Three former trustees of a grant-making charity have repaid £650,000 after a Charity Commission inquiry found there had been a conflict of interest between their work for the charity and as consultants for a subsidiary company.
Last February, the regulator opened an inquiry into the organisation – which the regulator agreed not to name after a request from the charity – because the charity’s solicitors tried to get its existing and former trustees relief from liability for unauthorised payments, as well as permission from the regulator to sell 99 per cent of its shares in a subsidiary limited company.
About £650,000 had been paid to three recently resigned trustees who were acting as consultants for the subsidiary company, according to a report on the inquiry, published by the regulator this week.
The commission decided not to name the charity after it requested anonymity on the grounds that its identification would be severely detrimental to it and its beneficiaries.
The report on the case says the inquiry focused on the charity’s governance, administration and management, and specifically considered its decision-making processes and how it handled conflicts of interest.
The commission also looked at whether the sale of the subsidiary company was in the charity’s best interests, whether the payments to the former trustees were a private benefit and whether the money needed to be repaid.
After completing the inquiry, the commission deemed the former trustees to have been conflicted at the time the payments were made because of their roles with both the charity and the company, and concluded that there was a failure to manage this conflict of interest.
The commission said the charity’s trustees also failed to show adequate records of the decisions made and the payments were a significant private advantage and financial benefit to the trustees affected.
It determined the payments to be a direct breach of the charity’s governing documents and the trustees’ legal duties.
The inquiry found that the trustees’ actions were "honest mistakes", but the former trustees have now repaid the £650,000.
The commission agreed to the sale of shares in the subsidiary company because the conflicted trustees had been removed from the charity’s decision-making process for the sale, which was worth £350,000 to the charity.
Harvey Grenville, head of investigations and enforcement at the Charity Commission, said: "Actively managing conflicts of interest is a fundamental principle of trustee decision-making. We recognise that trustees are human beings who can make honest mistakes, but the bottom line is that you must always act in the best interests of your charity.
"Our intervention has allowed this charity to claw back a significant amount of money that can now go to charitable causes. I hope this will encourage other charities to be mindful of their duties and consult our guidance when making important decisions."