Charity inquiry: Fashion for Relief

The Charity Commission report “Public trust in Charities 2023”, identified that following a number of high-profile scandals involving charities between 2015- 2020, public confidence in the third sector faced a significant decline.

“In short, we may be in a new era when it comes to trust in charity…one in which stubborn doubts remain even though the value of charity is widely recognised.”

It is therefore of no surprise, the Charity Commission has sought to hold trustees to account, particularly where their actions have not only caused loss to a charity, but have further eroded and undermined the confidence of the general public.

On 26 September 2024, the Charity Commission published its inquiry into the charity, Fashion for Relief. The Charity Commission subsequently disqualified the trustees from holding a charity trusteeship as follows: Bianka Hellmich (nine years), Naomi Campbell (five years), and Veronica Chou (four years).

The detailed inquiry of the Charity Commission identified there had been serious misconduct and/ or mismanagement in the administration of the charity. It was ‘poorly governed and managed’, and there had been a breach in trust in relation to trustee expenses. The charity has since been ‘wound up’, and removed from the register of charities.

What lessons can we learn from the inquiry?

Regulation and engagement with the Charity Commission

The Charity Commission first identified concerns with the management of the charity following a review of the 2018 annual accounts. The Charity Commission launched a Compliance Visit and Inspection case into the charity on 2 September 2020. Having identified a number of issues the Charity Commission issued an Action Plan, to bring the regulatory matters up to standard. The Action Plan set out a number of steps for the trustees to follow, with a deadline of 9 September 2021 for a response and evidence of compliance.

The deadline was not met, and following prompting by the Charity Commission, the trustees provided a limited response. This evidenced they had partially complied with the Action Plan. As a result, the Charity Commission opened a full inquiry into the charity on 8 November 2021. On review, it was found that the trustees had persistently failed to meet their legal duty and responsibility to file the charity’s statutory returns on time in the years (2016, 2017, 2018 and 2020). The inquiry confirmed it is a criminal offence under section 173 of the Charities Act 2011 to fail to file a charity’s annual accounts within the statutory 10 month deadline. 

Charity trustees should take note that where annual returns are not submitted within the relevant deadline, this will be seen as a ‘red flag’ to the Charity Commission. Further investigations into potential underlying issues within the management of the charity may be raised. Trustees should ensure they take all necessary steps to engage and comply with the recommendations of the Charity Commission to mitigate further action.

Fundraising expenses

The Charity Commission asked the trustees to provide a breakdown of how the charity income was being applied. It was found that 72% of all donations and income received by charity were spent on events and fundraising activities. Comparatively, only 10% was spent on issuing grants in furtherance of the charitable purposes, and 18% was spent on governance and operations.

There is no limit as to how much a charity can spend on fundraising (as this may vary according to the nature of the charity). However, the trustees have a responsibility to ensure they achieve the best terms available and are transparent about their expenditure. The Charity Commission found no evidence that the trustees in this case had reviewed and considered whether the fundraising activities (and the cost of the same), were reasonable or relative to the profits generated, or whether they were in the best interest of the charity.

Trustees have a duty to manage and frequently review the charity finances. Any cost/ benefit analysis should be adequately documented by way of minutes and resolutions. In turn, this documentation should be available in the event queries are raised at a later date. 

Expenditure

The trustees incurred the following expenses, all of which were paid for by the charity:

• Euro 14,800 for a flight from London to Nice to transport art and jewellery to a fundraising event. The trustees stated the cost of the flight was discounted and organised by a donor, however, there was no evidence or record keeping to support this statement. There was also no evidence of a second quote the trustees said they had obtained, or a record of the decision making process when deciding to spend this considerable outgoing. 
• Euro 9,4000 was spend on 3 nights’ accommodation for Ms Cambell during the event in Nice (significantly more than for the co- trustees). The trustees argued that a ‘value for money’ exercise was carried out and a travel agency was used to obtain best prices; however, there was no evidence or record keeping to document this decision making process. The trustees further suggested that by using this hotel, there was a saving on the cost of providing personal security to Ms Cambell. It was found the trustees were unable to demonstrate that this was an appropriate use of the charity’s resources. 

Many decisions taken by trustees can be called into question and may well fall into a ‘grey’ category. It is therefore essential that trustees document and evidence their decision making process. These can potentially be used to demonstrate how their conclusions were ‘reasonable’ and appropriate for the charity.

Management of the Charity’s finances

At the outset of the inquiry, the balance of the charity assets was found to be £106,691.74. A payment of £8,640 was authorised by the Charity Commission; however various other payment requests were submitted which, if paid, would have left the charity with less than £1,000. The inquiry found that the trustees had failed to manage the charity’s limited resources appropriately. Again, the Charity Commission were unable to find sufficient evidence of the decision making processes carried out by the trustees when incurring significant expenses. The charity was unable to meet its liabilities.

The charity assets were not held in a designated bank account, but instead were held by professional advisors. Expenditure was made by the professional advisors on behalf of the charity. During the enquiry, £54,236.15 was recovered to the charity as a result of the funds being misapplied. There were no written resolutions or other documents to record how and why the funds were paid out. The funds were only recovered as a result of the inquiry, which was all the more important given there were unpaid creditors.

Trustees must have control and management over charity assets. There is duty to ensure the charity remains solvent, and sufficient policies should be in place to ensure there are adequate reserves for emergency situations.

Payments to Trustees

The charity’s constitution specifically prohibited its trustees from being paid for goods or services without the consent of the Court or Charity Commission. “Trustee B” was paid £150,000 per annum for consultancy fees, with a 10% commission on all sponsorships received. No such consent was sought and the Charity Commission was unable to apply retrospective consent. The inquiry found this to be breach of trust.

This was further exacerbated by the fact “Trustee B” was legally qualified and should have been “sufficiently diligent” to the legal and regulatory framework. It should be noted, “Trustee B” returned these funds to the charity during the course of the inquiry.

Importantly, the trustees stated they had taken legal advice on whether Trustee B could be remunerated, and no issues were identified by their professional advisors. The inquiry does not go into detail of the advice they sought or received; however, the Charity Commission found this was not sufficient to absolve the trustees, who had signed a trustee declaration when registering the charity, and therefore “ought to have been aware of the rules of the charity”.

Trustees often rely on professional advice as a means of justifying and supporting their decision- making process. In many circumstances, this is actively required and recommended by both statute and Charity Commission guidance. Trustees should be careful to ensure they take clear and intentional advice, obtained from suitable professional advisors. Trustees should clearly document how their decisions have been reached, referring to professional advice as necessary. Provided trustees have obtained suitable professional advice, this can be relied upon and used to evidence that they have acted reasonably and in good faith.