17/12/09

By Andrew Holt

The Charity Commission has today published the results of its inquiry into Catz Club, revealing over-ambitious growth left the charity in deficit.

Catz Club is a charitable company set up to advance education and provide for the recreation of children of school age.

It ran breakfast and after-school clubs across the country during school hours and school holidays. This included using inter-active numeracy and literacy computer software to run activities.

The inquiry found that, having received a grant and loan package from Futurebuilders, Catz Club had embarked on a path of rapid expansion.

A low level of take-up at the clubs and the repayment structure of the loan led to the charity getting into financial difficulties.

At the end of September 2008 the charity had a cumulative deficit of just over £10 million.

Informal interest-free loans have been made by the chair of Trustees to the charity, and the 2008 accounts show that the Charity has outstanding loans to the Chair totalling over £13 million.

The Commission accepted the trustees' verbal accounts of how decisions were made, but advised that these agreements should have been formalised in writing.

The Inquiry found that the trustees had entered into the funding agreement with full knowledge of the terms of the funding package, and the Commission is critical of them in this respect. This case illustrates the risks associated with ambitious expansion.

This can result in unsustainable growth that may put the financial status and long-term viability of a charity at risk.

The Commission's inquiry also found that the trustees did not recognise or adequately manage conflicts of interest that arose as a result of the relationship between the founders of the charity, the charity, and a software company that was established by the founders of the charity.

The trustees had also failed to keep adequate records of their decision-making, which unnecessarily exposed their decisions to the risk of challenge.

In view of these complicated arrangements, the Commission was critical of the trustees in this respect.

The inquiry also found that the charity breached charity law by making a £5,000 donation to the Labour party in 2007.

This was in addition to a donation made by the Charity to the Labour party which was subject to a previous Commission regulatory compliance report.

The discovery of the donation, as well as other regulatory concerns about financial management and governance, led the charity regulator to open a statutory inquiry.

A charity cannot make political donations, give other financial support or support in kind to a political party, as the Commission's guidance on campaigning and political activity makes clear.

The trustees have informed the Commission of their intention to wind the charity down on a solvent basis and establish a Community Interest Company, which is a non-charitable entity.

The Commission will continue to engage with the trustees to ensure that they continue to properly discharge their duties towards the charity and its assets.

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