What happens when charities don’t spend their money on the things they are meant to?

Supermodel Naomi Campbell has been disqualified from acting as a charity trustee for five years by the UK regulator, after serious mismanagement was found to have taken place at Fashion For Relief. Campbell set up the charity in 2005; two other trustees, Bianka Hellmich and Veronica Chou, were disqualified for nine and four years respectively.

While the charity was established to support humanitarian causes worldwide, apparently much of the money raised was spent on items including a luxury hotel, spa, security and cigarettes for Campbell. A mere 8.5% of its expenditure went towards charitable activity between 2016 and 2022. Campbell has since said she was “not in control” of the charity, and is investigating what had gone wrong.

Misuse of charity funds could be driven by many factors, including charity trustees being out of their depth on technical compliance, or a failure to separate the personal finances of trustees from those of the charity.

But whatever the motivation, using charitable donations for personal purposes is contrary to English and Welsh laws stretching back centuries. The focus of trustees should be on public benefit.

Those harmed by the misapplication of charity funds are most obviously the people and causes that would have been supported by the charity’s public benefit objectives. But the damage can be wider and more pernicious, affecting charity as a concept.

Unfortunately, charity scandals are not new. As well as the case of Campbell’s fashion charity, there is the ongoing statutory inquiry into The Captain Tom Foundation and associated family businesses by the Charity Commission, which started in June 2022.

Like Campbell, two trustees (including Captain Tom’s daughter, Hannah Ingram-Moore) have already been disqualified from acting as charity trustees. But these high-profile cases are just the tip of the iceberg.

In May 2022, the charity tribunal upheld a decision to disqualify charity trustee Preston Lennox for 15 years. Judge Damien McMahon held that Lennox was properly disqualified in relation to allegations of misconduct and mismanagement in the administration of the charity Thrift Urban Housing Ltd. Lennox had reportedly used the charity’s funds to spend £350,000 over nine years on his medical expenses, personal costs including his mortgage, and a Range Rover. As a result of his disqualification, Lennox cannot act as a charity trustee until 2037.

In July 2022, the Charity Commission criticised One Community Organisation, a charity to help disadvantaged young people. Payments of over £280,000 were made to the chair of trustees, Delroy Wilson, who later said there were “no fraudulent activities” and the payments had arisen because the charity’s own bank account did not come with a bank card. There were no supporting documents for where £100,000 of this money had gone.

The Charity Commission’s statutory inquiry eventually found there had been misconduct and mismanagement in the administration of the charity by the trustees, but Wilson was not banned in this instance.

And in 2022, the commission identified mismanagement at Support For Heroes – a veterans charity that had paid a large amount of its charitable funds to a private company, Targeted Management Ltd. The inquiry found the company was entitled to receive 67% of the gross proceeds raised from the public – but that it had used £223,000 towards its charitable purposes between 2015 and 2017, from donations of £1,318,039. This represented approximately 17% of the gross income over the period, meaning that service personnel and their families, in dire need of help, had lost out on valuable support.

Public benefit not private misuse

Charities are created and legally obliged to provide “public benefit” – a technical legal term. Providing public benefit means charities receive, among other things, tax breaks.

Trustees should be concentrating their efforts and their charity’s resources towards public benefit. They should not be using the charity form, structure and assets to benefit themselves. This kind of activity is prohibited by legal rules based on fiduciary duties of trustees – meaning they must put the interests of the charity before their own. In essence, they should behave ethically.

As Campbell and Hannah Ingram-Moore have discovered, the Charity Commission has the power to disqualify charity trustees. Compensation orders can also follow, which return money to the charity from the trustees. But these are rare. Charity trustees may also be pursued for any breaches of their fiduciary duty towards the charity. This is a civil remedy that can return money to the charity.

And then, of course, there’s the public disgust following a disqualification.

But this does not necessarily tackle the underlying problem, namely human behaviour. As long as some charity trustees cross the line, regulators will be forced to bring these individuals to book in the public interest.

In a cost of living crisis, those who are most vulnerable need charity where state help is not available – charities provide invaluable assistance to millions.

The vast majority of charities are well run, and the Charity Commission is an engaged and proactive regulator. It maintains a very useful public register of charities – a resource for potential donors which gives details of governance structures, accounts and spending. But, as with many other government departments, the Charity Commission is under-resourced.

There will always be bad apples in the charity sector. But if we are going to make sure as much of the donated money as possible gets to those it is meant to help, we need to ensure the Charity Commission is adequately funded to do its important work.