Inquiry report: Island Health Trust and lessons for the wider sector

The Charity Commission has recently published its inquiry report into Island Health Trust. Island Health Trust was set up to promote the provision of primary healthcare, establish centres to provide healthcare within the London Boroughs of Tower Hamlets and Newham, and provide grants for health-related education and facilities. The Commission started monitoring the charity in 2017 following concerns raised about how charity funds were being used and potential private benefit to one or more trustees. The Commission had additional concerns which led it to escalate its engagement to a formal inquiry in November 2017, with the results published on 3 July following a long-running investigation. You can read the report here. The findings and conclusions of the inquiry as set out in this report are those of the Commission and not necessarily agreed by all former trustees.

The Charity Commission’s report notes that the charity was approached in 2014 by a property development company considering an option on land owned by the charity. The former Chair and former trustees felt that it was important that they were part of redevelopment discussions due to the potential impact of the redevelopment on the charity. Though speculative, the potential financial benefits arising from this redevelopment would have been significant if they went ahead and engaged a consultancy company to act on their behalf. Ultimately, the opportunities did not progress. The inquiry was not satisfied that the decision to enter into the contract with the consultancy company was properly taken and in the best interests of the charity, or that the charity exercised sufficient oversight and adequately monitored its performance. The Commission concluded that “the speculative expenditure of charitable funds in connection with the property deal which did not go ahead, resulted from poor decision making by the former trustees led by the former Chair. The amount of expenditure involved was disproportionate in terms of the size, income and activities of the charity. It also resulted in a high level of public interest which had a detrimental impact on the reputation of the charity, including negative media coverage and complaints made to the Commission regarding the administration and management of the charity, as well as allegations of misuse of funds.”

Additionally, the report says that trustees also failed to follow clear legal advice when, as part of a strategic review, they decided that the charity should expand its work to incorporate social care activities, including initiating social enterprise employment schemes as a way of improving public health. The advice was that the charity’s current objects would need amending if they were to continue with their plans for the charity’s strategic development. The report notes that “Despite this clear advice and the acknowledgment of the trustees that their objects needed amending, an application for consent for any changes to those objects was never made to the Commission.”

There were conflicts of interest when the charity appointed a consultant (the former chair) in relation to both financial conflicts and loyalty conflicts. The inquiry found that the overall expenditure on consultants and advisers by the charity was “excessive, unreasonable and disproportionate to any value that the charity received”. There were also unauthorised trustee benefits as the majority of the trustee board were being remunerated. In order for payments to a trustee to comply with section 185 of the Charities Act 2011, the trustees receiving remuneration must be in a minority. The Charity Commission was not satisfied that the decisions taken in relation to these payments were properly taken in the interests of the charity.

The Commission concluded that there has been serious misconduct and/or mismanagement in the administration of the charity by the former trustees and the former Chair. They breached their legal trustee duties and responsibilities by failing to act in the best interests of the charity and acting outside the powers of the governing document, in particular the objects of the charity. A large proportion of the charity’s income was expended on strategic development and the speculative property deal which did not go ahead – funds which could have been used to further the objects of the charity. The former trustees and the former Chair failed to exercise the requisite care and skill in managing the charity’s resources. During the inquiry, an interim manager was appointed to the inclusion of trustees in post at the relevant time (who had no part in the issues being examined under the inquiry). The interim manager has since been discharged.

Lessons for the wider sector include:

• Managing conflicts of interest: Trustees must always act in the best interests of the charity. Conflicts of interest or loyalty can lead to decisions which are not in the best interests of the charity and can lead to difficulties and damage to its reputation. A conflict of interest is any situation in which a trustee’s personal interests or loyalties could, or could be seen to, prevent them from making a decision only in the best interests of the charity. Trustees must recognise and manage conflicts of interest and loyalty as they arise. They must be mindful of mixing their role with the charity and their private business affairs, particularly when a benefit may be inferred to that business or the trustee, whether directly or indirectly. Trustees must follow any conflict of interest or loyalty provision in their governing document.

• Trustee expenses and payments: Charity law states that trustees cannot receive any benefit from their charity in return for any service they provide to it, or enter into any self-dealing transactions unless they have the legal authority to do so. This may come from the charity’s governing document or, if there is no such provision in the governing document, the Commission or the Courts. The Commission’s guidance on this can be read here: Charities paying a trustee or a connected person: understand the rules (CC11).

• Furthering charitable objects: Trustees have a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects.