The Charity Commission - Public Accounts Committee Contents

2  The Commission's regulation of charities and use of its powers

10. The Commission considered that its focus on charity registration had left its investigations and compliance functions short of resources, with only 23% of its staff allocated to investigations.[22] The Commission accepted that the overall number of investigations it undertook was small, but highlighted that it had made tangible improvements during 2013 when it had opened 26 new inquiries between 1 April and 30 September. This compared with fewer than 20 statutory inquiries annually over the last five years. The Commission emphasised that it needed to make sure that carrying out a greater number of investigations was sustainable, given its reducing resources.[23]

11. The Commission's use of its statutory powers has declined since we previously reported in 2002. In the three years to 31 March 2013, the Commission did not remove any trustees, it suspended only two trustees and it used its powers to restrict charities from entering into transactions on only 17 occasions.[24] The Commission told us that it needed to shift its focus towards investigations and the use of its powers and it felt that it needed to up its game very considerably. The Commission stated that following its 2011 strategic review, it had begun to put the building blocks in place to improve its investigation of abuse and wrongdoing within charities.[25]

12. The Commission's internal processes and investigations are slow and inefficient. The average time taken to complete a statutory inquiry almost doubled in the five years to 2011-12, reaching 700 days.[26] In some cases, the Commission has also been slow to take strong action and to escalate its response when investigating the most serious regulatory concerns. Several months have passed in some cases during which the Commission took little or no action, for example by its failure actively to follow up the issues under investigation with trustees. In one example, significant delays were caused by the Commission's inaction when the case-officer working on the case retired and it was transferred between offices. In a second case, it took the Commission nine months to arrange a meeting with the trustees of the charity.[27] We also heard from a correspondent who told us he had written to the Commission in July 2013 to raise concerns about the charity Afghan Heroes, yet had heard nothing from the Commission beyond an acknowledgement of this letter. After our hearing the Commission told us it had opened a statutory inquiry into Afghan Heroes on 22 November 2013.[28]

13. The Commission considered that there were a number of reasons for the long time it took to conclude investigations and that there was no single answer to remedy this. It considered that its culture was a factor in the slow rate of progress, and that it had become very process oriented, overly procedural and risk-averse in its work. It admitted that, in some cases, it had more people involved in investigations than it needed, and that it used people who were involved in multiple investigations simultaneously, which slowed down overall progress. In what the Commission admitted to be a short-term solution to completing highly sensitive cases, it now had non-executive directors on its board actively involved in case work.[29] The Commission accepted that it had been weakest in identifying deliberate wrongdoing and escalating that effectively into action. The Commission told us that it had been pressing its staff to be bolder and more confident about identifying cases and raising them quickly for investigation.[30]

14. The Commission also recognised that it needed to measure the impact and outcomes of its investigations, even though these were intrinsically more difficult to measure. It told us that it had made a start in evaluating the outcomes from its serious investigations and enforcement, to assess what form of protection its interventions work provided, but accepted that it needed to do more.[31]

15. The Commission's approach to charities is too trusting. It has frequently relied on assurances from trustees that they have taken action, or would take action to address its concerns, rather than checking directly whether trustees had actually taken the required action. The Commission allows its staff to make their own judgements about whether trustees can be relied upon.[32] The Commission accepted the National Audit Office's findings that Commission staff sometimes make decisions without evidence, and often make decisions based on information they have been provided by charities, without checking its accuracy. It believed it was often necessary to make judgments about whether to trust statements from trustees and it considered that its planned intelligence hub and risk profiling of charities would help inform those judgements. It also recognised that it could be quicker, or better, at recognising when something may be wrong in charities.[33] Following our hearing in March 2013 on the Cup Trust, the Commission reviewed the register of charities to identify similar charities to the Cup Trust. As a result of that review, it identified 13 charities for further examination and opened operations compliance cases on each. Three of these cases have subsequently been closed. However, only since the National Audit Office report in December 2013, has the Commission incorporated tax avoidance into its risk framework. It now considered tax avoidance to be a key concern and acknowledged that it had not previously given this prominence.[34]

16. The Commission does not profile charities to identify those most at risk of regulatory breaches and it has not taken tough enough action in some of the most serious cases. It has reduced its monitoring of charities where there is a high risk of mismanagement or misconduct, and been slow to modify its approach when evidence suggests trustees may be intent on abusing charitable status.[35] The Commission considered that its system to assess the risk that a charity might be used for non-charitable purposes as red, amber or green, and to follow up all red cases, has helped in examining those charities about which its staff had the most concerns.[36] The Commission told us that its strategic review had led to it having a greater relative focus of resources on investigations at the most serious end of the spectrum. However, due to the significant reduction in funding, it could not leave this area immune from spending cuts. It acknowledged that it still has a long way to go in investigating serious cases, but believed it was making progress.[37]

22   C&AG's Report, para 1.20 Back

23   Qq 21, 23, 26, 64-65; C&AG's Report, para 3.8 Back

24   C&AG's Report, para 15, Figure 21 Back

25   Q 3 Back

26   C&AG's Report, paras 3.8, 3.10 Back

27   C&AG's Report, paras 3.10, 3.17 Back

28   Qq 87, 99-100 and Ev 20 (Commission follow-up memo of 7 January) Back

29   Qq 32, 94, 98 Back

30   Qq 60, 64 Back

31   Q 32 Back

32   C&AG's Report, para 3.16 Back

33   Qq 12, 31, 39, 77 Back

34   Q 50; C&AG's Report para 1.26  Back

35   C&AG's Report, paras 17, 19 Back

36   Q 12 Back

37   Qq 33, 40-41 Back

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Prepared 5 February 2014