Charity Commission statutory inquiry into Newham Community Leisure Trust: what can we learn?

After a decade-long statutory inquiry into a community leisure trust, the Charity Commission has disqualified one of its charity trustees from acting as a charity trustee for 12 years.

It has described the charity as “poorly governed, poorly managed and having poor financial management”.

Samantha Pritchard, partner in our sports, education and charities team, summarises the findings and offers key questions for your charity to bear in mind.

Background

Newham Community Leisure Trust (NCLT) was established in 1992 to provide a sports centre and related facilities.  It previously operated sports grounds used by Clapton Football Club (the Football Club).  

Charity Commission’s concerns

The Charity Commission opened its inquiry to examine concerns around:

• Transactions between NCLT and the Football Club
• The oversight of NCLT by its trustees
• The financial control and management of NCLT
• Whether the trustees had complied with and fulfilled their duties as trustees

Key findings

The inquiry made the following key findings:

Lack of registration

The trustees had failed to register NCLT on the register of charities when its income meant that they were legally obliged to do so

Disqualified trustee

A trustee had continued in office for 10 years whilst he was disqualified to act as a trustee, in breach of legal requirements 

Failure to meet minimum number of trustees

NCLT only had 4 trustees despite its governing document requiring a minimum of 9 

Invalid decision making

Over a period of 6 years, over 80% of its trustee meetings were inquorate, meaning all decisions taken at those meetings were invalid

Failure to meet regulatory requirements

The trustees compiled and submitted inaccurate financial information to regulators which contained significant unexplained discrepancies in income and expenditure and which was often overdue 

Failure to manage conflicts of interest or loyalty

Of particular concern was that one of NCLT’s trustees held his trustee post for over 22 years and (for periods of that time) was also a director and the CEO of the Football Club.  

Conflicts arising between him, the Football Club and NCLT were not identified, declared or managed in relation to transactions between the parties, or generally through minute taking, a conflicts register or a related conflicts of interest policy. 

Failure to operate NCLT independently

NCLT was not operated at arm’s length from the Football Club and the parties did not enter into an effective agreement that protected the charity or allowed its trustees to actively manage its interest in the grounds or hold the Football Club to account.

Financial control

NCLT took multiple loans from a trustee and others over a significant period of time, some of which were for works to benefit the Football Club rather than the charity.  

Trustees failed to adequately document how the loans would be repaid, why they were necessary or why they were in NCLT’s interests.  

Meetings at which these loans were agreed upon were also inquorate and failed to identify or manage inherent conflicts of interest.

Outcome

NCLT has now been removed from the register of charities for ceasing to operate following its compulsory liquidation in 2017, which is now being considered by the Insolvency Service.  

The Charity Commission has concluded that there was serious misconduct and/or mismanagement in the administration of NCLT over a sustained period of time, in particular by the trustee who has now been disqualified for 12 years.

This inquiry is a salient reminder to all trustees of the need to comply with and fulfil their legal duties to their charity and to keep pace with the expectations of the Charity Commission as regulator.  

This requires regular reflection and, when necessary, challenging the status quo.  

10 key points to reflect on

1. How are you ensuring that your assets are being used only to further your particular charitable purpose for the benefit of your beneficiaries?
2. Are you satisfied that your governing document is still fit for purpose or does it need a refresh?
3. Are you making accurate and timely submissions to the Charity Commission of your annual return, report and accounts?
4. Are you conducting eligibility checks on new trustees and annually refreshing declarations?
5. What is your process for identifying, declaring and effectively managing conflicts of interest and is it applied well in practice?
6. How do you ensure that any financial or other benefit to a trustee, or a person or organisation connected to them, is authorised and managed in accordance with legal requirements? 
7. If your charity has a close connection to another organisation, are you satisfied that the relationship between them is properly documented and kept under review? 
8. If your charity borrows money, is the loan properly documented and are you satisfied that the terms are in your charity’s interests, that the charity can repay on the terms agreed and that the loan is necessary? 
9. Have you refreshed your knowledge of the Charity Commission’s updated guidance on internal financial controls (see our update for more information) and how satisfied are you that you have strong controls in place?
10. Do minutes of your meetings accurately reflect how you manage conflicts, the decisions you take and the factors you considered in making those decisions to demonstrate you are acting in your charity’s best interests?

If you require legal support in relation to any of the matters highlighted in this article, please get in touch with Samantha using [email protected] or 0191 211 7905.