The Charity Commission has recently issued two official warnings based on failure to manage charity funds and 'divisive and inflammatory' social media use.
Failure to responsibly manage charity funds
The East London Mosque Trust was given an official warning for its 'failure to responsibly manage charity funds' in relation to a failed investment.
The Trust invested £1 million in an NHS-approved supplier on the expectation it would receive a 20% return in 6 months. However, the supplier went into administration and is now subject to an ongoing police investigation. The trustees reported the matter to the Commission. The Commission had previously told the Trust to ensure it had sufficient control over its funds and had warned of the potential for further action.
The Commission issued the official warning on two grounds:
- Failure to manage the Trust's resources responsibly in relation to an investment. The Commission noted that it was very unlikely the trustees would be able to recover the funds.
- Failure of the trustees to act with reasonable care and skill by not ensuring adequate oversight of the Trust's activities in relation to the investment. The Commission found that the trustees had not conducted and/or recorded sufficient due diligence checks on the investment. In particular, the Commission identified a failure to properly scrutinise key investment documents.
Following this warning, the Trust has been given six months to:
- ensure financial controls are put in place;
- conduct an independent governance review and report its findings to the Commission; and
- do all it reasonably can to recover the lost funds.
This case highlights the importance of conducting thorough due diligence exercises on any investment which uses charitable funds, particularly when the amount invested is significant. It is also important to ensure that any investment is an approved charitable investment for tax purposes.
Posting 'divisive and inflammatory material'
The Palestinian Refugee Project was given an official warning after an investigation into its social media use found it had been posting 'divisive and inflammatory material' and uncovered further 'serious failings'. The Commission also issued an order disqualifying one trustee from serving as a trustee or holding a senior management position in a charity for eight years.
The charity's objects are to benefit the Palestinian diaspora in refugee camps through poverty relief, advancement of education, relief of sickness and the provision of social welfare and leisure facilities.
The Commission had first examined the charity when concerns were raised about its social media activity in December 2023. Further issues were identified as part of this process. All of the charity's trustees appeared to be related, which gave rise to concerns about conflicts of interest. It also became apparent that the trustees did not understand their legal duties and responsibilities. In particular, that trustees should be acting and making decisions collectively (the regulator noted that the charity was 'effectively being run' by one trustee).
It was established that the voluntary CEO (who was also a trustee) had sole control over the charity's social media accounts and had used its platform to promote political material which was outside the charity's objects and was divisive and inflammatory. These posts included content which 'could be interpreted as downplaying acts of terrorism, and which tried to raise support for a change to Israel's recognition as a state'.
The official warning was made on four grounds. The charity had failed:
- To demonstrate an understanding of, or undertake, their legal duties, including the need for all of the trustees to take an active role in the charity. For example, the other trustees had very little oversight in relation to the CEO's social media activity.
- To effectively manage the charity's website and social media, allowing one trustee to have control of its contents. It had not implemented a social media policy.
- To implement any financial controls, leading to the charity's funds being spent without any proper authorisation or controls.
- To submit annual accounting information to the Commission on time for two financial years.
The Commission set the following steps to be implemented within the next 6 months, to:
- Develop an adequate social media policy which reflects the Commission's social media guidance;
- Ensure the trustees understand the Commission's guidance
on:
- 'The essential trustee: what you need to know, what you need to do';
- reporting and accounting;
- social media use; and
- campaigning and political activity.
- Finalise and file outstanding annual accounting documents.
The Commission's head of compliance visits and inspections stressed that the regulator did not seek to encroach on the trustees' or any other individuals' rights to freedom of speech, expression or beliefs, recognising that 'events in the Middle East over recent months and years have been deeply emotive and distressing'. Nevertheless, trustees have 'clear legal obligations' to act in line with their charity's purpose and best interests, and to act reasonably and prudently.
The compliance case into this charity is ongoing.
This case demonstrates the importance of a robust social media policy, and that a charity's social media is not controlled by a sole trustee or employee. All trustees must ensure that there is appropriate oversight of the charity's social media, and that any material posted is not divisive, inflammatory or goes beyond that charity's objects.
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