blowing duties of independent examiners and auditors of both company and non-company charities. The duty to report to the Commission applies to matters of material significance to the Commission’s regulatory function that are identified by auditors or examiners in the course of their work. The Act also provides protection against legal action for breach of confidence where reports are made under this statutory duty. Reporting duties currently applying to independent examiners are set in Directions made by the Commission set out in CC 63 - Independent Examination of Charity Accounts – Directions and Guidance.
1. Direction 12 of the Independent Examination of Charity Accounts: Directions and Guidance Notes