House of Commons - Public Accounts

Select Committee on Public Accounts Thirty-Ninth Report

THIRTY-NINTH REPORT

The Committee of Public Accounts has agreed to the following Report:

GIVING CONFIDENTLY: THE ROLE OF THE CHARITY COMMISSION IN REGULATING CHARITIES

INTRODUCTION AND LIST OF CONCLUSIONS AND RECOMMENDATIONS

1. There are some 185,000 registered charities in England and Wales. In 2000-01, these charities had an estimated gross income of £25 billion, and net assets of some £70 million. Continuing public confidence in the charitable sector depends on the efficient and effective use of resources by charities, and transparent accountability to donors and beneficiaries. The primary responsibility for achieving these objectives rests with the several million people, often volunteers, who act as trustees of charitable bodies. The statutory responsibility for promoting the effective use of charitable resources lies with the Charity Commission for England and Wales (the Commission).[1]

2. The Commission's annual budget for 2000-01 was £21 million and it employed 547 staff in its three offices at London, Taunton and Liverpool. It discharges its statutory responsibilities primarily by:

scrutinising new organisations seeking to register as charities;

providing a support and advisory service to charities;

collecting and analysing information from charities; and

carrying out preliminary evaluation and detailed inquiries where weaknesses are suspected.

In 2000-01, the Commission registered some 6,000 new charities, responded to some 36,000 requests from charities for advice and support, carried out 1,152 preliminary evaluations of potential weaknesses in charities and 212 full inquiries.[2]

3. We have previously taken evidence from the Commission in 1988, 1991 and 1998 and on each occasion we found severe shortcomings in the Commission's performance. In our 1998 Report we made recommendations for improvements in: the effectiveness of management in the Commission; the accuracy of the Register of Charities; submission of accounts by charities and the Commission's monitoring arrangements; and support and investigation of charities.[3]

4. On the basis of a Report by the Comptroller and Auditor General, Giving Confidently: The role of the Charity Commission in regulating charities, we took evidence from the Charity Commission. We examined the Commission's performance in making charities more transparent and accountable to the public, its investigation of maladministration and abuse, and the quality of service provided to the public and the charitable sector. We drew three key conclusions from our examination:

A significant minority of charities, some 38 per cent in 1999-2000, still fail to submit annual accounts on time or at all, or to provide adequate information on performance. The Commission must pursue very much more quickly and vigorously those charities who fail to submit annual returns and/or accounts by the due date. They must be prepared to impose penalties on persistent offenders. For example, they could levy fines on culpable trustees or to restrict a charity's access to the advantages of charitable status such as the ability to obtain a licence for a street collection.

The Commission has increased the effectiveness of its investigations into potential abuses of charitable status by increasing resources devoted to this important role, and by greater transparency through publication of the results of its work. To further strengthen investigation work, the Commission should plan investigations more systematically, complete investigations more quickly, and make greater use of statutory powers to expedite problem cases. Completed investigations should be followed up to confirm that the Commission's recommendations have been implemented and have been effective in remedying the original concerns.

The Commission's advice and support activities are well regarded by charities overall. Complaints procedures have been strengthened through the appointment of an independent reviewer of cases where the complainant is dissatisfied with the Commission's initial response. Following independent scrutiny, however, around a quarter of complaints have been partially or fully upheld, suggesting that the Commission should give greater recognition to the lessons from such feedback, through faster and wider dissemination of key points throughout the organisation, and where relevant by promptly changing its operating procedures.

5. Our more detailed conclusions and recommendations are as follows:

ON MAKING CHARITIES MORE TRANSPARENT AND ACCOUNTABLE

(i) The Commission should monitor charities' compliance with the revised Statement of Recommended Practice to improve the quality of information provided by charities to the public on their performance. For example charities should be expected to make clear in their annual reports what they have achieved against plan and explain any major variances. The Commission should disseminate the results of their monitoring in aggregate to charities, and provide feedback where necessary at the individual charity level.

(ii) The Commission should examine, in consultation with the sector, the scope for publishing comparative information on the performance of charities of similar type and size.

(iii) Whilst the Commission has made progress in removing inactive charities from the Register of Charities, it is important that any unused charitable resources are identified, recovered and reapplied for other charitable purposes. In evaluating the results of its current project to track such assets the Commission should review not only the amount of funds recovered but how well they have been redeployed.

(iv) There are no procedures for ensuring that established charities carry out appropriate checks on prospective new trustees. Although the number of changes in trustees may make it difficult for the Commission to carry out checks in every case, the Commission should check a sample of changes to ensure its guidelines are followed. Such checks should reflect relative risk, for example where trustees may be in contact with children or vulnerable adults, or where changes occur shortly after a charity is registered.

(v) The Home Office should resolve the issue of granting the Commission access to records kept on the Police National Computer, giving due weight to the benefits of enabling it to carry out more comprehensive checks on the prospective trustees of new charities.

On investigating maladministration and abuse

(vi) In utilising the extra resources earmarked for investigation work, the Commission should enhance performance, for example by increasing the number of investigations where justified by the potential abuses identified, and by reducing the median time taken to complete inquiries.

(vii) The Commission should make more extensive use of the statutory powers granted by Parliament to help expedite its investigations. It should train its staff to be more confident in applying the powers, and disseminate case examples where use of the powers has proved effective.

(viii) Whilst the primary responsibility for checking claims for relief on business rates lies with local authorities, potentially fraudulent claims could undermine confidence in the charitable sector. The Commission should work with local authorities to identify whether sufficient controls are in place to guard against the risk of this type of fraud.

On quality of service to the public and to charities

(ix) A similar quality of service should be provided to charities irrespective of which Commission office provides the service. The performance of each Commission office should therefore be monitored regularly at a senior level and prompt action taken when variances appear. Effective mechanisms should be in place for sharing ideas on good practice between offices.

(x) The Commission should review its arrangements for providing advice and support to charities to determine how rising demand can be best managed and organised. The Commission might, for example, explore the scope for working more closely with representative bodies within the sector to help encourage charities to learn from their peers.

(xi) The Commission should build on the steps already taken to strengthen its complaints procedure, by ensuring that all complaints are logged and by acknowledging potential problems earlier in the complaints process. The Commission should set targets for reducing the number of complaints subsequently upheld by the Independent Complaints Reviewer.

(xii) The Commission should interpret flexibly its three month time limit for the referral of cases by complainants to the Independent Complaints Reviewer, recognising the opportunity to learn from potential mistakes made in handling its work.

MAKING CHARITIES MORE TRANSPARENT AND ACCOUNTABLE

6. Charities are accountable to their donors, beneficiaries and the public through their annual reports and accounts. Whilst some charities' annual reports provided helpful information on their activities, others did not permit comparison of planned with actual performance or comparison of performance over time. A Statement of Recommended Practice had been issued by the Commission in October 1995 to encourage greater consistency in the way charities report their activities, but the Commission acknowledged that transparency had yet to take hold across the sector. To improve reporting practice, the Commission had issued revised guidance in October 2000, the impact of which it was too soon to see.[4]

7. There are wide variations in the proportion of charitable income spent by charities on administration. The Commission considered such differences to be inevitable given the diversity of charities and the work they do. A charity providing services, for example, might have higher administration costs than an endowed charity whose function was to pay grants. To enhance scrutiny of performance the focus should be on groups of similar charities operating within the same or similar sectors. The Commission recognised the scope for improving the overall performance of charities through this form of comparison.[5]

8. In 1998, our predecessor Committee was critical of the large number of charities failing to provide annual returns and accounts to the Commission, and the lack of a policy for dealing with such non-cooperation. By June 2001, the Commission had collected 89 per cent of annual returns due from charities with financial years ended between March 1998 and February 1999, compared to an equivalent figure of 62 per cent at the time of our last examination. Despite this improvement in overall submission of returns, only 62 per cent of charities submitted their returns on time for financial years ended between March 1999 and February 2000.[6]

9. In 1998, the Commission established an Enforcement Unit to chase up outstanding returns, focusing initially on charities with annual income or expenditure over £100,000. Charities with income or expenditure in the range £10,000 to £100,000 receive reminder letters but are unlikely to be followed up more vigorously. Whilst the public might expect that charities of this size should be actively pursued the Commission noted that in the context of its limited resources it had given appropriate priority to pursuing the largest offenders. Unlike Companies House, the Commission does not have the power to fine charities for the late submission of documents. The Commission had, however, recently adopted a name and shame policy, publicising on its website details of when charities had last updated their records and submitted their returns.[7]

10. Charities that fail to update their entry on the Register for four or more years are referred to a specialist monitoring team to check whether they are still active. In September 1999, when the team was established, there were some 18,800 charities to check. By October 2001, the Commission had re-established contact with some 9,000, removed just over 9,000 from the Register, mainly inactive charities, and was still pursuing some 500. The Commission has procedures in place for safeguarding charitable assets when a charity is being wound up, and will seek to recover any assets over £2,500. The Commission was concerned, however, that inactive charities might hold on to charitable funds which could be better used. The Commission had launched a project to identify such funds and recover them.[8]

11. In 1998, our predecessors were concerned that the Commission was not sufficiently rigorous in checking the suitability of trustees of charities seeking registration. The Commission now carries out a series of checks on the trustees of new charities, for example against records of undischarged bankrupts or disqualified company directors. Once registered, however, the Commission expects charities to carry out their own checks on new trustees. Recent work undertaken by the Commission suggests that not all charities carry out such checks. The guidance available to charities is currently published in a number of places but not in an easily accessible form. The Commission was planning to issue new guidance once it had consulted with the sector. The Commission had also sought access from the Home Office to the Police National Computer to carry out checks on a sample of new trustees appointed to existing charities, but had yet to gain permission.[9]

INVESTIGATING MALADMINISTRATION AND ABUSE BY CHARITIES

12. One of the Commission's key aims is to maintain public confidence in the integrity of charities. Figures published in recent years have suggested that amounts collected via charitable fundraising, as distinct from amounts raised through shops etc, have declined. Factors affecting the level of funds raised vary. The Commission accepted that the public's confidence in the charitable sector had an important influence on donors although, in its view, it was not possible to identify the precise impact.[10]

13. To help maintain public confidence, the Commission has wide ranging powers to investigate potential maladministration and abuse. In 1998, our predecessor Committee was concerned that the Commission was not devoting sufficient attention to its investigation work. Between 1997-98 and 2000-01, the number of investigations declined by 22 per cent, from 272 to 212. The Commission has, however, evaluated potential concerns more effectively before deciding whether to launch an investigation. As a result, the proportion of investigations where weaknesses were substantiated rose from 76 per cent to 90 per cent over the same period.[11]

14. The Commission had acted promptly when potential causes for concern were brought to its attention. Some weaknesses remained, however, in the Commission's approach, for example in deciding the scope of investigations, monitoring the progress of inquiries and ensuring that effective remedial action was taken by the charity concerned. The Commission was issuing a new investigations manual to help staff tackle the weaknesses identified, including encouraging better identification of risk and improved use of the Commission's own investigation resources. Following the Government's spending review, announced in July 2000, the Commission's budget was planned to increase by some 20 per cent from April 2002, to £25 million a year. Around £1 million of this increase would be devoted to investigation work, for example, by recruiting additional investigation staff.[12]

15. The Charities Act 1993 granted the Commission wide ranging powers to deal quickly and firmly with failings in charities, for example the power to appoint receiver managers, remove trustees and freeze bank accounts. Where a charity was under investigation for irregularity, it was unlikely that it could succeed in dissolving and de-registering without the Commission's consent. In 1998, our predecessor Committee was concerned that these powers were not being used to expedite the closure of investigations. Since then the Commission's use of its statutory powers has generally declined further (Figure 1). The Commission said that its staff were encouraged to make use of the powers to help close an investigation, but was unable to explain why, if this was so, use of most of its powers had continued to decline.[13]

Figure 1: The Commission's use of inquiry powers 1996-2001⁽¹⁾

Powers
1996
1997
1998
1999 ⁽²⁾
2000-01
2001-02

Receiver manager appointed⁽³⁾
9
1
3
2
7
6

Trustees removed
9
26⁽⁴⁾
9
4
4
0

Trustees prevented from acting
89
50
34
26
21
16

Trustees appointed
19
24
5
4
8
4

Bank accounts frozen
58
41
37
31
39
48

Orders and directions requiring information or presence at a meeting
238
248
201
186
171
256

Other orders
Not
collected

11
18
7
1
8

Notes
⁽¹⁾ These figures show the number of times the statutory powers have been used not the number of cases in which powers have been used—since several powers can be used on one inquiry.

⁽²⁾In 2000, the Commission moved from reporting on a calendar year to a year beginning in April—so for this reporting period published statistics cover a 15 months period. The figures in this column are an estimate for the 12 month period.

⁽³⁾The Commission will appoint a receiver manager to a charity to carry out specific tasks, including winding up the charity, which the trustees are unable or unwilling to do.

⁽⁴⁾Eight discharged at own request.

Source: Charity Commission

With few exceptions, the Commission's use of its statutory powers has declined in recent years.

16. Registered charities are eligible for certain tax reliefs, for example, from income and corporation tax, and business rates. The tax authorities routinely check whether an organisation is a registered charity via the Commission's website. Local authorities, which grant reductions in business rates to registered charities, also need to know whether a charity owns the property. However, the Commission does not maintain information on relevant properties owned by charities, and considers that the primary responsibility for carrying out checks against potentially fraudulent claims lies with local authorities.[14]

PROVIDING A QUALITY SERVICE TO THE PUBLIC AND CHARITIES

17. The Commission has set targets for handling most of its core activities including registrations, provision of advice and the completion of investigations. Our predecessor Committee noted that the Commission had met only 10 of 26 key targets. By 2000-01, however, the Commission had met 23 out of 32 targets, without reducing its performance standards. Further progress is still needed, for example in meeting the target for determining charitable status - an average of 117 days compared to a target of 95 days.[15]

18. The Comptroller and Auditor General's Report identified differences in performance between the three Commission offices. In 2000-01, for example, the Liverpool office took 146 days to clear cases requiring advice and support compared to 89 days in London. Differences were also evident in the quality of case handling. The Commission acknowledged the disparity in performance between its offices which it was reviewing. Regional differences in performance were narrowing. By October 2001, the Liverpool office, for example, was clearing much of its backlog of charity support cases and the average turnaround time had fallen from 146 to 114 days. This remains, however, 15 days above the 99 day target for turning around requests for advice and support.[16]

19. The Commission's difficulties in meeting targets for handling advice and support requests are in part a reflection of increasing demand from charities. Over the period 1996-97 to 2000-01, demand for the Commission's services increased by 42 per cent and the average length of time taken to deal with cases increased from 80 to 112 days over the same period. The Commission was not satisfied with the slippage but its budget had been capped for the six years prior to 2001-02 which represented a cut in real terms of about 11 per cent. Despite the difficulty in providing timely responses, a customer survey set up by the Commission showed that 83 per cent of respondents were satisfied with the help received, and only two per cent were dissatisfied.[17]

20. Charities or individuals who are dissatisfied with the service provided or by the Commission's decisions can invoke the Commission's complaints and review procedures. Since January 2000, complainants who are not satisfied with the outcome of this internal review procedure can ask an independent person, known as the Independent Complaints Reviewer, to consider the case. Information provided by the Independent Complaints Reviewer showed that investigations of the Commission had been completed into 59 allegations of maladministration, of which 16 were either partially or fully upheld. The Commission said it was concerned by instances of maladministration, though these should be put in the context of the 40,000 cases it deals with each year.[18]

21. The Reviewer's first Report had commended the speed with which the Commission had responded when complaints had been upheld. However, the Reviewer had also noted that the Commission did not record all complaints received. The Commission noted difficulties in determining whether a complaint was actually being made, particularly in telephone conversations where it could be hard to pin down the source of the complainant's concern. Since the hearing in November 2001, the Commission has informed us that, on a trial basis, it has begun recording the number of complaints made by telephone.[19]

22. The Independent Reviewer can only consider cases if referred by the complainant within three months of completion of the internal review procedure. The time interval was set by the Commission who were not aware of this limit causing any difficulties during piloting of the new complaints procedures. The Commission acknowledged that some demand existed for older cases to be reviewed.[20]

23. At the time of the National Audit Office examination the Commission had not fully analysed complaints received to identify any lessons and pass them on to staff. The Commission said that it had now established a mechanism to feed back lessons to its casework staff.[21]

1 C&AG's Report Giving Confidently: The Role of the Charity Commission in regulating charities (HC 234, Session 2001-02) paras 1-3 Back

2 C&AG's Report, paras 3, 1.6, 2.4, 3.3, 3.13, and Figures 7, 11-12 Back

3 C&AG's Report, para 4 and Appendix 2 Back

4 C&AG's Report, paras 4.10, 4.13 and Cases 11, 12; Q11 Back

5 Q10 Back

6 C&AG's Report, paras 4.2, 4.7 Back

7 Qs 40-50, 65-74, 109 Back

8 C&AG's Report, paras 4.1-4.2, 4.6; Qs 69, 51-57 Back

9 C&AG's Report, paras 3.6-3.9; Qs 9, 16-19, 130, 132 Back

10 C&AG's Report, para 3; Q151 Back

11 C&AG's Report, paras 2.2-2.4 Back

12 C&AG's Report, paras 2.5-2.6, 2.10-2.11, 2.16-2.17; Qs 2-3, 6, 94, 135 Back