BusinessCorporate FinanceNovas Scarman Group: a curious charity case

Novas Scarman Group: a curious charity case

Despite accusations of financial mismanagement, a charity for the homeless was picked form hundreds of applicants to receive a government grant

Hazel Blears

Charity case: Hazel Blears approved a grant to the Novas Scarman Group

It began with an announcement most would be hard pressed to interpret as
anything but good news.

On 1 April, Hazel Blears stood up in parliament to announce how the
government would support charities with a £9.25m grant.

‘Last July, through the empowerment white paper, I outlined my proposals to
support 20 to 25 third sector organisations,’ the then secretary of state for
communities and local government said.

‘Today, I am pleased to announce to the house the 21 third sector
organisations that will receive grants under the empowerment fund.’

The eighth name on her list was the Novas Scarman Group, a charity which
describes itself as a provider of accommodation for homeless people. The charity
competed with 157 other third sector organisations for a share of the grant
which was decided by Blears and her department’s staff.

When officials received Novas’ three-page application, they were already
familiar with the charity’s past. Novas’ troubles made headlines in October,
2008 when the government’s social housing regulator, the Housing Commission, now
known as the Tenant Services Authority, told representatives from Novas that the
charity would be under investigation for potential financial mismanagement.

The TSA appointed firm BDO Stoy Hayward to conduct the inquiry and, by 15
December, the firm had reached some preliminary conclusions about Novas,
published in a confidential executive summary.

The 36-page summary was scathing. It alleged wide-spread financial
mismanagement and went on to make a number of about salacious behaviour by
individuals within the company ­ claims which where later discarded.

The overwhelming picture was that of a company teetering on the edge of
collapse. ‘Novas runs the imminent risk of being insolvent,’ the report stated.

It wasn’t the only issue facing the charity. Novas had also failed to file
accounts for a recently joined affiliate, The Scarman Trust, which had not
handed over its finances to the charity regulator since 2007. The Scarman Trust
was formally deregistered on 16 June.

With no accounts for the Scarman Trust and an investigation hanging over
Novas, the department for communities and local government chose the charity
from 157 contenders to be a recipient of the government’s lucrative empowerment
fund.

Novas said it didn’t try to hide anything during the application process and
was ‘very clear about the risks facing the organisation’.

In a statement the DCLG admits it was ‘aware of the issues relating to Novas
Scarman Group and the investigation by the TSA’, but says it was not willing to
pass judgment until the investigation was officially over.

‘At that stage, the TSA had not completed its investigation nor had it made
any public pronouncement on its findings ­ that did not happen until 15 July,’ a
spokeswoman said.

The TSA investigation con-cluded that there had been mismanagement in the
form of a collective failure by the Novas board and executive team to exercise
proper management of finances ‘leading to a position during December 2008 where
the group faced major financial difficulties, including serious cash flow
problems’.

The DCLG is now keen to point out that no funding has yet been given to Novas
Scarman Group.

‘Before handing over any funding, we will assure ourselves about the ability
of each organisation to deliver their commitments under the empowerment fund, as
well as ensuring that financial and governance arrangements are robust and meet
the necessary legal and other requirements,’ a spokeswoman said.

Novas later apologised ‘unreservedly’ for its financial management failings
in 2008 but said it is now in a healthier financial position and the troubles of
last year are behind it.

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