The BIETEC Learning and Development Training Centre charity (Registered charity number: 1108129) was set up in Birmingham in 2004. In June 2013 the Commission identified serious concerns regarding the charity’s governance. This included relationships between the charity and a private company called BIETTEC, which was owned and operated by two of the charity’s trustees.

It also identified significant discrepancies between the income and expenditure recorded in the charity’s publicly available accounts and what had actually flowed through their bank accounts.

Following a period of non-compliance by the trustees the Commission opened a statutory inquiry in July 2014 which looked at the charity’s financial management and whether it was being used for private benefit.

The Commission identified that between 2009 and 2013, £969,319 of income and £719,836 of expenditure had passed through the charity’s bank account but had not been declared. The trustees explained that these were funds intended for the private company BIETTEC that had been ‘misbanked’ and which were then redirected to the private company.

The inquiry was satisfied that there was no misapplication of these funds, but found that the trustees were negligent as they failed to address this problem for over three years.

The inquiry identified that the charity had written off a figure of £279,278, which was recorded in the charity’s accounts for the financial year ending 31 March 2010. On the face of the accounts, this raised a serious regulatory concern that the charity had suffered a material loss, which had been written off.

The inquiry established that the write off recorded in the accounts related to a failed attempt to minimise the tax liability of BIETTEC. The trustees reported to the inquiry that their professional advisers had recommended BIETTEC made a transfer of £488,000 to the charity. An entry for that sum was recorded in the charity’s accounts for the financial year ending 31 March 2007.

However the inquiry established that the entry in the accounts of £488,000 was simply a book entry, which was never actually paid to or received by the charity. The trustees explained to the inquiry that the book entry was never adjusted prior to 2010 because of ongoing discussions with HMRC as to whether the transaction would be allowable.

The inquiry established that the £279,278 ‘write off’ was the remaining balance of the notional transfer between BIETTEC and that the reasons given for the accounting adjustment for the financial year ending 31 March 2010 were factually incorrect. Whilst the charity did not appear to suffer a material or actual financial loss, as had first been indicated, the commission is not satisfied that the accounts presented to the commission presented an accurate position of the charity’s financial affairs during that period.

The Commission found that there was a lack of separation between the private company BIETTEC and the charity. The Commission also had a material concern that the charity was used to obtain a more favourable tax position for the private company, in which two of the trustees had a beneficial interest.

In addition, the inquiry also identified apparent unauthorised benefits to two of the trustees in an arrangement with another private company, of which the two trustees were also directors and shareholders.

The charity had rented office space from the company at a cost of £10,350, a decision the inquiry could find no adequate explanation for and in which the trustees had a conflict of interest. Following the inquiry’s questioning, two of the trustees have voluntarily repaid a proportion of the funds (£2,895) to the charity.

The Commission also concluded that there were significant and inherent weaknesses in the charity’s governance and management that subjected the charity’s funds to undue risk of misappropriation or misapplication.

The inquiry found that the charity had for some time been applying its funds outside of its charitable purposes by directing funds to Pakistan for the purpose of relieving poverty. The charity was unable to adequately account for several thousands of pounds of payments made to Pakistan.

The Commission concluded that there was mismanagement of the charity by the trustees as they did not have sufficient oversight or control over the charity’s finances. There was also an environment in which a lack of separation between the trustee’s personal, commercial and charitable interests allowed conflicts of interest to go unchecked and unmanaged, resulting in unauthorised private benefits.

As a result, the Commission has issued an order directing the charity to take steps to improve its administration and governance. This includes a review of the trustee board and trustee training needs, as well as steps to review its governance policies and record keeping. The Commission will monitor the progress made by the trustees to ensure full compliance with the order.

Carl Mehta, head of investigations and enforcement at the Charity Commission, said: An overriding principle of charity law is that trustees must act in the charity’s best interest at all times. Where decisions need to be made in which a trustee has a personal or other interest, this is a conflict of interest and must be identified and managed appropriately in order to comply with the legal duties of trustees.

‘Failure to comply with the Commission’s request to produce information or documents by the times specified, as was the case here, may be taken as evidence of misconduct or mismanagement in the administration of the charity.’

BIETEC Learning and Development Training Centre: Inquiry report is here.

Details about the charity on the Charity Commission site are here