Select Committee on Public Accounts Fourth Report



7. The Charities Board told us that since their inception they have distributed resources on a "population weighted by deprivation" basis for each country, and for each region within England. Following the 1998 Act they had introduced special targeting where there were significant needs but few applications. They had moved to a more proactive stance, for example in Glasgow which, with areas of very significant deprivation, had been producing fewer applications than Edinburgh. They had set up a separate office in Glasgow and provided a series of helper sessions, and as a result were now making more grants in that area.[9]

8. In Wales the Charities Board had looked at the deprivation indicators and the amount of money distributed per head of population, and decided to concentrate their outreach work on Flintshire, Newport, Bridgend, Caerphilly and Blaenau Gwent. A publicity campaign had been mounted and meetings had been held with officers of the relevant Local Voluntary Councils. The Charities Board had delivered a series of seminars in these areas, providing advice on the Board's funding policies, and how to make an effective application. They hoped that this effort would, over time, result in more good quality applications from these target areas.[10]

9. Asked about their relationship with local government, the Charities Board told us that from the outset they had consulted the various local government organisations about the scope and focus of their programmes. Their Regional Managers had been in regular discussion with the Chief Executives of the local authorities about the volume of bids in an area or about the particular needs and pressures. Asked why they were the only lottery organisation which did not inform local authorities of applications for grants from organisations within their areas, the Board said that the independent voluntary sector were keen that their bids were looked at independently and on merit. The Board added that the sheer volume of schemes, at three or four times that of any other lottery distributor, would have caused logistical difficulty in consulting local authorities. They acknowledged, however, that where a local authority knew the local circumstances it could assist in focussing on needs within the area, and told us that they had arranged joint seminars with local authorities, open days and helper sessions.[11]

10. In Scotland the Charities Board had run an experimental scheme under which they had consulted the local authorities on individual applications recommended for grant over £100,000. However, the experience had not been particularly positive. It had not led to a change in the decisions on applications, and the process had become a further bureaucratic burden on local authority officers. All parties had agreed that it would be beneficial to move away from consultation on individual applications and concentrate instead on strategic and community planning considerations, and dissemination of the Board's priorities. The Board were in discussion with the Scottish Council for Voluntary Organisations and the Convention of Scottish Local Authorities about the implementation of this review.[12]

11. We put it to the Charities Board that some groups come from deprived areas and cannot afford to use an accountant or solicitor, and asked whether the complexities of the application process and monitoring procedure had deterred groups from applying. The Board recognised that it was sometimes more difficult for these groups to put together the original application and that large sophisticated organisations had a greater capacity to fine-tune their applications. However, on the whole their experience had been that small locally based groups had proved remarkably innovative and imaginative, and 40 per cent of their grants, by volume of application, went to voluntary sector bodies with incomes of less than £20,000.[13]

12. The Charities Board had commissioned NOP to do a detailed survey of all their applicants, and this had shown that the majority of applicants, whether large or small, found the application forms manageable. But it was undoubtedly true that there was potentially a barrier, both in the application form and in the grant management, and the Board were looking to see whether there was scope for improvements. It was a question of getting the balance right. The simpler and easier they made it, the less rigorous and effective their control framework.[14]

13. The Board added that under their community involvement programme they were prepared to fund capacity building infrastructure to enable small groups to get the training, the skills or sometimes the equipment which would make them more effective. They had run a pilot scheme in Barnsley. They would be very willing to look at capacity building grants for bodies which could in turn help the smaller local groups who were having difficulty putting bids together. The level of resources they could commit had been one of the restraints on being able to help organisations in deprived communities apply for grants. They were spending about eight per cent of their total income on overheads and administration, and each pound spent on overheads was one pound less on grants. However, if they worked efficiently they should be able to release sufficient resources for help and support work and keep within a ten per cent ceiling.[15]


14. Some of the most deprived areas have yet to see the full benefit of lottery money. The National Lottery Act 1998 gave lottery distributors new responsibilities and powers to address this issue, for example by soliciting grant applications, and the Charities Board should take full advantage of this change. The examples they gave of their work to target areas of need in Wales and Glasgow are encouraging signs that they are moving in the right direction.

15. The Charities Board do not consult local authorities about individual grant applications because they are properly concerned about the added bureaucracy and the perceived threat to the independence of the grant approval process. They have tried approaches such as joint seminars, and are in discussion with authorities in Scotland about a more strategic way of working. But although they have now been making grants for nearly five years, they have yet to develop a clear system of working with local authorities to make sure that lottery funds reach the neediest areas. The Charities Board should give priority to finding ways of capitalising on the knowledge and expertise of local authorities.

16. The people who most need help from the Charities Board can be those least able to seek it. The Board are prepared to provide practical support to help smaller groups prepare bids, but their NOP survey has confirmed that their processes are a potential barrier. The Board should take steps to make their application and monitoring processes less onerous for applicants, while maintaining an appropriate degree of control.


17. The National Audit Office examined a representative sample of projects selected from grants of £20,000 or more made under the Charities Board's first three grants programmes. The sample comprised 150 projects with lottery grants totalling £20 million. For each project, the level of service or activity that the grant recipient planned to provide was identified from the approved grant application. The National Audit Office examined the projects in the period October 1998 to March 1999 and reviewed the position in November 1999 (Figure 2). In summary, by November 1999, 122 (82 per cent) of the projects appeared to be progressing much as planned, compared with 67 per cent when they were first examined. However, extrapolation of these results indicated that on the first three grants programmes awards of between £67 million and £145 million had been given to projects that were not progressing as planned.[16] While the Department remarked on the significant improvement in the period between the two assessments, they acknowledged that there had been a delay in achieving the objectives identified at the start of the projects.[17]

Figure 2: The extent to which the planned level of service or activity was being provided as at November 1999

Assessment of progress
Number of projects
Percentage of projects
Value of projects
Value of projects
as a percentage of total
Fully provided
Mostly provided
Partly provided
Not provided
Not provided, no grant paid
Not known

(a)—figures in bold show the November 1999 assessment

(b)—figures in brackets show the earlier assessment (October 1998 to March 1999)

Source: C&AG's report, Figure 5

18. Asked why almost a fifth of the projects examined had not progressed as planned the Charities Board told us that in three cases they had not paid out any grant, so no public money was at risk, and in nine of the remaining 25 cases there had been a definite improvement in performance and delivery.[18] We asked about the current position on one project where £16,000 had been used to pay off debts to the Inland Revenue. The Board replied that they had now sought repayment of the £16,000 plus £6,000 for further expenditure where they were not satisfied that the money had been spent on the purposes of the grant. They had also withdrawn £30,000 of the grant.[19]

19. Commenting on the lessons learned, the Charities Board said that property grants had been a particular area of concern.[20] The Comptroller and Auditor General had shown that projects which involved the acquisition or refurbishment of premises presented special risks. There were three key factors: difficulty in obtaining planning permission and resolving tenancy issues; the availability of suitable premises; and estimating the cost of work to be carried out. The report had also shown that applicants did not always provide reliable estimates of the number of people expected to benefit from projects.[21]

20. The Charities Board told us that they had now introduced a new two-stage approach to property grants. In no case had they actually paid out grant before planning permission had been obtained, but under the new two-stage system they now offered approval in principle, and made the formal offer of grant only when the applicant had done a feasibility study or identified premises. They also required firm estimates from qualified professionals before grants were put in place.[22]

21. We asked the Charities Board whether they had encountered much evidence of fraud. The details they subsequently provided indicated that there had been ten cases of suspected fraud, which accounted for 0.023 per cent of their total expenditure. Figure 3 provides a financial summary of the ten cases. In two cases those who had obtained a grant had been sent to prison and in other cases the money had been clawed back.[23] The Board's own grants officers, who are responsible for assessing grant applications and monitoring projects, had identified a need for training in fraud detection, and the Board had presented a fraud awareness course to all their staff.[24]

Figure 3: Summary of ten cases of suspected fraud

Total value of the grants awarded
Fraudulent element of the grants awarded
Recovered grant
Unrecovered loss of grant

Source: Supplementary Evidence


22. Analysis of a representative sample of 150 projects from the Charities Board's first three grants programmes shows that over 80 per cent were fully or mostly delivering the level of service set out in the original grant application, albeit later than planned in some cases.

23. The scale of the Charities Board's grant giving means that any shortfall in performance puts very large sums of money at risk. Out of grant awards totalling £460 million over the first three grants programmes, between £65 million and £145 million could have been given to projects which were not delivering the intended level of service or activity at the time of the National Audit Office examination. The Charities Board have assured us that they have followed up the specific cases identified by the National Audit Office as not having progressed as planned, and in one case they have withheld grant of £30,000 and sought repayment of a further £22,000.

24. The difficulties experienced on some projects appear to reflect the special risks involved in the acquisition or refurbishment of premises; and not all projects have been approved on the basis of realistic estimates of the costs or the likely number of beneficiaries. The Charities Board have now taken steps to address these issues, including the introduction of a new two-stage approval process for capital projects. It is important, however, that they identify the risks to all projects at the grant application stage, and take account of the risks in their subsequent grant monitoring. Drawing on the analysis already undertaken by the National Audit Office, the Charities Board should identify the key risk and success factors on the projects they have funded to date to ensure that they are not overlooked in considering future applications.

25. The Charities Board are aware of ten cases of suspected fraud, and several factors underline the need for the Board to be vigilant in this area. There is the sheer volume and value of grants awarded by the Board, and the likelihood that some applicants have limited experience of managing projects and operating financial control systems. It is important therefore that the Board see through their programme of fraud awareness training for their grants officers.


26. One of the two main elements to the Charities Board's arrangements for monitoring the progress of projects is the requirement for grant recipients to complete and submit a self-assessment progress report at the end of each year. Of the 150 projects examined by the National Audit Office, 132 had reached the stage where a grant recipient should have completed and returned an annual progress report. However:

  • for nine projects, with grant awards totalling £1.2 million, reports were received between 13 and 31 months late; and

27. The Charities Board acknowledged that there had been unfortunate and in some cases long delays, but said that they had got the reports in the end. They had significantly stiffened their procedures, and for the end of grant report grants officers had now been instructed to make three telephone calls and then to send a letter if there had still not been a reply. If that failed the grant recipient would be sent a letter by lawyers saying that they were in breach of terms and conditions and that unless they sent the report, the Board would sue for the return of the grant on the ground of non-fulfilment.[26]

28. The other main element of the Charities Board's monitoring is to visit projects. The Comptroller and Auditor General reported that all projects awarded £200,000 or more are visited and below this threshold a random sample of five per cent of projects. Some 30 of the 35 grants officers consulted by the National Audit Office considered that decisions about which projects to visit should be based on an assessment of the risk associated with each project. The size of the grant might be one aspect, but from their experience of managing projects grants officers identified other indicators of risk. These included:

  • organisations where management is weak or lacking in experience;

  • small organisations, particularly those in receipt of large grants;

  • capital projects;

  • organisations that have asked for numerous grant variations;

  • innovative projects; and

  • projects involving revenue funding of several different activities.

The Board had commissioned a comprehensive analysis of indicators of risk and were piloting a risk assessment system which would categorise grants as high risk, medium risk, or low risk and enable them to focus their grant management and monitoring accordingly.[27]

29. The timing of project visits will influence their impact. Of the 150 projects examined, 45 had received a grant over the threshold for an automatic visit and the Charities Board had visited 30 of these. Of the other 15 projects, 12 had either not started or were less than half way through their period of funding, but two projects were nearing completion and a third was causing particular concern for the Charities Board. In this case they did not know where £18,000 of the grant had gone. This project was one of those the National Audit Office identified as not progressing as planned.[28] The Charities Board told us that they had paid a number of visits to the project but had been unable to see anyone. They had now written to them saying that unless they received comprehensive documentation they would instruct lawyers to start proceedings.[29]

30. Each offer of grant by the Charities Board includes standard terms and conditions with which the grant recipient must comply. For 136 projects (91 per cent) of the 150 projects examined terms and conditions had been complied with. In the remaining 14 cases information required by the Board had not been provided, and four were among those not providing the planned level of service or activity. The kind of information not provided included audited accounts and quotations for capital purchases.[30] The Charities Board acknowledged that there had been less than fully satisfactory control. In eight cases they had paid out grant without being given the full quotations from the architects or the contractors, although in six of those cases the service had been fully provided and they had obtained the documentation later. They told us that they had tightened their procedures since the first three grant rounds and did not pay out money unless they had certificated bills.[31]

31. Where the Charities Board have identified unresolved risks, they attach special conditions to the grant and this had been done for 79 of the 150 projects examined. In 63 cases the conditions had been complied with, but in the remaining 16 cases, with grant awards totalling £1.6 million, there was nothing in the Board's records to indicate compliance. In one case, the Board were particularly concerned about the lack of detailed planning and preparation, and attached four special conditions to the offer of grant. They did not receive the information they required but they continued paying out the grant of £95,000.[32] They accepted that they had paid money out without rigorous enforcement of the initial special conditions, but added that the project was now fully operational and had produced the benefits of the grant. [33]

32. The Financial Directions issued by the Department require the Charities Board to obtain assurance that assets purchased with lottery funds are being used for the purposes intended. The grant recipient may not dispose of those assets without the prior permission of the Board. If any assets are sold, the Board can reclaim that part of the grant which was used to acquire the assets.[34] We asked the Board what gave them the right to recovery if disposal did take place,[35] and they informed us that their position was protected through the grant contract, in the form of the grant offer letter and the standard terms and conditions of grant. Their legal advice was that they were adequately protected by the firm requirement that the assets could not be sold without their written permission. They would normally seek an appropriate share of the market value from such disposals, although cases would be judged on the particular circumstances arising at the time.[36]

33. We asked the Charities Board why, given the Financial Directions, they did not have a consolidated register of capital assets funded by them, and formal procedures to verify the existence and use of assets. They told us that they were producing a consolidated asset register which would be available in autumn 2000, and that they proposed to carry out periodic visits to projects.[37] As they had started funding projects in 1995 we put it to the Board that they should have given greater priority to this aspect of their responsibilities. They told us that the sheer scale of the information required meant it had not been possible to produce the comprehensive register earlier.[38]

34. We asked the Charities Board whether, once they had their computerised register, they thought they would discover cases where they might have a right of recovery of which they had not been aware. They said that the computer system would not discover the cases, but would automatically prompt grant staff to undertake inspection visits or other investigations. They considered it unlikely that they would discover cases where they had a right of recovery. The type of groups that they funded were not on the whole ones who sought to gain commercial advantage from the capital assets that had been funded. Their experience so far had been that the voluntary sector was anxious to hang on to and to use the capital assets for its beneficiaries rather than wanting to sell them off.[39]

35. The Financial Directions also require the Charities Board to establish a policy for evaluating their projects, and state that where analysis of individual projects may be impracticable, programmes of grants should be evaluated. The Board's policy is to evaluate the impact of their funding at the overall programme level, but they have not yet sought to evaluate grants programmes as a whole.[40] They told us that since publication of the Comptroller and Auditor General's report they had commissioned a full report on north east community buildings, and commissioned research on black and ethnic minority projects in Birmingham, spatial targeting in Barnsley, refugee grants in London, advice services in Northern Ireland and the first grants on poverty in Scotland. Their research committee was looking at a comprehensive set of proposals for further evaluation.[41]

36. The Charities Board's monitoring arrangements have evolved over the period that they have been making grants. They told us that their permanent staff had risen from 43 to 250 trained grants officers. There were some clear lessons to be learned from the Comptroller and Auditor General's report, and they had introduced a comprehensive grant management manual, extended and improved the training of their grants staff, tightened up the rules for chasing the end of grant reports, and introduced their new two-stage approach on property grants.[42]

37. The Financial Directions issued by the Department set out the broad framework of financial and management controls within which the Charities Board must operate.[43] Asked what they had done to ensure that these Directions were observed, the Department told us that at the outset they had approved the Board's systems and procedures, and that they did an annual assurance check on the systems, including work by internal audit. They had been discussing with all the lottery distributing bodies the lessons emerging from their own experience and the two previous reports on lottery distribution from the Committee of Public Accounts and the National Audit Office.[44]


38. The Charities Board's arrangements for monitoring how lottery grants are used have not taken account of all the risks associated with projects; their visits to projects have not always been timely; and the key self-assessment reports from grant recipients are often late - sometimes a year late and more. The Board are now adopting a more robust line with those grant recipients who are late providing self-assessments, and are now piloting a risk assessment system. A risk based system is important both for effective grant management and monitoring, and in making the most efficient use of the Charities Board's own staff resources.

39. The Charities Board have attached terms and conditions to grants but then failed to ensure that grant recipients meet them. The special conditions set by the Board in some cases are there to ensure that risks which might compromise the project are addressed early on, yet in one case the Board paid out the full grant of £95,000 without the special conditions being met. The Board need to be more robust in their enforcement of grant conditions in future.

40. The Charities Board's monitoring arrangements have been evolving over time, and have now reached the point where they are fully staffed. Nevertheless, in the five years since the Board started making grants, they have been slow to meet those aspects of the Financial Directions set by the Department which require them to monitor the use of assets beyond the period of grant and to evaluate their grants programmes. The Board spend large amounts of money on supporting good causes (over £1.5 billion already), and it is essential that they learn from experience and apply the lessons to their future activities.

9  Evidence, Qs 76, 158 Back

10  Evidence, Q170 and Evidence, Appendix 1, pp 20-23 Back

11  Evidence, Qs 66-67, 70 Back

12  Evidence, Q71 and Evidence, Appendix 1, pp 20-23 Back

13  Evidence, Qs 94-95, 156-157, 163 Back

14  Evidence, Qs 164-168  Back

15  Evidence, Qs 77-79, 158, 160 Back

16  C&AG's report, paras 3-6 and 2.5-2.7 Back

17  Evidence, Qs 46-47 Back

18  Evidence, Q2 Back

19  Evidence, Q3 Back

20  Evidence, Q2 Back

21  C&AG's report, paras 2.13, 2.15 Back

22  Evidence, Qs 2, 24-25 Back

23  Evidence, Qs 11-13 and Evidence, Appendix 1, pp 20-23 Back

24  C&AG's report, paras 1.4, 3.24 Back

25  C&AG's report, paras 3.6, 3.12 Back

26  Evidence, Qs 119-120 Back

27  C&AG's report, paras 3.6-3.10 Back

28  ibid, para 3.20 and case study 15 Back

29  Evidence, Q7 Back

30  C&AG's report, paras 3.25-3.26 Back

31  Evidence, Qs 26, 28, 41, 65 Back

32  C&AG's report, paras 3.27-3.28, case study 13 Back

33  Evidence, Qs 42, 57, 62 Back

34  C&AG's report, paras 3.36-3.37 Back

35  Evidence, Qs 112, 116-117 Back

36  Evidence, Appendix 1, pp 20-23 Back

37  Evidence, Qs 16-18 and C&AG's report, para 3.37 Back

38  Evidence, Q18 Back

39  Evidence, Qs 139, 141 and Evidence, Appendix 1, pp 20-23 Back

40  C&AG's report, para 3.43 Back

41  Evidence, Q19 Back

42  Evidence, Qs 2, 22 and C&AG's report, paras 8, 13 Back

43  C&AG's report, para 1.2 Back

44  Evidence, Qs 52, 56 Back

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