An Orthodox Jewish charity did not follow proper procedures in making loans totalling more than half a million pounds to a subsidiary company and a private company owned by two of its trustees, a Charity Commission investigation has found.
In August 2011, the commission opened a compliance case into Raleigh – which has objects that include advancing the Orthodox Jewish faith and religious education – after becoming concerned about its "exceptionally low" level of charitable activity, an accumulation of funds that appeared contrary to its reserve policy and its relationship with its subsidiary company, Rally Investments. Two months later, the regulator escalated the case to a statutory inquiry.
The regulator’s report, published today, says the charity failed to provide sufficient evidence that it had adequately considered its decision to lend £500,000 to Rally Investments to enable it to make a three-year investment that Raleigh said would ultimately benefit the charity.
The report says there were no independent trustees capable of reviewing the decision to ensure it was in the charity’s best interests, and the Charity Commission could not see how the trustees could have concluded that it was.
The report says the trustees had not tried to seek repayment or renegotiate the terms of the loan once it became due for repayment in December 2011. It did this only after the commission asked if it had done so.
During the financial year ending 2009, says the report, the charity’s trustees made a payment of £34,500 that they did not have authority to make to a company owned by two of the charity’s trustees, who are not named.
The charity had an income of £156,057 in the year to the end of March 2013/14, but recorded no income in each of the previous three years, the charity’s entry on the commission’s online register shows. It had an income of £125,000 in 2009/10.
The report says the commission commends the trustees’ desire to commit to long-term charitable giving, but trustees of every charity should ensure funds are used "appropriately, prudently, lawfully and in accordance with the charity’s purposes for the public benefit".
It says: "The general principle of trust law is that funds received as income should be spent within a reasonable period of receipt."
Independent trustees have been appointed to the charity, whose trustees maintain that the investment was in the best interests of Raleigh and that it provided a secure financial guarantee, the report says.
The charity has recovered the £500,000 owed to it by Rally Investments and the £34,500 paid to the private company.
The report says the charity will be placed in "monitoring" and the commission might consider visiting it in nine to 12 months to see what progress it has made.
Third Sector was unable to contact the charity for comment.