Commission inquiries highlight importance of safeguarding and correctly applying charity funds

In early September 2024, the Charity Commission concluded its almost three-year inquiry into The Mahfouz Foundation, the findings of which highlight the importance of safeguarding charity funds and the onus the Commission puts on charity Trustees to exercise a proper degree of control of their charities’ bank accounts.

The Mahfouz Foundation (‘the Foundation’) was a charity whose objects were to advance the history, literature, language, institutions and culture of the Middle East. In September 2021, the Commission became aware of a series of media articles which suggested that donations intended for The King’s Foundation (formerly The Prince’s Foundation) but paid to the Mahfouz Foundation were in fact partly transferred elsewhere by the Foundation. The inquiry established that the Foundation’s bank account was used by other parties to conduct transactions that were not linked to the Foundation’s activities. On further examination, the inquiry identified ‘extensive’ further example of the trustees of the Foundation allowing its bank account to be used for the receipt and expenditure of funds not intended for the Foundation, nor in relation to the Foundation's charitable objects, including receipts and expenditure for the furtherance of the personal interests of the Foundation’s founder.

Furthermore, the inquiry found that funds received by the Foundation for its charitable purposes had been misapplied. However, the inquiry did not find evidence that the trustees had personally benefitted in any way from the misapplications.

The conclusions of the inquiry included:

1. The then trustees did not exercise sufficient control over the Foundation’s bank account.
2. Permitting individuals who were not trustees or staff to represent the Foundation in its dealings with other entities exposed the Foundation to risk. This risk later materialised and caused reputational harm once reported in the national media.
3. This risk was undue in that it was not accompanied by any potential benefit for the Foundation.
4. The actions of the then trustees amounted to misconduct and mismanagement in the administration of the Foundation, and represented a breach in the trustees’ duty to apply the Foundation’s funds solely in furtherance of its specific charitable objects.

As a result of the inquiry, a trustee was disqualified from serving as a trustee or holding a senior management position in a charity for 12 years, over £100,000 of funds were returned to donors, almost £50,000 of misapplied funds were recovered from trustees for use by charities with similar objects, and the Foundation ceased to operate.

The Charity Commission has made similar findings from other inquiries, including those into the Burke’s Peerage Foundation and Salvation Proclaimers Ministries Limited, highlighting the significance it places on the appropriate application of charity funds and the strong actions it is willing to take when trustees fail to perform these essential duties.

Trustees must ensure that their charity has adequate controls in place in relation to its charity’s bank accounts, and are strongly advised to consider the Commission’s ‘Internal Financial Controls for Charities (CC8)’ guidance in doing so.