Memorandum from the Charity Commission
We are looking forward to appearing before PASC
on 10 December; as you know, we feel that Parliamentary scrutiny
is of vital importance to us as an independent regulator.
You will have received our annual report which
was published in July. Because this was some time ago, and in
order to maximise the effectiveness of the session in December,
we thought it would be useful to submit an update on major areas
of activity which have taken place in the meantime.
CHARITIES ACT
2006
We have continued to implement a number of provisions
of the Charities Act, including the registration of exempt and
excepted charities.
Excepted Charities
An estimated 2,400 excepted charities were due
to register as a result of the Charities Act 2006. These are charities
connected with churches and chapels belonging to various Christian
denominations; charitable service funds of the armed forces; and
scout and guide groups. Initially only those with an income above
£100,000 are being required to register. To date 1,034 excepted
charities have been registered; 897 are being processed by the
registration team; and 478 have indicated their intention to apply
and are submitting final documentation. We anticipate that the
majority of previously excepted charities will be registered by
the end of this month.
Exempt Charities
The first tranche of exempt charities to be
registered will include the colleges of Oxford, Cambridge and
Durham, the schools of Eton and Winchester, universities in Wales
(higher education corporations) and student unions in England
and Wales. Approximately 400 charities fall within this category.
Registration of this group of charities was to begin from 30 November.
However, there has been a delay in laying the Statutory Instruments
which are needed to enable this. We hope that there will not be
a significant delay to the proposed registration timetable. A
second tranche of exempt charities, likely to be able to register
from next summer, includes further education corporations, charitable
industrial and provident societies, and the governing bodies of
voluntary aided schools. This is a larger group of registration,
with about 4,000 Industrial and Provident Societies alone. Some
issues around potential principal regulators and changes to accounting
and reporting provisions require resolution before the Commencement
Order is drafted and in force.
The Children, Schools and Families Bill which
has recently been published contains a provision for academy schools,
which are currently subject to registration by the Commission,
to be automatically designated as exempt charities, with the Department
for Children, Schools and Families (DCSF) as their principal regulator.
We are asking DCSF for further information about the background
to this proposal, as it appears to indicate a reversal of the
approach taken by 2006 Charities Act, which was to address the
anomalies and reduce the public confusion about the position of
exempt charities.
On public benefit, you will be aware that we
published the conclusions of our initial assessments of 12 charities
in July. The four charities which we assessed as not currently
meeting the requirement have all confirmed to us that they will
draw up plans to address this. You will recall that under the
Act, we have statutory objectives to raise awareness and understanding
of the operation of the public benefit requirement. We are currently
completing research among charity trustees to provide a snapshot
of levels of awareness, understanding and attitudes towards the
public benefit requirement amongst charity trustees. We will be
able to use this research as a benchmark for the future, and as
a valuable tool for informing our work as we continue to support
and communicate with charities in meeting the public benefit requirement.
We anticipate publishing a report of this research, along with
our initial response to the findings, in advance of the hearing
on 10 December and will send copies to you and the Committee as
soon as it is available. By the time we see you, we also expect
to have announced the small group of charities which will take
part in the next round of public benefit assessments.
CHARITIES AND
THE ECONOMIC
DOWNTURN
In September we published Charities and the
Economic Downturn, drawing on the results of our third survey
asking charities how they were being affected. The survey found
that despite a slight increase in the number of charities being
affected by the recession (56%, compared with 52% at the beginning
of the year), over two thirds (71%) of the charities surveyed
said that they felt optimistic about the outlook for the next
six months. We have enclosed a copy of this research. The survey
found that just 9% of charities had considered merging, collaborating
or forming a consortium with another charity. We very much want
to encourage charities to work together in order to maximise the
impact for beneficiaries. We therefore published two new toolkits,
Choosing to Collaborate and Making Mergers Work.
The toolkits provide charities with a clear framework within which
to decide whether collaborative working or merging would help
them and their beneficiaries, with practical tips and case studies.
Earlier in the year we also published Big Board Talk: the conversation
all charities need to have, which asks 15 questions to help
trustee boards look at both the options and opportunities available
to them in the current circumstances.
COMPLIANCE WORK
Of course, ensuring effective compliance is
at the core of our regulatory role. Making sure that charities
operate within the law and meet their statutory requirements is
a vital part of maintaining and building public trust and confidence
in the sector.
Back on Track
We recently published Back on Track,
which complements our annual report but focuses on the most serious
abuse cases with which we deal, highlighting the key themes and
wider issues for charities arising from the Commission's compliance
work. This report, our second, covers the period from April 2008
to March 2009. Using case studies, we aim to improve trustees'
awareness of how to avoid similar situations in their charities,
and highlight what they need to do to ensure they fulfil their
legal duties in exercising control and management in the administration
of charities. Key issues highlighted by the report include:
— serious financial mismanagement;
— serious harm to beneficiaries, in particular
vulnerable beneficiaries; and
— threats to national security, specifically
terrorism.
The impact of the work detailed in the report
directly protected over £47 million of charitable assets
at risk. We also produce reports on statutory inquiries, and non-statutory
investigations where we feel there is a public interest, and examples
of these are on our website here:
http://www.charitycommission.gov.uk/investigations/inquiryreports/inqreps.asp7
Handling serious complaints about charities
We have modernised and refocused our investigatory
compliance work and now deal with it in a very different way.
We use a thorough assessment process to identify cases which can
be dealt with quickly and effectively through the provision of
advice and guidance. We also have a monitoring function, which
deals with cases where the evidence is not sufficient to launch
an investigation, but the concerns are serious enough to prevent
us from disengaging completely. This more sophisticated and effective
approach means we can target our resources where they are most
needed. As a result the majority of our investigations are now
non-statutory investigations (regulatory compliance cases, which
make up 89% of all new investigations opened in 2008-09). It is
important to note that often concerns are raised with us by other
regulators and law enforcement agencies, particularly where their
remit is relevant to charities. We also often share information
or refer cases to these bodies, and have developed an extensive
network of collaborative arrangements with them.
New Key Performance Indicator
Following on from the changes in our approach
to compliance cases, we now have a new Key Performance Indicator
(KPI) in this area, which better reflects the broader range of
our compliance activity. It focuses on effectiveness and quality
outcomes, as well as the timeliness of investigations (excluding
statutory inquiries, where we do not believe a target based on
time taken is appropriate).
The new KPI is in line with a recognised standard
used across the regulatory industry, draws on the principles of
the National Intelligence Model, and has been agreed with HM Treasury.
It remains stretching. The new KPI focuses on three core areas
of the Commission's compliance work (each with two measures):
— investigation, sanction and redress;
and
— prevention and deterrence.
A copy of the full wording of the new KPI is
enclosed.
INDEPENDENCE OF
NHS CHARITIES
The Commission has recently expressed some concerns
that new international financial reporting standards may be interpreted
by government auditors as requiring consolidation of NHS charities'
accounts with those of NHS trusts. This could undermine the perception
of those charities' independence from the state, and ability to
fundraise. As we have discussed with the Committee before, independence
is at the heart of what it means to be a charity and one of our
key roles as a regulator is to uphold this. We have enclosed a
short Parliamentary briefing explaining the position and the steps
we have taken to protect the independence of this type of charity.
We have raised our concerns with the NHS Financial Controller
and with HM Treasury. Discussions are ongoing and as at the time
of writing our concerns remain.
ONLINE SERVICES
As the Committee is aware, the Commission is
already facing a year-on-year funding reduction of 5% as a result
of the Spending Review settlement 2008-09 to 2010-11. Like all
departments, we expect further reductions in the next spending
round. Over the last few years, facing the reality of funding
reductions, we have worked hard to ensure that we continue to
provide an excellent standard of regulation, maintaining public
trust and confidence in charities, whilst making financial savings
year on year. We are concerned that further reductions in our
resources will now begin to affect core regulatory functions and
services, and are anxious that these consequences are fully understood
before funding decisions are made. However, we are looking at
innovative ways to deliver more for less, by improving our performance
whilst reducing costs. Our website has been a key tool: in 2008-09
we had over 30 million page views of the site, of which 25% were
made up of members of the public looking for information about
charities. Building on this success, we intend to launch a new
website in January, which will have an improved and streamlined
structure, making it easier for web users to find the key information
they're looking for. The site will also have a refreshed and redesigned
home page which takes users straight to the most important information
and most popular tools. Among the most popular functions is the
online Register of Charities, which was relaunched last year;
it will have further new features including an improved search
and tools making it easier to compare charities and understand
sector trends.
One particular success story in this area has
been the high take-up by charities themselves of our online services,
such as registering online and submitting annual reports and accounts
via our website, and the new design will make it even easier for
them to do this. This will give us the basis for developing more
online services and user-specific content for different types
of charities, for specialist users like charity lawyers or accountants,
and for members of the public. By the time of the hearing we should
be at the stage of carrying out usability testing, so should be
able to share more details of new features with the Committee.
With an election approaching, it is clear that
all political parties are envisaging a key role for the charitable
sector. We are very much looking forward to continuing to provide
the strong and effective independent regulation which will enable
charities to succeed.
November 2009
APPENDIX
NEW KPI 4
Detection:
— complete 90% of compliance assessments
correctly in 30 working days; and
— carry out a minimum of 20 compliance visits
annually to charities which are subject to monitoring, correctly
identified for a visit following an appropriate risk assessment.
Investigation, Sanction and Redress:
— complete all regulatory compliance cases
within an average of six months;
— ensure 90% of all investigations result
in at least one of the specified beneficial impacts which protect
charities from mismanagement, misconduct or abuse, namely:
— the value of charity assets protected
and/or recovered;
— vulnerable beneficiaries protected;
— reputation protected (for the charity
and/or the charity sector);
— charity governance restored to a
proper standard;
— conflicts of interest resolved; and
— fundraising concerns resolved.
Prevention and Deterrence:
— publish 90% of statutory inquiry reports
within three months of completing the proactive investigation
process; and
— publish an annual report on the Themes
and Lessons from the Charity Commission's Compliance Work
(Charities Back on Track), showing the durations of each statutory
inquiry, their impact, the use of sanctions (including legal powers
of remedy and protection), and the operation of our compliance
work.
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