The National Audit Office (NAO) was asked to produce a report examining the effectiveness of the Charity Commission as regulator of registered charities. The report was produced in December 2013 and this article highlights some of the findings by the NAO.
The NAO acknowledges that the charity sector makes an important contribution to UK society and that the Commission has a key role in increasing trust and confidence in the sector. It also recognised that the Commission’s budget has decreased while the size of the sector has remained stable. The report suggests that there is a gap between what the public expects of the Commission and what it actually does.
Admittance to the Register of Charities does not mean an organisation has passed a quality threshold, although the public can perceive it as such. While accepting that the Commission has a broad range of responsibilities, the NAO did suggest that the Commission’s strategic review carried out in 2010/11 might have identified significant areas of work that it could discontinue or pass to other bodies, particularly in view of its likely budget cuts.
Having initially “cut the Commission some slack” in its comments, the rest of the report was highly critical of how the Commission operates.
The report states that use of the Commission’s statutory powers were in decline and in the three years to 31 March 2013, the Commission did not remove any trustees, suspended only two, and used its powers to restrict charities from entering into transactions only 17 times.
NAO reported that there were statutory enquiries and operations cases where periods of several months passed during which the Commission took no action.
Although the report acknowledged that the Commission’s approach was to extend some latitude to trustees, recognising that trustees are volunteers and acted in good faith, it did criticise the Commission in connection with certain cases where they were slow to recognise the gravity of the situation, giving the trustees regulatory advice, rather than opening a statutory enquiry.
The report was concerned that in many of the registration and operation cases, the Commission relied solely on information from trustees or their professional advisers as assurance that the Commission’s concerns had been addressed. The Commission did not follow up samples of these cases to check whether the trustees have done what they said they would do.
Once again the report was critical of the Commission, in regard to its lack of pro-activeness, and that its investigations were prompted by concerns received from external sources, rather than its own data analysis.
The report felt that the general structure of the Commission and in particular its flat reporting structure and its location at four sites across the UK hindered its efficiency.
Some of its key targets such as on the quality of registration are not being met.
The report stated this has hindered some of both organisations’ investigations.
The report acknowledged that the Commission needed assistance in securing legislative change where there were gaps and deficiencies in its legal powers, and that there was also a need for effective oversight of the Commission’s performance as it takes action to address the issues identified in the report.
The report concluded that the Commission was not regulating charities effectively. Although it does important and necessary work and its independent status is highly valued, it does not do enough to tackle abuse of charitable status. When it does identify concerns in charities, it makes little use of its powers and fails to take tough action in some of the most serious cases.
NAO thought the Commission was too passive in pursuing its objectives and let practical and legal barriers prevent action, rather than considering alternative ways to prevent abuse of charitable status.
In many ways it is quite difficult to argue in favour of the Commission when one reads the report. However, one can’t help but to feel that the report was very much slanted following the high profile case of The Cup Trust, which both the Commission and HMRC have acknowledged as a one-off situation.
The report only looked at one part of the Commission’s core work. It did not consider the provision of guidance to charities on the legal and accounting framework, its permissions and consent work, nor indeed the Commission’s work in maintaining and developing the public register.
Therefore it is difficult to draw a full conclusion on the effectiveness of the Commission’s regulation and indeed value for money. It is interesting to note that while the budget for the Commission is £22.7m and may sound generous when you stretch it across 163,000, it works out at just £139 per charity.
Public trust and confidence is subjective and is derived from a wide range of influencing factors, and the picture painted by this report will have an impact on such perceptions. While, so far, public trust and confidence in the sector has remained strong, this type of criticism will only help in chipping away at that.
There will now need to be a lot of soul searching as to exactly what role the Commission will adopt in the future, and it appears that there is no question that a larger proportion of its resources will be aimed at its regulatory powers.
Nick Brooks, Head of Kingston Smith's not for profit sector group, Chair of ICAEW's Charity and Voluntary Sector Group
Charity and Voluntary Sector Group, February 2014