The report, published today, says the council acted in breach of trust by allowing "the improper use of charitable property that was not in furtherance of the charity’s objects or in the best interests of the charity".
The council was the sole trustee of the Knotty Ash Special School Trust, a charity that ran a school for children with special educational needs. It owned about three acres of land in Knotty Ash, Liverpool, including Dovecot Lodge, a small house.
The report says the council employee had occupied the house under a service tenancy as a caretaker of the land, but that this service tenancy "ceased many years ago". It says the council "had been unable to remove the tenant from the property due to issues relating to local authority tenants’ rights".
After the regulator intervened in the case, the report says, Liverpool City Council repaid £89,000 to the charity to cover the uncharged rent. It says the tenant still lives in the house, which is now overseen by another charity, Liverpool Lighthouse.
According to the report, when Liverpool Lighthouse agreed to take over the management of the land it "was satisfied with this arrangement and intends to address this issue in the near future".
The report also criticises Liverpool City Council for failing to use the charity’s land for charitable purposes. "The investigation found that the charity’s property had not been used for any charitable purpose for a number of years," it says.
"This had resulted in a significant amount of dissatisfaction from local residents, and the public considered this was a factor in the arson attacks [to the charity’s land and property] of 2003 and 2004."
The report says the trusteeship of the charity has transferred to Liverpool Lighthouse and Knotty Ash, which had an income of £539 in 2009/10, changed its name to Bright Park. Ownership of the land has been split between Bright Park and a new charity, the Clifford Holroyde Special School Trust, which has the council as its trustee.
Liverpool City Council issued a statement that said: "The Charity Commission acknowledges that we had recognised, prior to the opening of their investigation, that we were required to rectify the situation. We were able to resolve the complications around this issue last autumn to the satisfaction of everyone involved."