Conflicts and benefits: Lessons from the Charity Commission's Island Health Trust inquiry
The Charity Commission recently published a report into Island Health Trust (the Charity), which led to the former chair of the Charity being disqualified from serving as a trustee for seven years.
Samantha Pritchard, partner, and Eleanor Amies-King, trainee solicitor, discuss the actions taken by the Charity Commission and some key takeaways for trustees.
Background
The Charity was registered in 2009 to promote the provision of primary healthcare.
The Charity's principal asset is the Island Health Centre on the Isle of Dogs, East London, which it rents to a local NHS GP practice. This rental income is the Charity's only source of income.
The Charity Commission started monitoring the Charity in February 2017 after concerns were raised about the spending of charitable funds and the potential private benefit to the trustees.
The initial review found that a consultancy company, wholly owned by the former chair of the Charity, Suzanne Goodband, had received significant payments from the Charity. This is related to the strategic review of the Charity in connection with the redevelopment of the Island Health Centre site.
In November 2017, the Charity Commission escalated this into a formal inquiry (the Inquiry).
Key findings of the Inquiry
1. Poor governance and unauthorised trustee benefit - the consultancy company, owned by Goodband, was paid almost £350k over a two-year period, which comprised 60% of the Charity's income over this time. The Charity hired an additional consultant, who had previously worked with Goodband and paid a total of over £105k. The Charity also entered service contracts with two other trustees who received remuneration of around £16k and £8k respectively. The Charity's governing document prohibited trustee remuneration except under specific exceptions, which were not met. The Charity Commission found this to be a clear conflict of interest.
2. Inadequate financial management and decision making - the Charity used significant funds to develop a strategic review tied to a speculative redevelopment, which later fell through. The Charity Commission found that the discussions with developers and potential benefits for the Charity had been too speculative. It therefore did not justify the excessive funds spent on the process. The spending was disproportionate based on the Charity’s size and the trustees failed to demonstrate that decisions were taken in the best interests of the Charity.
3. Lack of alignment with objects - the proposed redevelopment involved an expansion of the Charity's activities to incorporate social care activities. However, the Charity's objects were limited to primary health care. Despite receiving specialist legal advice that the Charity's objects needed amending, the trustees did not take steps to expand the objects. The charitable funds expended on the strategic review, therefore, did not further the Charity’s objects and this was a breach of trust and misconduct and/or mismanagement of the Charity.
Regulatory action taken
Interim managers were appointed to work alongside the Charity. The former Chair was required to repay £165k to the Charity and was disqualified from being a trustee for 7 years. The Commission issued an order directing the trustees to review the Charity’s objects and ensure future compliance with the objects.
Lessons for charities
1. Trustee benefits - trustees must be very careful when seeking to benefit from their charity, financially or otherwise. Your charity’s governing document should have proper checks and balances in place to ensure there is relevant authority to confer benefits, and that other trustees have provided sufficient approval.
2. Conflicts of interest - where there is a conflict of interest in a charity's activities, trustees must ensure that the relevant decision-making has been thoroughly documented and that the correct processes have been followed. Your charity’s governing document may include provisions for dealing with conflicts of interest.
3. Charitable purpose - if you are considering expanding the activities of your charity or venturing into new areas, make sure you check whether the proposed activities align with the charitable purposes. Trustees have a legal duty to ensure that charity funds are used only in line with the purposes – if you are unsure of the parameters of the objects, consider taking legal advice.
Understanding trustee benefits
This case is a cautionary tale for trustees. It shows that while strategic ambition is welcome, there must be proper checks and balances within charities, including regular financial reporting, declaration and review of conflicts of interest. It also demonstrates the Importance of understanding the extent of trustee benefits.
The Charity Commission recognises that most trustees are volunteers and there are significant responsibilities associated with the role. Trustees are nevertheless expected to comply with their duties honestly and reasonably and to ensure they act solely in the charity's best interests.
Seeking the right legal support
If your charity is changing its strategic direction or undertaking a new venture, complying with your charity's governing document and seeking professional advice is a good place to start.
If you have any questions regarding the role and responsibilities of a charity trustee, or any of the issues raised in this article, please contact Samantha Pritchard using [email protected] or 0191 211 7905.