A charity that had the new chair of the Charity Commission as a trustee is to be questioned by the regulator about concerns that it paid staff through their own companies rather than the payroll.
Baroness Stowell was a board member of the Transformation Trust, an education charity, from 1 January until 22 February this year, when she relinquished the role in order to become chair of the commission.
A voluntary sector source contacted Third Sector after noticing the charity's latest accounts, for the year ending 31 August 2016, stated it did not have any employees yet incurred staff costs of £219,649.
The accounts say the figure includes £215,976 paid to "third party project leaders". This sum includes consultancy costs of £69,600 paid to Denford Associates, whose director, Amy Leonard, is also the charity's chief executive.
The 2015 accounts say the charity paid £297,302 to third party project leaders, including £74,983 to Mathems Limited, whose company director, Mike Coleman, was also the charity's chief operating officer. Coleman no longer works for the trust.
The source, who asked not to be named, questioned the ethics of a charity not paying staff through the payroll, which can reduce National Insurance contributions and avoid other costs, such as sick pay, holiday pay and pensions.
"It seems unusual for senior managers to be paid this way," the source said. "It also enables the charity to hide how much it pays its senior staff."
A commission spokeswoman said charities "can legitimately make related party transactions where they can evidence that they have managed any conflicts of interest and that doing so is in the charity’s best interests".
She said: "We will be contacting the charity to seek further information on the payments and to determine if there is a regulatory role for the commission."
Leonard, a former Cabinet Office press officer, set up the charity in 2009. Current trustees include: chair Sir David Bell, former chairman of the Financial Times; Tim Byles, former chief executive of the non-departmental public body Partnerships for Schools; and Dame Julia Cleverdon, former chief executive of Business in the Community.
Income grew from £496,000 in 2012 to £985,000 in 2015 but fell to £752,000 in 2016.
Leonard told Third Sector the £219,600 spent on staff costs in 2016 comprised payments to seven self-employed people, including herself, and included £44,035 for pro-bono work, the value of which was included in the accounts to meet reporting requirements even though no actual payments were made.
She said the £69,600 payment to her company included £30,000 actual payment and £39,600 in additional time donated.
Leonard said: "When I set up the charity in 2009, we ran small programmes, which only required part-time staff.
"These individuals were therefore contracted to deliver these programmes on a part-time basis, and did other part-time roles alongside this.
"As we have grown, the programmes have required full-time members of staff and we have therefore moved to a PAYE basis."
She said the trust currently had five staff, including herself, on the payroll and paid one person through a self-employed contract.
Leonard said Stowell was not involved in any decisions about third party payments. "She attended one meeting of trustees, which was an awayday rather than a formal trustee meeting," she said.
She added that "there have never been any conflicts of interest" involving staff, who completed annual declarations of interest forms.
Self-employed contracts included holiday and sick pay and it was never the charity's intention to avoid paying National Insurance, she added.
Asked whether the payment structure had nevertheless reduced the charity's National Insurance contributions, she replied: "We make it clear to self-employed individuals that it is their responsibility to meet their own National Insurance responsibilities."
A spokesman for HM Revenue & Customs said: "We don't discuss identifiable charities."