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Reading between the lines – Human Appeal Inquiry

The Charity Commission on the 28th October 2021 published its decision of its 3 ½ year long inquiry into Human Appeal. This was a comprehensive investigation that has had a profound impact on the charity itself and some of the individuals involved.

 

This decision has caught my attention as I feel it has some important governance learning for the wider Muslim charity sector, especially charities with international operations.

 

In 2019, I analysed the accounts of 20 of the largest international relief charities. I found collectively, they raised £350m in UK of which around £80m was raised alone in Ramadan. Hence, there is a lot at stake, and it is imperative that charities learn lessons from such Inquiries.

 

Background to Human Appeal Inquiry

 

On 18th April 2019, the Commission opened a statutory inquiry (a serious inquiry) into Human Appeal. The inquiry focused on how Human Appeal trustees conducted themselves in relation to their duties, decision making, due diligence and financial controls.

 

At the time the Inquiry opened, the charity was of a significant size with an income of £36m, operations in 24 countries and over 100 full-time staff including six directors and a CEO.

 

My reading of the Inquiry report

 

The Commission report is a valuable read and trustees of all Muslim charities should read and understand the findings in this report, as much of it, is relevant to all International NGOs.

 

I will set out my observations below, reading between the lines.

 

The Trustees can’t wash their hands off overall responsibility

In large charities, trustees employ the executive and delegate responsibilities to them. This does not mean trustees have no responsibility and when something goes wrong, the trustees can simply blame the CEO and get away with it.

 

The Inquiry concluded that there had been misconduct and/or mismanagement in the administration of the charity by its then Trustees and identified that a significant factor in the misconduct and/or mismanagement was insufficient oversight of the charity’s executive by the then Trustees.

 

Steve Roake, Head of Compliance Visits and Inspections at the Charity Commission, said “While trustees of larger charities will delegate certain tasks to staff members, we and the law are clear that trustees retain ultimate responsibility for running their charity. and our guidance is clear that trustees must ensure that robust reporting procedures are in place. Responsibility for ensuring they have sufficient information and are adequately informed to make decisions rests with the charity trustees”.

 

It should be noted that in the detailed report, the Commission did not single out the CEO for misconduct, never mind gross misconduct.

 

Ignorance of Trustee(s) is not a defence

 

The Commission report states that part of a trustee’s role is to review proposals and challenge assumptions critically and objectively in making decisions.

 

No one should be able to direct the trustees or drive decisions through without sufficient consideration. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties.

In large charities (especially), it is imperative that formal systems and process are in place that provide scrutiny over Executive decision making – this does not mean, the Executive are deprived of decision making – This is one bicycle that requires both tyres to run in sync for good governance.

 

Trustees approve the strategy and budget. The Executive run the charity and provide timely and robust feedback to Trustees so that they are adequately and collectively assured and informed.

 

It is insufficient for the CEO to rely on informal relationships with the Chair of Trustees or a small of group of trustees.

 

It is not enough for due diligence to be done by management; Trustees must have systems in place that can adequately assure them that due diligence is actually done

 

Often when asked, trustees assume due diligence of donors and partners is done by management because they are paid to do it. When public funds and donor monies are involved, this is not sufficient or a responsible answer by any standard.

 

There is a stark difference between assumption and assurance. When someone else’s money is involved which is the case with donor monies in charities, trustees should not be relying on assumptions and mere alone representations from the executive.

 

A system of internal control, policy and independent assurance on their effectiveness is something that should be in place as a standard in large charities.

 

The Muslim charities are often lacking in this area, often because trustees have never experienced similar systems in place elsewhere and there is no compulsion within the sector for such systems to exist. This attitude needs to change – the level of funds and risks involved in the sector demands this.

 

Submitting true and fair statutory returns on time matters and it’s the trustees that are ultimately responsible

Charities with annual income above £1m require a statutory audit of their year end financial statements. The External Auditors are required to give an “opinion” on whether the charity’s financial statements are true and fair presentation of charity finances and activities.

 

There are two main types of opinion – Unqualified opinion: means a clean opinion where the auditors consider the financial statement true and fair. Qualified opinion: means a bad / adverse opinion where the auditors raise serious concerns over the financial statements.

 

Human Appeals submitted 2017, 2018 and 2019 (last three years) financial statements consistently show a qualified opinion disclaimer from its External Auditors.

 

The reason for these qualified disclaimers is due to unreliable financial records and a risk of material misstatement in its reported income and expenditure. The qualified opinion also relates to a material uncertainty that the auditors felt exists that may cast significant doubt on the charity’s ability to continue as a going concern.

 

This is a damning verdict on the state of Human Appeal finances, how they are managed and recorded from an independent Auditor. For a charity that raises Zakat and Sadqa monies, this is problematic, more so, as questions can be raised on its ability to account for Zakat monies properly.

 

The Commission recognised the qualifications of Human Appeal accounts in their Inquiry and were critical of the late and non-submission of the accounts. The Commission considered this to be misconduct and/or mismanagement in the administration of the charity and the Inquiry finds that the trustees of the charity at the time are responsible for this.

 

It’s the responsibility of the trustees to ensure adequate and capable resources are secured and in place for reliable financial records. International charity accounts are complex accounts with significant compliance burden, this should never be underestimated and ignored by trustees.

 

My conclusions

 

Fundraisers work hard to raise funds, they become the face of the charity. They use various strategies to convince donors on the credibility of the charities they represent.

 

As a result of their work, the money they raise is not just money, it represents someone’s emotions, trust, a memory of a deceased loved one or a simple sacrifice of personal funds.

 

It is sad when the trustees of that charity let their fundraisers and donors down by not fulfilling their legal and moral responsibilities.

 

The Commission in the report recognised the progress made during the Inquiry by the current Human Appeal trustees and as a result the charity is in a stronger position going forward.

 

However, the Commission also recognised remaining areas where significant improvements are still required. Reading through the report, the state of finances maybe one of them.

 

Author: Nasir Rafiq is the founder and director of Dua Governance Chartered Accountants and Business Advisors –

 

He is a widely experienced Fellow Chartered Accountant and a charity financial governance specialist.

 

End –

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