A lack of separation between an education charity and its connected parties resulted in an agreement with a service company owned by one of its trustees being ‘too generous’, the Charity Commission said.

The Durand Education Trust (DET) has been the subject of a 20-month inquiry by the commission, which the regulator said followed public interest in ensuring DET’s charitable property was being adequately safeguarded.

DET provides support to Durand Academy Trust (DAT), which operates the Durand Academy. The academy was formed in 2010 from Durand Primary School (DPS). DPS was overseen by a board of governors, who became the trustees/directors of DAT on its formation.

The academy operates on three sites owned by DET. A diagram of the relationships between the connected parties in the commission’s investigation, click here.

Among the commission’s concerns was a potential lack of separation of governance between DET and DAT, an exempt charity accountable to the Education Funding Agency.

The inquiry examined DET’s governance and trustee decision making, in particular regarding a contract awarded in 2012 to a service company owned by the then executive head teacher of Durand Academy Sir Greg Martin.

The 2012 contract involved accommodation and leisure facilities on land held by DET. Martin was also a trustee of DET and DAT at the time the contract was awarded.

The contract, covering a minimum five-year term, entitled Martin’s service company GMG Resource Management UK to annual management fees comprising a retainer of £32,362.08 increasing in line with inflation and 15 per cent of gross turnover.

The agreement also provided for special payments payable on termination of the contract, based on 50 per cent of 3.5 times the average of the previous three years’ gross turnover. Payments were to be made however the contract ends.

Findings

Publishing the inquiry’s findings today, the commission said trustees could not satisfy the regulator that the payments were reasonable overall, leading to the commission’s conclusion that the terms were too generous.

The regulator said the decision to award the 2012 contract should have been authorised by the trustees of DET, but it was in fact authorised by the trustees of DAT who did not have the authority to do it.

Trustees’ failure to fully distinguish between the various separate legal entities connected to the academy meant some of the conflicts of interest that arose because of the relationships were not identified or properly managed, the commission said.

However, the regulator did recognise that trustees had been acting according to what they felt were the best interests of the charity, and had responded to concerns about the 2012 contract by renegotiating down the termination terms. This resulted in an estimated financial benefit of around £1m to the charity and its subsidiary, the commission said.

The commission also recognised Martin’s contribution to the charity both through development of the school sites and the generation of additional income to support the school’s activities. Pupils have benefited both from the direct use of those enhanced facilities, and around £3.7m in extra income gifted from trading activities since 1997.

Response

In a statement, DET welcomed the report’s clarification that all three Durand sites are the property of the DET.

But DET laid much of the blame for the situation with the Education Funding Agency, which is the DAT’s principal regulator.

“The EFA were the prime movers in instigating the new contract in 2012, they wrongly advised Sir Greg and other trustees that both trusts were one and the same and advised Sir Greg they had no concerns about him being present on both trusts,” DET said.

Current and former trustees “faithfully followed the regulators advice and legal advice”, DET said, and therefore find it difficult to understand how they could be accused of not fully discharging their duties.

“Given that both regulators failed to give proper advice and misled the trustees over a period of years, the trustees cannot understand why they were blamed for the problems this misdirection and poor advice created.”

In a separate personal statement, Martin said he is “puzzled and bemused” that after a two year investigation the commission has not addressed the “pivotal role” the EFA played in the affair.

“The trustees of DET are lay people who should have been able to rely on the EFA as regulators and whenever there has been a decision to make they have always sought appropriate legal advice and followed it, always acting in good faith,” Martin said. “It is disappointing that this has not been recognised by the Charity Commission. It is a fact that the regulators gave wrong and misleading advice which the trustees, as lay people, had a right to believe was correct advice. It was not.”

Outcome

The commission has supplied DET with an action plan and will continue to monitor the charity.

Director of investigations, monitoring and enforcement at the Charity Commission Michelle Russell said the case is a reminder of the importance of trustees being aware of their duties and responsibilities.

“Where there is a complex arrangement of interconnected bodies, the risk of conflict of interests needs to be recognised, addressed and subsequently monitored by the charity and its trustees,” Russel said.

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