The charity is based in Preston and aims are to relieve financial hardship of people who have served in the armed forces and who are now suffering from physical or mental disabilities, by making grants.

The current investigation was prompted by information given to the Commission in June 2016 regarding a proposed disposal of land owned by the charity, which raised concerns that the land had been undervalued and could potentially be sold to a connected party.

In addition, there were regulatory concerns regarding the founder of the charity receiving significant personal benefit through the charity, along with a complaint that the charity was only receiving 20% of funds raised through a fundraising company.

As some of the concerns raised were similar to those addressed in a previous compliance case which was closed on 24 February 2016 with an action plan issued to the charity, the Commission visited the charity’s premises on at the beginning of October.

At this point, it was established that the action plan had not been complied with and that there were clear on-going serious regulatory concerns relating to the administration of the charity by the trustees and the private benefit obtained by the founder.

This new inquiry will examine whether there has been any misconduct or mismanagement in the administration of the charity, particularly in relation to lease arrangements between the charity and third parties; whether the trustees have acted prudently in relation to the financial administration and management of the charity; and whether the charity has been used for personal unauthorised benefit.

In addition, the inquiry will review to what extent the action plan issued April 2015 has been complied with. This was intended to address earlier complaints to the Commission that the public was being misled and were not being properly informed that only 20% of the funds raised went to the charity.

Its investigation at the time identified serious regulatory concerns including a very low level of charitable expenditure, substantial spending outside the charity’s objects, poor governance, conflicts of interest and an insufficient focus on providing grants to beneficiaries. The charity had entered into contracts and agreements without due diligence or proper records and there were poor financial controls.

The charity’s income in 2015 was £500,000, but only £10,000 had been used in to further the charity’s objects by providing grants. There were eight employees, with wages and office costs of £155,000.

The charity had signed a fundraising agreement with Targeted Management Ltd (TML) for a five year term which stipulated that the charity would be invoiced for 80% of all the funds they raised. TML managed the charity’s fundraising and claimed that this arrangement did not bring them within the regulations that cover commercial participators and fundraisers. At the time of the visit, the average income was £20,000 a week with a potential income of £1m a year. There was no evidence of fraud or theft in the charity.

The Commission stated that this was not acceptable and that there was likely to be justifiable public concern and damage to the charity’s reputation if the ratio of income to charitable expenditure remained so low.

The trustees’ actions to address these concerns will form part of the new inquiry, and the Commission has said it will produce a report in due course.

Our Local Heroes Foundation: Charity Commission case report is here.