The Charity Commission - Public Accounts Committee Contents

1  The Commission's strategy and leadership

1. In March 2013, we examined the Charity Commission (the Commission) and HM Revenue & Customs, about their regulatory response to the Cup Trust charity. We concluded that the Cup Trust had been set up as a tax avoidance scheme and that it did not meet public expectations of a charity. We found it unacceptable for the Commission not to have been able to stop this abuse of charitable status.[1] On the basis of two subsequent reports by the Comptroller and Auditor General, we took evidence from the Commission on its regulatory effectiveness and leadership.[2] This has been the fifth time that we, and our predecessors, have examined the Commission since 1987.[3]

2. The Commission is the independent regulator of some 165,000 registered charities in England and Wales.[4] It is a non-ministerial department funded entirely by, and directly accountable to, Parliament. Its budget for 2013-14 is £22.7 million. The Commission's core regulatory activities include registering, monitoring and investigating charities; using its powers where there is mismanagement or misconduct in charities; and providing guidance to trustees of charities. Charities make an important contribution to UK society and the Commission has a key role in preserving public trust in charities. The annual income of the charitable sector is around £60 billion, and charities deliver around £14 billion worth of public services annually, funded through central and local government grants and contracts. The Commission's objectives include increasing public trust and confidence in charities, and regulating their compliance with charity law. Its objectives, functions and duties are set out in the Charities Acts 2006 and 2011.[5]

3. The Commission's budget will fall from £32.6 million in 2007-08 to £20.4 million by 2015-16, a reduction of 48% in real terms.[6] In response to its declining budget, the Commission carried out a strategic review in 2011. It told us that it had consulted a broad range of external stakeholders including the charity sector, the Government, Parliament and the public about whether the Commission was carrying out any activities that it should not be doing. However, this consultation did not enable it to identify any significant activities which it could discontinue or pass to other bodies.[7] A key conclusion of the review was that the Commission should focus on what only a regulator can do.[8]

4. The Commission's strategic plan for 2012-15 reflects its new approach to focus its activities on accountability and compliance. The Commission restructured and put new processes in place aimed at improving efficiency and reducing demand for its services. However, its approach to restructuring did not involve an assessment of the costs, benefits and risks of different models for regulating charities and meeting its statutory objectives.[9] The Commission accepted that its strategic review had not been radical, and had not produced a fundamental transformation of the organisation. It acknowledged that this would have required a whole range of options to have been on the table, including a fundamental look at its processes and their costs.[10]

5. The Commission aimed to cut spending in two areas. The first was to seek to change the thresholds above which charities are required to seek formal permission from the Commission, before undertaking certain actions, with the long-term objective of removing some of this activity entirely.[11] The second was to stop providing advice and guidance to individual charities. The Commission told us that over the previous three years it had sought to reduce pressure on its resources by encouraging charities to use its online advice and guidance. As a result, the number of incoming calls, e-mails, and letters had reduced by around a third. However, the Commission acknowledged that it still had a long way to go in focusing its reduced resources on its accountability and compliance functions.[12]

6. The Commission accepted that it has been under severe financial pressure and told us that it did not have the resources to do the job which Parliament requires of it. It considered that it had been asked to do too much with too little. Despite this, the Commission acknowledged that it had not determined a figure for the resources it needs to deliver what Parliament requires. It described its approach as aiming to do the best possible job with the resources it has.[13] The Commission considered that it would not be worth determining how much funding it needed as this would be unlikely to lead to any change in resources. It felt that this would be like trying 'to challenge an overwhelming tide of austerity'. As a result, its approach had been to aim to cope within the amount it had been given.[14]

7. The Commission does not know how much it spends on each of its key functions, and it does not have a system for recording the time spent by staff on different activities.[15] The Commission agreed that it needed to develop unit cost data for each of its key processes such as registration, compliance checks and visits. It confirmed that accurate cost data would be essential to inform any proposals for a radical transformation of the Commission to ensure that all recommendations were properly costed. It would also help the Commission determine the total resources required to deliver its functions under each alternative option for the effective regulation of charities. The Commission recognised that cost data were also necessary to understand which of its activities could be more efficiently provided by other bodies, whether through outsourcing by the Commission, or directly by different organisations.[16] The Commission told us that it was still at the very early stages in costing its activities, and had only just started this work. So far, it had established a steering committee which was exploring ways to generate cost data and it was trying to bring in outside expert advice, as it does not possess the skills internally.[17]

8. The Commission recognised that there was significant scepticism about its leadership and its current capability to achieve its objectives. The current Chief Executive's term is coming to an end and the Commission has sought external help in its search for a new Chief Executive, whom it hopes to have in place by Spring or Summer 2014. The Commission told us that there were three characteristics it would seek in a new Chief Executive, namely someone who: could examine situations strategically; had successfully delivered business transformation elsewhere; and would be able to secure support from the Commission's stakeholders and staff for the organisation's transformation.[18]

9. In 2013, the Commission gained a new Board, which is leading the development of a change management plan to tackle the Commission's engrained problems.[19] The Commission considered that its Board was very focused on holding the current Executive to account. The Commission said it was clear that it had to transform its culture and change its tone with charities, by taking a more rigorous approach in its investigations, and recognising and dealing swiftly and decisively with abuse of charitable status. It is also implementing all the recommendations in the National Audit Office Report.[20] However, the Commission acknowledged that changing its culture would be difficult and would take time.[21]

1   HC Committee of Public Accounts, Charity Commission: The Cup Trust and tax avoidance, 7th Report of Session 2013-14, HC138, June 2013 Back

2   C&AG's Reports, The regulatory effectiveness of the Charity Commission, HC 813, 2013-14, 4 December 2013 (hereinafter referred to as the C&AG's Report); The Cup Trust, National Audit Office, HC 814, 2013-14, 4 December 2013 Back

3   HC Committee of Public Accounts Giving Confidently: The Role of the Charity Commission in Regulating Charities, 39th Report 2001-02, HC 412, July 2002;HC Committee of Public Accounts The Charity Commission: Regulation and Support of Charities 28th Report 1997-98, HC 408, April 1998; HC Committee of Public Accounts 116th Report, 1987-88; HC Committee of Public Accounts 85th Report, 1990-91 Back

4   Qq 77, 120  Back

5   C&AG's Report, paras 1.1-1.2, 1.8, 1.10  Back

6   C&AG's Report, para 1.12 Back

7   C&AG's Report, para 1.15 Back

8   Qq 1, 4, 18, 33 Back

9   C&AG's Report, paras 1.14-1.16 Back

10   Qq 34-35 Back

11   Q 33 Back

12   Q 33 Back

13   Qq 12, 82-84 Back

14   Q 81 Back

15   C&AG's Report, para 1.20 Back

16   Qq 34-35 Back

17   Q 35 Back

18   Qq 35, 65, 127 Back

19   C&AG's Report, para 1.10 Back

20   Qq 14, 120 Back

21   Qq 2, 18, 34 Back

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Prepared 5 February 2014