The East London Mosque Trust has been dealt an official warning by the Charity Commission for “failing to responsibly manage” charity funds after the loss of a £1million investment.
The charity watchdog issued the official warning under section 75A of the Charities Act 2011 claiming that there had been a “failure to manage the charity’s resources responsibly” in relation to a huge investment, which resulted in a loss of an eye-watering £1million of the charity’s funds.
East London Mosque says that it was then victim of a sophisticated fraud.
Following a lengthy investigation into the East London Mosque Trust (ELMT), the commission found that there had also been a “failure by the trustees at the time” to act with “reasonable care and skill” by not exercising adequate oversight of the charity’s activities in relation to the investment.
The charity was found to have failed to have conducted all the “appropriate due diligence checks” on the investor, personal guarantors and connected parties leading to the loss.
Along with the official warning, the regulator has given the trust six months to take action, or it may face “further scrutiny.”
Founded in 1910, the East London charity, which manages the famous East London Mosque, had invested £1m in an NHS-approved supplier, expecting a 20% return in six months.
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However, according to the commission, this supplier was forced into administration, resulting in a loss for the charity.
The charity’s trustees did report the matter to the commission in February 2023, which the regulator reviewed as part of a “wider engagement” with the charity.
However, the commission found the charity’s due diligence regarding the investment deal was “not sufficiently thorough.”
It found that the trustees’ lacked effective oversight and failed to properly scrutinise key documents concerning the investment.
The commission claims it had previously told the charity to ensure it had sufficient control over its funds and had warned of the potential for further action.
The warning orders the charity to ensure financial controls are put in place and that there is oversight of the charity’s funds to protect the charity’s assets going forward.
The ELMT is also expected to conduct an independent review of their governance and report back to the commission.
The regulator also said it expects the ELMT to do all it reasonably can to recover the lost funds but also admits “it is unlikely that the trustees will be able to recover the charity’s funds.”
On April 23, the ELMT released a statement claiming that the ELMT and the other investors were the “victim of a sophisticated fraud.”
The statement also alleged that the company they invested in is the “subject of an ongoing police investigation.”
“ELMT made an investment, in the same way as some other large companies and individuals, into a company that later went into liquidation. Despite conducting due diligence at the time, ELMT and the other investors were the victim of a sophisticated fraud, and that company is the subject of an ongoing Police investigation.
“ELMT has already put in place a stricter investment policy and strengthened its governance and processes following an independent review. ELMT is fully committed to implementing any directions or further recommendations from the Charity Commission. Our long-standing commitment to effective stewardship has ensured that there was no interruption to the Mosque’s services or activities. We continue to invest in our community, including delivering the recent major expansion works to the prayer halls.”
But commenting on the warning, Charity Commission Head of Compliance Visits and Inspections, Joshua Farbridge, said: “When people donate to a charity, they put their faith in those running it to manage those funds with care and in line with its aims. In this case, we found the trustees lacked the oversight we’d expect of such a large investment, nor did they ensure thorough due diligence had been undertaken.
“The East London Mosque Trust has been advised on more than one occasion about having appropriate oversight of funds and so we have now issued a formal warning. We expect all charities to promptly act on steps provided in an Official Warning and will be monitoring this charity’s progress.”
5Pillars has reached out to East London Mosque for further comment about the warning, the commission’s findings and whether the funds may be recovered in any capacity.
