Durham Mining Convalescent Homes Fund

Registered Charity No. 1040427

This is a statement of results of an inquiry under section 8 of the Charities Act 1993 as amended by the Charities Act 2006 (“the Act”) and published on 1 February 2008.

The Charity

1. Durham Mining Convalescent Homes Fund (“the charity”) was registered as a charity on 30 August 1994. It was established against a background of decline in both the mining industry and mining unions in the United Kingdom. The charity was regulated by way of a Scheme of the Commissioners’ of 20 January 1994 to administer some £1.3 million charitable funds representing miners’ donations formerly held by certain mining unions (“the Federation unions”) in the Durham area acting together as the Durham County Mining Federation Board. The charity trustees (“the trustees”) were nominated by the Federation unions. The charity’s objects required the trustees to apply the income and, at their discretion, the whole or part of the property of the charity in one or both of the following ways:

(a) in or towards the cost of convalescent treatment for members of the mining community in the area comprising the Counties of Durham, Northumberland, Tyne and Wear and that part of the County of Cleveland which was, prior to 1 April 1974, part of the former County of Durham; and
(b) in promoting charitable social welfare activities (within the meaning of section 16 of the Miners’ Welfare Act 1952) for the benefit of the mining community in the said area.

2. The charity operated from offices in the building occupied by the National Union of Mineworkers Durham Area (one of the Federation unions with nominating rights) and the National Union of Mineworkers North East Area (“the NUM Durham” and “NUM NE”) at Red Hill in Durham. In the financial year ending 31 March 1999 the charity’s income was £24,703.

Source of Concern

3. The charity's accounts revealed high levels of administrative costs allied to low levels of direct charitable expenditure. The charity operated out of premises owned or occupied by the NUM Durham and NUM NE and was administered by officials of those and other Durham area unions. The Commission had a concern that the charity was directly or indirectly subsidising union-related business.

Commission inquiry

4. The Commission requested further information from the trustees and, in light of the information subsequently received, an evaluation of the concerns was carried out. Having examined minutes of trustee meetings and the charity’s accounts, the Commission concluded that there were sufficient grounds to open an Inquiry into the affairs of the charity because it appeared that funds were being applied for non-charitable purposes. An Inquiry was, therefore, opened on 17 October 2000. The Commission met with some of the trustees and other representatives of the charity on 19 October 2000 at their request and in the course of the meeting advised them of the Inquiry.

Issues

5. The Inquiry focused on:

(i) whether there was a misapplication of charity funds, particularly for the benefit of the NUM Durham and NUM NE; and

(ii) the appointment of former trustees to salaried appointments within the charity.

Timescale of inquiry

6. The Inquiry ran from 17 October 2000 to 8 January 2007. This was a particularly long Inquiry involving a number of complicating factors including:

• the need to appoint a receiver and manager (now referred to as an “interim manager”);
• the removal of the trustees;
• the matter as to whether or not to seek restitution by the trustees to the charity;
• consultation with the Coal Industry Social Welfare Organisation (CISWO), charity registration number 1015581, to assume responsibility for the charity’s funds; and
• the making of a Scheme transferring the charity’s assets to CISWO (once proper consideration had been given to representations made in that connection). 

7. Once the Inquiry had been closed, the charity’s residue funds were transferred in accordance with the terms of the Scheme. Final accounts were prepared and the interim manager was discharged. The publication of the statement of results has been delayed by the prolonged appointment of the interim manager, who was finally discharged on 24 September 2007. The Commission took the view that the interim manager should remain in place until confirmation had been received that CISWO, the recipient of funds under the Scheme, had actually established full control over the funds. Such confirmation was received on 10 September 2007.

Findings

8. The Commission found that:

(i) Since the charity started, over £1 million of charitable funds had been expended. Of this, only 21% was identified in the charity’s accounts covering the six year period up to 31 March 2000 as having been spent in furtherance of charitable purposes.

(ii) Other sums expended included unauthorised benefits worth more than £391,000, which they were potentially liable to repay to the charity. For example, three trustees resigned their trusteeship and were immediately employed by the charity. Charity trustees cannot, without proper authority, be remunerated or resign in order to take up employment with their charity. This is because a trustee or former trustee should not gain an "inside track" or any unfair advantage because of their position. There must be no possibility of improper influence and any conflicts of interest must be properly and openly managed. In this case, their employment had not been subject to a competitive recruitment exercise and the necessary authority of the Commission had not been sought (and so had not been given).

(iii) The trustees failed to distinguish between the charity and the various unions in terms of their respective activities, personnel and financial matters with the result that the charity was directly or indirectly subsidizing them. It was agreed that the Federation unions owed the charity over £267,000.

(iv) The trustees did not exercise sufficient control over the charity’s finances and day-to-day activities, effectively delegating responsibility for the administration of the charity to the employees.

(v) The trustees failed to identify or manage their own conflicts of interest. They accepted benefit in the form of entertainment at the cost of the charity.

Conduct of inquiry

9. During the Inquiry, DeborahOram,of Anthony Collins Solicitors,was appointed interim manager to administer the charity to the exclusion of the trustees. Having taken control of all books and records and reviewed the charity’s activities, the interim manager removed staff from the payroll and disposed of surplus vehicles. She secured recovery of more than £267,000 to the charity (see paragraph 8(iii) above).

10. After a full review of all the charity’s accounting and other records had been carried out and all past and present trustees and certain employees had been interviewed, the Commission removed the trustees from office in August 2003.

11. The Commission concluded that the best interests of the charity and its beneficiaries would be served by the transfer of the administration of the charity’s property to a charity best placed to make effective application of that property. In May 2004 the Commission approached CISWO, which operates in all areas of the country including the North East, to propose that they assume responsibility for the administration of the funds of the charity. A first meeting with CISWO was held in that connection in July 2004. On 9 November 2004, after due consideration, they agreed in principle to the proposal subject to clarification on certain points.

12. In December 2004 the Commission completed its consideration as to whether legal proceedings should be taken against each of the trustees for restitution in respect of the unauthorised benefits. The Commission adopted a strictly practical approach to the question of restitution. It concluded that, although there was a strong case to demonstrate liability, quantifying the sum for which each of the trustees was liable would be problematic and (crucially) that the prospects of successfully enforcing judgement were poor. In the circumstances, the Commission decided that it could not justify risking the substantial amounts of public funds that would be absorbed by legal proceedings in pursuing the charity’s claim.

13. Another meeting with CISWO was held in April 2005. After further consultation, CISWO agreed to assume responsibility for the administration of the funds of the charity in August 2005.

14. The transfer of charity funds to CISWO was to be made by way of a Scheme under Section 18(2)(ii) of the Act. This Section allows us to intervene in high risk cases to protect the assets of the charity and does not require the presence or consent of the charity trustees. The Scheme was drafted in November 2005 and agreed, after consultation with CISWO, in January 2006.

15. The decision was made to transfer the administration of the charity’s property to CISWO by Scheme, subject to consideration of any representations that might be made by the public. Public notice of the draft Scheme was given on 25 February 2006. One representation was received and the matter was reviewed at Commissioner level. The representation claimed that the proposals would lead to duplication, an uncoordinated approach and a lack of local knowledge and decision making and suggested an alternative recipient of the charity’s funds. The Commissioners sought further comment and information from the interim manager and CISWO. Upon receipt of this information the Commissioners concluded that the decision to transfer the administration of the charity’s property to CISWO should be upheld.

16. A Scheme effecting the transfer of the administration of the charity’s property to CISWO and empowering CISWO to apply the property in furtherance of its objects subject to geographical restriction was made on 21 December 2006.

Conclusions

17. The Commission was satisfied that there had been misconduct and mismanagement in the administration of the charity and that each of the trustees had been responsible for and complicit in the misconduct and mismanagement. As a result they were removed from office by the Commission, the consequence of which being that they are disqualified from acting as trustees for any charity until and unless the Commission waives the disqualification. The Commission concluded that it would not be appropriate to pursue restitution. It made a scheme to transfer the remaining assets of the charity to ensure charitable application.

Regulatory action taken

18. The Commission exercised its statutory powers on:

(i) 19 and 20 October 2000 to prevent the trustees from entering into transactions in the administration of the charity without the written approval of the Commission, by order under Section 18(1)(vi) of the Act;

(ii) 20 December 2000 to obtain copies of the charity’s bank statements and mandates by direction under Section 8(3) of the Act and on 6 June 2001 to require the charity’s bank to transmit to the Commission under Section 9 of the Act certain cleared cheques drawn against the charity’s account;

(iii) 8 February 2001 to appoint an interim manager to administer and manage the affairs of the charity to the exclusion of the trustees by order under Section 18 (1)(vii) of the Act (“the appointing order”);

(iv) 9 February 2001 to discharge the orders preventing the trustees from entering into transactions in the administration of the charity;

(v) 11 April 2001 and 23 January 2002 to direct trustees and others to attend the offices of the Commission to give evidence to the Inquiry under Section 8(3) of the Act;

(vi) 7 August 2003 to remove the trustees from acting as trustees of the charity by order under Section 18(2)(i) of the Act; and

(vii) 21 December 2006 to transfer the administration of the property of the charity to CISWO by a Scheme for the administration of the charity under Section 18(2) (ii) of the Act.

(viii) 24 September 2007 (after the closure of the Inquiry) to discharge the order appointing the interim manager.

Impact of Commission intervention

19. The interim manager successfully obtained recovery to charity over £267,000 from the Federation unions.

20. As a result of the Commission’s Inquiry and the appointment of the interim manager, a net figure of £383,571 of charitable funds were safeguarded and transferred to CISWO to be expended in the North-East.

21. As a consequence of the removal of the trustees, they were disqualified from acting as trustees for any charity until and unless the Commission waives the disqualification.

22. The charity is no longer operating and will be removed from the register of charities.

Resources applied

23. This was a long-running complex Inquiry including issues of recovery of charity property. It was dealt with by the Compliance and Support unit in the Commission’s Liverpool, and then London, offices and involved significant input from the Commission’s legal and accountancy teams.

24. Details of the interim manager’s costs, authorised by the Commission, and the professional fees that the interim manager authorised the charity to pay during the appointment are shown in the Annex to this report.

Lessons for other charities

25. It is the fundamental duty of all trustees to protect the property of their charity and to ensure that it is used to further the objects of the charity. The property may not be used for any other purposes, whether charitable or otherwise. In order to discharge this duty it is essential that the trustees put in place and implement adequate internal financial and administrative controls over the charity’s assets and their use.

26. A charity is entitled to the objective judgement of its trustees, exercised solely in the interests of the charity and unaffected by the prospect of any personal advantage to themselves. Moreover, a trustee is not permitted to benefit from that position unless he or she is expressly authorised to do so. A trustee who benefits from a position of trust without the necessary authority may have to repay the benefit which he or she has received.

27. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict. If in doubt the trustees should seek advice from the Commission and, if necessary, obtain its authority prior to any dealings with the property of their charity.

Annex: Interim Manager’s fees and costs of advisers

The Commission appointed the interim manager under an initially capped fee of £7,500 plus VAT and disbursements (for incidental outlays including travelling and postage) and at hourly rates thereafter.

The Commission has authorised the interim manager to draw down the following payments:

Year	Fees including VAT (£)	Disbursements including VAT (£)
2001	21,432.00	410.46
2002	2,110.89	21.09
2003	3,620.19	-
2004	1,099.81	-
2005	1,248.44	-
2006	1,851.22	-
2007	1,373.57	-
Totals	32,736.12	431.55

The fees paid by the charity and authorised by the interim manager for professional work during their appointment amounts to £8,532.88 and are shown below:

Company	Tasks undertaken	Fees including VAT (£)
Clement Keys	Dealing with payroll, reconstructing accounts, annual audit of accounts and accounting advice.	9,147.39
Total		9,147.39

Date of Publication: 01/02/2008