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Labour's illegal charity donor was £3.4m in the red

Finance | Ian Allsop | 10 Sep 2008

The charity which had an illegal donation it made to the Labour Party returned was being kept afloat by its chairman, according to its most recent accounts.

Last week the Charity Commission oversaw the return of a donation made by Catz Club to the Labour Party, after being alerted to the gift by Conservative charities spokesman Greg Clark.

Catz Club, which goes by the working name Schoolfriend etc, was registered in 2004 to provide out-of-school services to children. Highly commended in the best new charity category at the Charity Times Awards 2007, it runs breakfast, after-school and holiday clubs for children across the country. 

Catz Club’s income for the financial year ending September 2006 was £853,539 and its expenditure was £4,257,633.  In its trustees’ report it stated that “although the charity has incurred a loss, the chairman, Mr A [Anthony] Mitchell, is continuing to provide the financial support to the trustees’ programme of rolling out clubs in rural locations and areas of deprivation, where local government funding is often unavailable”.

On its website, the charity lists its fundraising contact as Amanda Delew, Labour’s former director of high-value fundraising and previous director of the Giving Campaign.

Auditor was satisfied about chairman’s support

The charity’s auditor, Finniston & Co, said it had considered the charity’s ability to operate as a going concern in its auditor’s report due to the fact that its liabilities exceeded assets by almost £4.3m.

“These conditions, which have arisen from the receipt of loans from Futurebuilders to finance the infrastructure costs of the company, and from the chairman to support the development of new clubs, might cast doubt about the company’s ability to continue as a going concern. However, we are satisfied that the company will continue to receive financial support from the chairman, sufficient for its projected working capital needs.”

Its accounts for the financial year ending September 2007 are overdue, and this non-submission is being followed up separately by the Commission.

The Commission received a complaint on 29 August 2008 about a £7,500 donation the charity had apparently made to the Labour Party, despite the fact that the Commission’s guidelines on political campaigning prohibit political donations or other financial support to a political party.

The Commission immediately attempted to contact the charity by telephone but was unsuccessful and issued a letter asking the charity to get in touch urgently.  Contact was made with the charity on 1 September and it confirmed that it had donated £7,500 to the Labour Party. 

Charity blamed ‘admin error’

It claimed that the payment was “an administrative error” that should have been made by its trading subsidiary, Catz Club Services. However, the Commission pointed out that as the trading subsidiary is a charitable asset owned by the charity, it was not permissible for it to make a donation either.

It was discovered that £15,000 had been paid to the Labour Party in total, half of which was a general donation to the party and half to attend a Labour Party event where the charity lobbied senior politicians to encourage increased funding for after-school childcare facilities. Catz Club also explained that it was arranging to attend meetings and events with senior Conservative Party members for similar purposes, although to date it had only done so through one-to-one meetings.

On 3 September, the Catz Club assured the Commission that the Labour Party had confirmed it would be issuing a cheque reimbursing the full £15,000.

Donation of ‘serious concern’ to Charity Commission

Andrew Hind, chief executive of the Charity Commission, said: “Donations to political parties are absolutely prohibited for charities, so this was of serious concern to us. That’s why resolving the issue was a priority, and the charity confirmed the money would be returned to it within days of the concern first being raised.

“This is a good result for the charity, and means we don’t have to look at the question of liability – in a similar situation, if an inappropriate donation was not returned, we would require the trustees to personally repay the misapplied funds so as to ensure that the charity doesn’t lose out.
 
“We also think that it’s in the public interest to explain why this was such a serious matter for us, which is why we’ve also published the regulatory case report.”

Labour ‘happy to return donation’

A Labour Party spokesperson said: “The Electoral Commission has confirmed that the Labour Party did nothing wrong in accepting this donation, which is allowed under party funding rules. We accepted this donation in good faith, but once Catz Club were told that they had inadvertently breached Charity Commission rules, we were asked to return the donation, something we were happy to do.”

The regulatory case report on Catz Club is available at http://www.charitycommission.gov.uk/investigations/inquiryreports/inqreps.asp.

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