Karate Issues - Sport England and the Dutton Enquiry

Timothy Hutton QC, who led The Dutton Enquiry has presented his report to Sport England. Karate England features within the report.

If you would like to read the Statement from Richard Lewis in response to the report by Timothy Dutton QC into the World Class Payments Bureau then please click the link below.


Copies of the report

The following is taken verbatim from the Timothy Hutton QC report - here is what it states about Karate.

214. Most of the publicity and concern expressed in public about the World Class Payments Bureau as involved the funding of English Karate during the period 2005-2006. The press articles (for example, The Times, Wednesday, November 1st 2006) raised questions surrounding payments made during the period when the World Class Payments Bureau was making payments to a company Karate England (2005) Ltd. In fact, Sport England supported karate as a sport in some form or other during the late 1990s and began to make payments to the sport of karate through the World Class Payments Bureau in the year 31 March 2000 – 31 March 2001, in which time £260,691 was paid into the World Class Payments Bureau bank account and £251,122 was paid out. I have therefore examined the whole of the funding of the sport of karate through the World Class Payments Bureau throughout the time that the Bureau existed.

215. I have reached the conclusion that within the sport of karate different people were pursuing different agendas in circumstances where they were not ultimately prepared to work together for the good of the sport as a whole and that the efforts by those within Sport England to bring the different factions together so as to have a unified governing body for the whole of karate turned out to be wasted. It was, of course, worthwhile for Sport England to try to obtain coordination, cooperation, and good governance across the sport of karate. However, by the spring of 2002 this had not happened and the further efforts which were made between 2004 and 2006 turned into disaster. During the period that Roger Draper was Chief Executive of Sport England, he wanted to encourage karate to become unified. The problem with the idea was that those involved in the sport itself, and those introduced into the sport from 2004 onwards at administration level, were not able to achieve the objective. Over the course of the period with which I am dealing there was paid out of the World Class Payments Bureau in favour of karate in its different guises £2,224,337. In theory, this money was intended to ensure that there was greater sustained participation in the sport of karate and greater medal success. So far as I can tell from the volume of papers I have examined and the witnesses I have spoken to, although Mr Halifihi considers there were some improvements, neither objective was achieved.

The Sport of Karate – A Brief Background
216. Amongst the papers which I have read, estimates as to involvement within the population in England in the sport of karate vary upwards from a low figure of 65,000 people towards a higher figure of about 135,000 people. In a paper prepared for an EKGB meeting on 2nd July 2003 the numbers of members were put at EKGB 60,000 (90 associations) , ETKB, 26,000 (14 associations) and NAKMAS 29,000 (1 association).
Geoff Thompson MBE, who gave helpful and dispassionate evidence to me and who was for some of the relevant period a member of the Sports Council, put the level of involvement at the higher end of the scale – i.e. towards the 135,000 mark. Ultimately, it may not matter what the precise figure is but the evidence tends to indicate that there are over 100,000 people who participate in karate within England and there may well be as many as 135,000 as Mr Thompson said in his evidence to me. Further, there is considerable interest in karate amongst the young. If the sport were able to manage itself nationally in a coherent way so as to sustain long term participation, investment by Sport
England was not in and of itself wrong. On the contrary, the signs are that the sport has the potential to grow and that there is amongst the young an increasing desire to take part.

217. There were three main players in the "administration" of karate in England prior to the events which led to the attempted unification of karate in 2005. The English Karate Governing Body (EKGB) was a small body which was run by Suzanne Genery MBE as the Performance Director from Doncaster. There was correspondence in the late 1990s between the DCMS and the EKGB in which the concern was expressed that the EKGB ought to be working on unification of the bodies involved in administration of the sport of karate for the good of all. Thus it was that by the late 1990s Government and Sport England were already concerned about the fact that there was not unification within the sport itself.

218. The second body was the National Association of Karate and Martial Art School or “NAKMAS”. The driving force behind this body was its Chair, Mr Joe Ellis. Mr Ellis’ and NAKMAS’ main concern was the teaching of karate at school/children level. In his evidence to me he made it clear that, in his view, less than 10% of the participants in karate wished to take part in competitions and therefore investment into the sport ought to be primarily directed towards greater participation at community level rather than for elite, medal winning competitions.

219. The third body was the English Traditional Karate Board (ETKB) and the person who was the driving force behind that was Mr Bob Poynton.

220. There was tension between these three organisations and a desire on the part of the ETKB
and NAKMAS who had not hitherto received Lottery funding to be recipients of Lottery funding. Equally, Sport England was concerned throughout the period with which I am dealing that although it was funding the EKGB, funding should have been provided to the sport as a whole for the cohesive development of karate on a sustainable basis and to elite levels.

221. It is sensible to divide the events with which I am concerned into two. The first part concerns the funding of karate prior to 2004: It was in late 2004 that Mr Nick Halifihi was retained by Sport England as a consultant to provide a report on the possible unification of karate. The second concerns the period after he delivered that report and the events which then transpired.

Funding by the WCPB of Karate in the Period Prior to 2004
222. We have traced awards to the EKGB during the WCPB years in the following amounts
on the following dates during the WCPB's existence:

Award Letter

  • 21 February 2000 1/1/00 – 31/12/00 = up to £223,817 (allowable annual expenditure up to £248,685) (the letter mentions the Bureau)
  • 25 October 2000 performance award 1/1/01 – 31/12/2001 = up to £359,181 (letter mentions the Bureau)
  • 20 December 2001 performance award 1/1/02 – 31/12/02 =£258,861 and interim potential award £100,320 (the letter mentions the Bureau)
  • 1 January 2003 and 5 February 2003 (1/1/03 -30/6/03) = £140,000
  • 27 June 2003 (to attend Women's World Cup in July 2003) £26,998 (email from David Sanders at Sport England. Probably not paid as World Cup was cancelled (see below))
  • 7 July 2003 interim payment of salaries , not specifically for any award, but paid as to £82,364
  • 16 July 2003 1/7/0/3-31/8/03) = up to £60,538 (mentions the Bureau)
  • 21 October 2003 (period 1/9/03 – 31/3/04) =£120,000
  • 15 March 2004 =£205,714

Funding to "English Karate" After 2004
223. To complete the story: Sport England ran out of patience with the EKGB in 2004, and possibly in 2003. The documents indicate that funding was suspended in 2003 to the EKGB part, not its athletes (although this is far from clear), and it was stopped in 2004.
However, there is an interesting episode in May 2004 when UK Sport indicated that they were not prepared to spend £166,000 on a "modernisation" programme for Karate indicating that this was a luxury and that Karate ought to be able to modernise without funding at this level. They provided £72,000. Sport England did in due course agree to fund the employment of an officer at the EKGB and then at Karate England to"modernise" the sport. Mr Halifihi then acted as consultant in late 2004, prepared a report, and in November 2005 English Karate (2005) Ltd was formed ("English Karate")
with Mr Halifihi as Chief Executive and Sport England then recognised this body as the Governing Body for the sport. The suspended funding for the EKGB was then awarded to English Karate (2005) Ltd ("English Karate") (in the sum of £200,000 raised to £220,000 by the Board) and a further award was made by the Investment Panel of £1.5 million payable as to £500,000 per annum for three years 2006-2009. English Karate ran into difficulties very quickly and all funding was suspended in August 2006. English Karate was made the subject of a winding up order on a creditor's petition in June 2007

The EKGB – Funding until 2004
224. The EKGB was recognised by those who ran international competitions for karate such as the World Karate Federation as the body which could provide English athletes in international competitions. On the face of it therefore, it was not wrong for the Lottery Panel to attempt to fund the EKGB for elite athletes but with a view to ensuring that there was sustained development of the sport, and that unification of the sport occurred as quickly as possible, so that there should be cohesion within the sport as a whole. Funding of the EKGB was started by Sport England in 1998

225. I attach to the report as Annex 9 a spreadsheet which has been made arising out of the sample testing of the EKGB invoices and vouchers which were provided to Sport England during the period that the World Class Payments Bureau made payments to the EKGB.

226. Broadly speaking, the money that was provided out of the Lottery Fund to the EKGB was spent on salaries, payments for coaches, medical services, and supplies for physiotherapists, insurance when sportsmen and women were travelling, travel and hotel expenses, badges and team kit, competition entry fees, and expenses for officials supporting competition participants at events.

227. The invoices which we have recovered as part of this inquiry were not kept in perfect order against payment vouchers nor have we been able to recover all of the invoices.
However, I and criminal counsel have been able to examine a sufficient number of invoices to indicate that there was an open system of requests for payment, with general descriptions of what the payment comprised and a willingness on the part of Sport England to make the payment in accordance with the request made. As I have already indicated in Chapter 2, I am not satisfied that there is evidence of dishonest or improper conduct going on either within the EKGB, which was run by a reputable sports administrator, or within Sport England itself. I am however concerned by the level of scrutiny of payments and the absence of rigour.

228. On close scrutiny of the invoices questions arise as to why a particular payment should or should not have been made. To take one example, we have found that a payment of £111.62 was made on 1 April 2003 to a hotel for a damaged mirror. Similarly, there are some requests for payment where portions of the demand are not backed up by invoices or vouchers. For example, we have found a head of delegation claiming expenses in June 2004 where there is a single voucher of £100 for parking but the balance of the expenses claimed for meals (£84.00) does not appear to be supported by vouchers.

229. More significant is the fact that the largest proportion of the expenses during this period (and indeed in the period post October 2004) went on the significant cost of employing officials. Appendix 10 which has got a summary arising out of the sampling exercise demonstrates that a large part of karate’s expenditure went on the cost of officials. There was nothing dishonest or fraudulent about it, indeed (subject to what I say below about June 2003) it formed part of the World Class and latterly Whole Sport Plan which was put forward to and approved by the Lottery Panel at Sport England.

230. However, Exchequer Funding was stopped to the EKGB in December 2001 because of the lack of progress by the sport of karate towards unification. The continuation of support via the Lottery fund for any length of time after Exchequer Funding was stopped, in the absence of unification and good governance for the sport as a whole, does not seem to me to have been a sensible use of public funds. As long ago as September 2001 Geoff Thompson MBE had chaired a meeting of the various Karate bodies at which the minutes record agreement in principle to unification, but arguments carried on regardless in the years which followed. It is fair to say that he voiced despair at this lack of progress to me.

231. The EKGB continued to seek Lottery funding and submitted a World Class Programme in support of their application. A Monitoring and Evaluation review by Kevin Hickey and Dr Auriel Forrester in September 2002 identified weaknesses in the World Class programme. Kevin Hickey of Sport England assessed the EKGB plan in June 2003 and recommended no further funding because of the weakness in the plan. In a letter to Suzanne Genery dated 11 August 2003 from Hamish McInnes of Sport England he said that the EKGB's application for further World Class funding had been unsuccessful. Complaint was then made by the EKGB about the Case Officer. The case officer was then removed at the recommendation of Mr Chivers – Head of Management Audit. Mr. Chivers also

"SE should take a lead role in the establishment of a separate unified World Class performance company, in order to maintain the World Class Programme and support of elite athletes"

This recommendation was rather late. The comment also amply demonstrates the extent of Mr Chivers' executive functions at Sport England.

232. On 27th June 2003 a Sport England Official David Sanders wrote an e-mail complaining about a request generated internally to him to pay the EKGB yet another grant in the sum of £26,998. It is worth noting that by this stage there had been nearly two years of arguments about unification and governance in karate since the September 2001 meeting. Awards had been made to the EKGB despite the concerns voiced within Sport England by letters as I have set out above. The e-mail was sent to Mr Chivers (Head of Management Audit) and Lloyd Conaway (Director of Partnerships) and copied to Hamish McInnes (Senior Development Manager at Sport England) and Greig Allen (Management Audit and Mr Chivers’ Successor). It states:

“Reluctantly I have drafted an award letter to Karate for £26,998 as requested by Greig this morning but someone else will need to complete the conditions of award as I am totally in the dark as to why we are paying them and what conditions should be applied to safeguard our investment.

On that note I must say I have real concerns about issuing an award letter at all to Karate, especially in this way. There has been no Paper for it, no Council decision and I have heard nothing in writing from senior management requesting an award letter.

I also have real concerns about the fact that we are paying for 6 athletes to compete in Tokyo when we don’t know who they are, why they are going, not to mention the fact that they are taking 5 support staff for 6 athletes. We would never normally support this kind of thing without further information etc.

Barry, Lloyd please can you let me know if you are happy and fully aware of this situation and that you wish me to continue drafting an award letter to Karate?

I understood there was a complete stop in their funding and their governing body status had also been withdrawn? Obviously, I could be wrong on every account but as I do not know the situation and have not been officially requested and briefed to do this I can but be cautious in a situation such as this. I have never written a letter like this before without a Council minute etc and do not wish to jeopardise my position or indeed Sport England’s.

Can you please let me know how you wish me to proceed.

Many thanks Dave

[David Sanders]”

233. This e-mail is important, and would not have been written by Mr Sanders unless he had serious concerns about what was happening with Karate and at Sport England. It demonstrates how bad things had become internally, and how a request had been made for an award to be given by a member of staff who was concerned not with the grantmaking function. Advice was being sought from Management Audit about a grant payment function in respect of a body (the EKGB) which was being managed though the WCPB and therefore by Management Audit. The request to draft the letter of grant had apparently come without Council authority. I have caused searches to be made for the email traffic in response to this e-mail and have found none. However, it does appear that Mr Conaway signed an award letter on the same day (27th June 2003) making an award of £26,998 in favour of the EKGB despite Mr Sanders very strongly expressed concerns. Mercifully (as it happens) the women’s karate competition in Tokyo which the £26,998 was supposed to pay for was cancelled, and as far as I can tell the money was not paid to the EKGB. (Because of this, I did not interview Mr Conaway). However, this episode encapsulates the internal governance problems which I address in this report, as well as a concern about the continued funding of the EKGB against the history as I describe it. So far as I can tell action was not taken to suspend funding to the EKGB, despite these voiced concerns, until 2004, as more awards were made during 2003.

234. What is of concern from the public’s point of view is that the expenditure on the EKGB and their officials did not lead to unification of the sport itself for the greater benefit of all, the subject to which I now turn.

235. My conclusions, having reviewed the history of karate at some length, is that by no later than the spring of 2002 (shortly after Exchequer Funding was stopped), it was necessary for Sport England to have taken a view that karate itself as a sport should come forward immediately with a properly structured plan for its own unification, good governance, and development if karate were to receive any further funding. A unification plan did not happen until the involvement of Mr Nick Halifihi in the latter part of 2004 at the encouragement of Mr Roger Draper, the then Chief Executive, and Mr Barry Chivers, the Head of Management Audit. In the meantime, the sport of karate received payments through the World Class Payments Bureau as the ledger in Chapter 3 demonstrates (and see the summary set out above) and continued to do so throughout each of the years 2002, 2003, and 2004. During this period there was no real progress towards unification, and although the sport had ambitions for greater numbers of medals at international competition, there is little evidence that the level of investment which was made into karate actually achieved much for the sport as a whole. There is some evidence of improvement in medal awards (There is a report by a World Class Advisor at Sport England, commenting that there had been a steady improvement by karate athletes at World Class level. I have no evidence that establishes that this improvement was due to the funding of the EKGB), but against the levels of investment which I describe in this report, the return was a poor one.

Events From and After 2004.
236. Mr Nick Halifihi has a background as a player at international level in Rugby League Football. He became Performance Director of the Rugby Football League between 2000 and 2002 and Chief Executive of Hull Kingston Rovers between 2002 and 2004. In 2004 he was commissioned with the encouragement of the Chief Executive of Sport England, Roger Draper, and the Head of Management Audit, Barry Chivers, to prepare a report which might lead to the unification of the sport of karate. He was paid a consultancy fee by Sport England for this task.

237. Mr Halifihi organised working groups of those involved in karate in order to encourage them to work on ideas for unification and in the early part of 2005 he provided his report to Sport England and to those involved in karate on a possible route to unification. To put this into context, Mr Geoff Thompson MBE had chaired a meeting of those involved in karate nearly four years before this in September 2001 at which he felt he had obtained agreement in principle for unification but it had not occurred. Further, the DCMS and Sport England had for a period of three to four years before Mr Thompson chaired the meeting in 2001, been encouraging the sport to unify.

238. I have already said in Chapter 2 that it is startling that sports have not in the 20th and 21st centuries created unified systems of good governance. Against the background of frequent encouragement in the sport of karate with the prospect of significant Lottery funding should the sport unify and become well governed, the failure to unify under good governance arrangements is not simply startling but, from the perspective of those involved in the sport, damaging.

239. In my view, the reasons why those involved in karate had not been prepared to unify and create good governance arrangements were not to do as some of the evidence given to me indicated with the fact that within the sport there are different disciplines and approaches to the sport. Many sports have a variety of disciplines within them but manage to achieve a single cohesive structure. The argument that karate is not a sport suitable for unification because within it there are different disciplines is, in my view, not a good one.

240. The real reasons for the failure to obtain unification within a sport which cried out for it were twofold. First, the sport has grown up through a number of small clubs and associations into which individual participants pay modest sums of money from which the local clubs and those who run them benefit. There is therefore a tradition of financial benefit around small clubs. In my view, those involved in the world of club participation were unwilling to give up what they saw as their club activities for the greater good of participation in a unified body for the sport as a whole. This is what witnesses have told me. The second reason is that I have detected character clashes amongst those involved with the sport. These are, in my view, the reasons why karate had not been able to unify itself under a single governing body. They were in substantial part also the reasons as to why, when an attempt at unification was made in 2005, it collapsed.

241. There is a further reason as to why karate collapsed in the period 2006-2007. As I shall demonstrate, the money which was obtained from the Lottery for the purpose of Karate England (2005) Ltd – the new single unified governing body for the sport – was used in very large measure for the salaries of those who were supposed to administer or modernise the sport, office, travel and subsistence expenses with very little of the money indeed percolating down to the sportsmen and women. It rapidly became apparent that the level of expenditure for a small governing body of a relatively small sport was both too large and far too heavily concentrated upon the bureaucracy of its own management. Karate England had not sorted out its own banking and payment arrangements when payments started; it failed to pay PAYE and National Insurance for its own staff for a period of time. In reality a small company collapsed under its own weight.

242. Turning back to the narrative, in 2005, a meeting was held at which all of the parties agreed that a new company, Karate England (2005) Ltd, should be formed. Collyer Bristow were employed to create the Memorandum and Articles of Association of this company which was intended to become the umbrella governing body for the whole of the sport. In order to achieve this, it was necessary for those involved in the EKGB, the ETKB and NAKMAS to have membership rights and they wanted a say in the running of the company. Very quickly arguments developed as to whether or not each had got a proper say in the running of the company. The company was incorporated on 11 November 2005.

243. In the meantime, a Chief Executive needed to be installed who had the confidence of what everyone assumed was going to be the primary funder of Karate England (2005) Ltd – Sport England.

244. The interview panel met to interview candidates for the post of Chief Executive of Karate England (2005) Ltd – Karate England. Mr Philip Don was the Sport England representative on that panel and the other members of the panel were representatives from EKGB, NAKMAS and ETKB. Richard Sheppard from the recruitment consultant from Sport Exec – the head hunters, also sat on the panel, as did Mr Halifihi.

245. Having conducted interviews of those who had responded to an advertisement for the post, the Panel, on which Mr Halifihi was himself sitting, decided that none of those they had interviewed were appropriate for the post. There was some discussion as to whether Mr Halifihi was prepared to “put himself forward” and matters were left on the basis that if Mr Halifihi was prepared to put himself forward then the members of the Panel would recommend his appointment.

246. Later that evening Mr Halifihi let it be known to the head hunter who had been recruited for this task that he was prepared to serve as Chief Executive of Karate England. He provided a presentation to the Mr Sheppard and, armed with the knowledge that the other parties had consented to his appointment, he was appointed. Since this was a post which had required an open appointment process, the method by which Mr Halifihi was appointed was inappropriate. However, in fairness to Mr Halifihi, it is clear to me that there was disagreement within the constituent participants of Karate England as to the other candidates and that there appeared to be agreement that they should have Mr Halifihi as a potential unifying force as their Chief Executive. On the evidence which I have received, this explains why he was appointed in this unusual way.

247. Within Mr Halifihi’s contract of employment with Karate England there is provision for him to receive a car allowance of up to £5,000 per annum. There is also provision in clause 7 of his contract for him to receive up to £5,000 from Karate England to convert his garage to an office which sum was to be repaid if Mr Halifihi’s employment came to an end within 1 year.

248. The office of Karate England was established at Bisham Abbey near London whereas Mr Halifihi lived in North Yorkshire. According to Mr Halifihi, he was encouraged by members of the Karate England Board to convert his garage so as to be able to work from home rather than travelling several hundred miles per week to and from the Bisham Abbey office. This account is consistent with clause 7 of the Employment Contract. There are two aspects of this which I therefore deal with. First, the expenditure by Sport England on Mr Halifihi’s car and second, the garage conversion. Each has received publicity and concern has been voiced in the press.

249. Mr Halifihi was indeed paid the sum of £14,100 by Karate England and in turn by Sport England in order to enable him to purchase a second hand Mercedes E Class. He asked in effect that he should be able to “roll up” (i.e. be paid in advance) three years’ worth of car allowance so as to enable him to purchase the car. In the circumstances where Karate England was a small sport funded by public funds, this was inappropriate: the agreed contractual allowance was for £5,000 per annum. It was however, done openly and without dishonesty. To move matters forward, when Mr Halifihi fell out with the rest of the Karate England Board in 2006, he departed with the car but there were also some salary and other benefits which he claimed were owed to him by Karate England when he resigned by letter dated 27th June 2006 giving 3 months notice. Mr Halifihi offered to work out his notice period but was not wanted back at Karate England. He claimed that he was owed 3 months gross salary amounting to £16,249.98, a 5% bonus amounting to £3,250 – in total £19,499.98. He would have been bound to return the £4,550 paid to him for the garage as he did not survive as Chief Executive for one year. It is questionable whether there was an actual net “loss” to Karate England by virtue of his being provided three years’ worth of car allowance in one year, for he was not allowed to return to work out his notice and was not paid salary or compensation in lieu. However, we are here dealing with the payment in advance by Sport England, who were not Mr Halifihi’s employer, of money for the car: as I say this payment in advance was inappropriate. I have exhibited within Annex 10 the documents relating to the car.

250. As to the garage conversion, Mr Halifihi tells me that he was encouraged by members of the Board of Karate England to convert garage space into an office at his home in North Yorkshire in order to save him from travelling as often as he was down to Bisham Abbey which was having a disruptive effect on him and his family. Mr Halifihi tells me that he obtained quotes for the garage conversion and accepted one in the sum of approximately £4,550 (his contractual right was up to £5,000). A claim in this amount was certified as properly due by Joe Ellis on 12th January 2006, the Chairman/President of Karate England, and forwarded to Sport England for payment [the document is to be found in 129 Annex 11]. Victoria Pace, who gave plainly honest and convincing evidence to me, made a note that she was not prepared to sanction the payment of this sum by Sport England and passed the note on to her superiors.

251. At this point the story about the garage becomes confused. Mr Halifihi, when I interviewed him, was insistent that he was indeed paid for the garage conversion and that the work was carried out. Conversely, I have been unable to find within Sport England itself any record that, following Victoria Pace’s protest, authorisation was actually granted for the payment, nor have I been able to find a bank statement entry which indicates that the payment was made by Sport England. There are two possibilities. First, that the payment for the garage was made out of other funds which had been passed over to Karate England by Sport England. For example, there were funds at this point in the Karate England Bank Account and there was an employee who, when Karate England was about to collapse in mid 2006, made a claim for over £9,000 in unpaid salary directly from Sport England: money was available in the Karate England Bank Account in January 2006. Alternatively, someone senior to Victoria Pace may have authorised the payment for the garage within Sport England. In the end, I have not been able despite probing, to find the answer to how Mr Halifihi received the payment which he did for his garage. It was not in his personal interest to admit to me that he had actually received the payment. I therefore reach the conclusion that he was indeed paid for the garage conversion, that it was a payment certified as properly due by the President of Karate England, and that he received the payment via funds derived from Sport England, out of the Karate England Bank Account. So far as Mr Halifihi is concerned, he considers that his claim was properly and honestly made and he is supported in this by the fact that Mr Ellis, as President, certified that the payment was properly due, and that his contract of employment recorded the entitlement in Clause 7. I ought to add that reports in the press that “hundreds of thousands of pounds” were spent on a garage conversion have not been borne out by the facts. £4,550 was spent on the garage conversion, and no dishonesty was involved.

Karate – the Bigger Picture
252. Questions about the car and the garage must not mask a much bigger issue so far as Karate England is concerned and that is the scale of funding generally into this company via the WCPB, and its predecessor the EKGB, in circumstances where Karate England went into liquidation in early 2007 and, in my opinion, failed to achieve anything of real significance for the sport of karate. It is important that those who examine the issues which arise out of the World Class Payments Bureau should not be distracted from this bigger question by the question of the payments for the car and the garage. I therefore turn to the funding picture of Karate England more generally.

The Funding of Karate England.
253. In 2004 Celia Godsall was brought in to Karate (the EKGB) to assist them in their “modernisation programme”. The cost of doing this was funded by Sport England. Mr Halifihi was given his consultancy contract and he produced a Unification Plan in 2005. On 11th November 2005 Karate England (2005) Limited was incorporated.

254. In November 2005 the Sport England National Investment Panel made an award to Karate England (2005) Ltd of £200,000 in order to fund Karate England through to March 2006. The Board of Sport England in fact then approved a higher amount of £220,000 to go to Karate England. The money (as to £200,000) was allocated from the previous award which had been in place with the previously recognised body, the England Karate Governing Body (EKGB). That funding was awarded to EKGB for EKGB to run a World Class programme. In reality therefore Sport England were giving English Karate an award which had been made to the EKGB for its programme. What Sport England was doing was providing money to enable a new Governing Body to get started and to pay its executives and staff.

255. The National Investment Panel went on to make an award to Karate England based on a Whole Sport Plan which had been drafted by Mr Halifihi principally in conjunction with Sport England. This award was for £1.5 million for the period 2006 to 2009 at a rate of £500,000 per annum. The funding which was being made by this award was predominantly for staffing and office running costs rather than for the benefit of individual participants in the sport, and the award was to a fledgling company.

256. Very quickly after Karate England (2005) Ltd was established things began to go wrong. The papers which I have read indicate that Karate England did not establish for a period of some months full banking facilities. During this period it did not pay PAYE or National Insurance to the Inland Revenue. An attempt was made to start to pay PAYE but there was still a substantial amount owing when the company went into liquidation. Further, Karate England did not appear to have a proper finance function so that there could be proper supervision of its financial controls. In due course a Mr Shaw was appointed on a temporary basis in 2006 and not long after his appointment he indicated that Karate England was actually insolvent.

257. Despite the governance problems that existed within Karate England, neither of the 2005 awards which were made by Sport England to Karate England in fact stipulated that karate should be handled through the World Class Payments Bureau. The offer letters from Sport England to Karate England contained no clause which required management through the World Class Payments Bureau. As it happened, the payments to Karate England were largely paid for through the World Class Payments Bureau although one payment to karate, as a draw down from their grant, was not made in this way. This can be deduced from the Whole Sport Plan which at paragraph 2.2 states:

“On checking through the accounts it has been discovered that quarter three and quarter four payments amounting to £250,000 were not made to the Karate England via the World Class Payment Bureau account. Therefore, a decommitment of £250,000 needs to be made against the Award”.

258. For convenience I attach an “analysis of Karate’s spend 05-06”. [Annex12] From this it can be seen that administration and employment of staff accounted for 64% of the expenditure of Karate England, funded by Sport England and only 36% went on sport costs.

259. Within the 36% that was spent on sport costs, a significant proportion went on clothing, travel and accommodation.

260. I have conducted an analysis of this expenditure as has criminal counsel. Behind the chart which appears on the first page of the analysis of Karate spend 05-06, there is a detailed trial balance for 2006 which will give the reader a reasonably clear indication of the way money was spent by Karate England.

261. Within the various items of expenditure, I draw attention to the following.

262. First, Mr Nick Halifihi’s salary was paid to Pow Wow Sportz Ltd, his company. That company did indeed pay PAYE and National Insurance, whereas Karate England itself did not for the first several months of its existence.

263. Questions have been raised about expenditure made to Harness Technology. Harness Technology was employed by Karate England to install its computers, website, and software. The contract for this work was not put out to competitive tender, but the evidence I have received indicates that the work was carried out. I have found no dishonesty involved in the payment to Harness Technology: Karate England needed computer equipment, a website and appropriate software in order to run its office systems. It would obviously have been better for the sport (and Sport England) if its governing body had sought competitive tenders

264. A significant proportion of the expenditure went on salaries to the officials who had hitherto been working in the three different organisations, EKGB, ETKB, and NAKMAS. Expenses were claimed for by directors of Karate England including subsistence when they attended meetings. Given the fact that this was a new company, largely funded by public funds, it seems to me that paying for relatively expensive meals and subsistence for directors to attend meetings was something of a luxury and in the circumstances not justifiable. However, claims were openly made to Sport England for these sums and I have not detected dishonesty in the claims. It is of course a different matter as to whether this expenditure was worthwhile: I doubt it was.

265. Victoria Pace told me that she became increasingly concerned about the frequent demands for payment which were landing on her desk from Karate England. She also felt that there was no control being operated from within Sport England and she felt unable to turn for advice elsewhere – indeed when she did she told me that she was encouraged to keep paying the invoices.

266. On 9 August 2006, after Victoria Pace had obtained the advice of Perry Crimmins at Sport England, funding was officially suspended by Sport England. It was formally withdrawn on 19th March 2007. The Audit Committee were informed of this in a note, dated 22nd August 2006: and indeed they were also informed that

“Due to the NGB being a brand new organisation the funds for KE have been held by the payments bureau in the Sport England finance team, which means that KE has to apply to the Sport England client manager for the release of funds, for payment of invoices and other costs of running the organisation”

There is, thus, no doubt that by this stage at least the Audit Committee was told of the existence of the World Class Payments Bureau albeit it was now only in terms of its dealing with karate (as was the case). The briefing note to the Audit Committee of 22nd August 2006 is much fuller and more detailed than any which had been provided in relation to an NGB which was in difficulty up until then.

267. Eventually, in January 2007, matters were brought to a close following a note from Victoria Pace dated 19 January 2007 which was circulated to the Executive Group of Sport England. Karate England at this stage was between £230,000 and £270,000 in debt, its creditors included HM Revenue for unpaid tax and National Insurance contributions and Sport England for the unpaid rental of the offices at Bisham Abbey.

268. On 27th June 2006, Mr Halifihi gave notice of resignation to Karate England and the temporary finance manager, Mr Shaw, indicated that Karate England was insolvent which was relayed to Sport England on 4th August 2006. Mr Ellis resigned as President/Chairman on 16th August 2006. Mr Halifihi did not return to work following an altercation prior to his going on holiday and he kept the Mercedes car in effect as a lien against unpaid salary. In due course Karate England was put into liquidation following a winding-up order which was made on 27 June 2007. In the period between the cessation of funding in August 2006 and liquidation in June 2007, Karate England abandoned the office in Bisham Abbey, moved with a skeleton staff to an office in Redcar and, to all intents and purposes, karate broke out into the three groupings which I have already described. Unification was therefore a complete failure.

269. Mr Philip Don was a relationship manager at Sport England who dealt with karate during the course of his employment at Sport England. When Karate England was established, Philip Don moved to become employed by Karate England. I consider it to be inappropriate for a person who has had involvement at Sport England with a particular sport to move to that sport when it is the recipient of the very grant which the person who makes the moved may have been involved with. I am fully alive to the fact that the sporting community benefits from expertise gained by those who work at Sport England or indeed within sport and who wish to move to Sport England. The problem arises where you have someone who has been involved in the administration or work on a Lottery grant who then moves across to the sport which is the recipient of the grant. There is, at the very least, a perception that this gives rise to a conflict of interest. As it happens, Mr Don resigned in the summer of 2006 and I have not come across any evidence that his position at Sport England had any effect upon Karate England receiving its grant nor did it have any effect with regard to karate during the period between the start of grant monies at the end of 2005 and the suspension of them in August 2006.

270. Sport England became so concerned about Karate England that in March 2006 (barely 4 months into its existence) they asked Deloittes & Touche to carry out an inquiry and to make recommendations. Deloittes & Touche provided a final report in June 2006 of their review of internal control systems. That report contained a litany of problems with the set up at Karate England. Amongst the lists of concerns set out in the report, Deloittes & Touche comment that the Board of Directors appeared not to have received training, that the members of the Board had their own agendas to follow for the organisations which they otherwise worked for apart from Karate England, that there was little business or performance monitoring, that there was no performance or assessment of Board Directors, that the Board itself was not balanced with appropriate external appointments, that the process for approving invoices and expenses appeared to be taking up excessive executive and Board time and that in reality the Chief Executive was dealing with routine payment administration and arguments about it for much of his time, that the budget and all forms of expenditure appeared to be measured against the Whole Sport Plan of March 2005 rather than concentrating on the core activities for karate which was preparation of members for events and competitions. The litany of concerns continues beyond what I have summarised thus far. As I have already indicated, Karate England was not a company with a suitable skills mix of individuals on its Board, nor did it have a sustainable plan which all involved were prepared to carry through for the development of the sport which would ensure that investment would provide a return for those involved in the sport.

271. Finally, I draw attention to the fact that in mid 2006 the Child Protection Officer of Karate England also resigned: In his resignation letter he indicated that he felt bullied out of the role. I have not reached any conclusion about the facts surrounding his allegations. He resigned at the same time that Philip Don resigned. Within the papers which I have read, there is evidence that there had been a reasonably long standing concern within Sport England about the level of attention to child protection issues within karate. Yet within six months or so of the start of a funding stream to a new, so called unified, governing body, the Child Protection Officer resigned. I have not, in the course of this inquiry, found out whether within the various bodies of karate, there are suitable child protection measures in place, being operated by each relevant body. Mr Ellis has assured me that within NAKMAS there are such measures in place. But it seems to me to be very unfortunate that a sport which is attractive to children and which should therefore have in place responsible child protection measures which are operated throughout the sport, has fragmented again in circumstances where, had it remained unified, it would have had a full-time Child Protection Officer in a senior position able to ensure that good standards were applied throughout the sport. This is exactly the sort of thing which Sport England would want to pay attention to when considering funding any sport. It is also something which is of importance for public confidence in sport more generally.

Lessons to be Learnt
272. Karate England may not be the only sporting organisation which has not managed to create a unified governing body for the good of all involved in the sport. It is however an extreme example of it. I ought to stress that there is nothing wrong with Sport England investing in parts of the administration of an NGB if by doing so they are assisting the NGB to achieve better standards and better reach into the community for the sport in questions. So far as this inquiry is concerned, the lessons to be learned from the Karate episode are as follows:

272.1 There was a proper desire on the part of Sport England to encourage a unified national body for karate. However, the failure of karate to achieve this of itself by about mid 2002 should have indicated to the management of Sport England that further attempts at unification without those attempts being driven from within karate itself were almost infallibly doomed to failure, and funding decisions should have been made accordingly.

272.2 The amount of the award made in November 2005 of £1.5 million to a fledgling new and untested governing body was very high. Fortunately, from the public’s point of view, it was not all drawn down before funding was stopped in August 2006. However, it is surprising that the Lottery Panel, which by this time was known as the National Investment Panel, should have seen fit to make an award in such a large sum where a significant proportion of the award was to be spent on the salaries and administration costs of the fledgling company. To this extent I agree with Mr Ellis that the investment seems to have been driven at a top heavy bureaucracy and not sufficiently towards the encouragement of participants in the sport itself.

272.3 There was inadequate assistance provided to Victoria Pace to assist her in the growing crisis that developed within karate. To her credit she moved to stop the funding stream in the middle of 2006 as the demands for payment from Karate England increased. She also refused to sanction the payment for Mr Halifihi’s garage.

272.4 The Board of Karate England itself was not properly constructed with an appropriate skills mix for efficient and economical administration in the interests of karate as a whole. In reality the Board comprised those who had for years had disagreements about the development of the sport and who now sat together on the Board of a company each being paid their salaries from Sport England.

272.5 As I shall demonstrate in Chapter 8, there was inadequate reporting of the risks to the Audit Committee of Sport England during the whole of the karate period. The first adequate report of the problems occurred when funding was suspended in August 2006 (the report of 22nd August 2006).

272.6 The fundamental proposal which I make that there should be a small group which sets the minimum standards by which sporting governing bodies should operate is made starkly necessary by the experience which Sport England had with karate. Karate is still not governed by a single unified governing body and is no longer funded by Sport England. It has therefore been left to karate enthusiasts to organise the operations of their separate concerns as they see fit even though as many as 135,000 people wish to take part in the sport and those involved in the sport want to see it grow.

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