‘Convoluted’ financial transactions see two charity trustees removed

The founding trustees of The Suyuti Institute, a Birmingham based charity, have been disqualified by the Charity Commission, following their removal, after an investigation found them responsible for misconduct and mismanagement in its financial affairs

The inquiry, which was opened in January 2017, found that the founding trustees Zainul Siddiqi and Afifa Kiran had transferred liability for repaying the mortgage on a property owned by Siddiqi’s wife. The regulator concluded that these actions were not taken in line with the requirements of charity law and resulted in significant private benefit to one of the trustees.

The decision was taken when the charity accepted the transfer of assets and liabilities from a private trust connected to the mother of one of the trustees. That trust owned a plot of land in Manchester, on which an old cinema building had once stood, but was also responsible for repaying the mortgage on a property owned by the same trustee’s wife.

The cinema building in question had been demolished several years prior to the charity accepting the transfer.

The inquiry established that the charity’s bank account had been subject to a series of convoluted financial transactions where the charity had entered into loans from third parties, without any formal records or agreements being kept. Further, that the repayments of such loans had, on occasion, been paid to other third parties rather than the person purported to have made the loan.

On other occasions, payments had been made to the trustees themselves to repay funds they were said to have lent the charity. The inquiry established that a payment was made from the charity’s account directly to then trustee Siddiqi via a cheque for £57,250. This cheque was signed and authorised by Siddiqi alone as the sole signatory to the account.

It was explained to the inquiry that this payment represented the repayment of sums introduced by Siddiqi to the charity as loans and also included sums owed to him for other reasons. The founding trustees explained that rather than Siddiqi’s personal debtors repay him monies they owed him directly, the debtors were instructed to pay the charity to settle the outstanding amount(s).

The inquiry found that evidence provided in respect of money owed by third parties personally to Siddiqi was convoluted and confusing and did not provide an adequate audit trail to demonstrate that the repayments were legitimate.

In addition, even if the payments could be demonstrated to be legitimate, the charity’s governing document stated that cheques should be by at least two trustees, while its financial controls policy said a trustee ‘will not write or sign a cheque which is payable to… him/ herself’.

Given that Siddiqi had signed the cheque to himself as sole signatory, this led the inquiry to have serious concerns about the financial controls within the charity and the extent of control that one trustee could have over the charity’s finances. The lack of a second signatory to authorise payments out of the account represented a significant weakness in internal controls and contradicted the policy in place, undermining its purpose.

The inquiry found that £28,962 of the charity’s funds had been spent in paying the loan that secured the funds to purchase the old cinema building. The decision to accept this liability was not validly taken and there was therefore no legal basis for the founding trustees to have made such payments from the charity’s funds. Siddiqi and his wife benefitted directly by this amount as these payments paid off the mortgage on their family home.

Both founding trustees are qualified solicitors and the inquiry concluded that it was reasonable to expect that they would have understood their legal duties and responsibilities as trustees when considering whether to accept the assets and liabilities of the private trust.

The Commission used its legal powers to suspend and then remove the two individuals as trustees of the charity, which means they are disqualified from being trustees, or from holding senior management functions in any charity in England and Wales.

Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission said: ‘The public rightly expect those running charities to live up to the highest standards of behaviour and attitude. That includes demonstrating scrupulous financial probity and being able to show that all decisions are made in the best interests of the charity and its beneficiaries.

The two founding trustees of this charity failed to fulfill those expectations and were responsible for serious breaches of their charity law duties, which is why we removed them.’

The regulator has since been monitoring the work undertaken by the charity’s newly appointed trustees, who have secured repayment from the former trustee for funds he owed to the charity, implemented new financial controls and who are now producing a strategy for the charity’s future, having put its activities on hold during the investigation.

Charity inquiry: The Suyuti Institute is here.

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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