HC 792

Written evidence from the Charity Commission

RISK FRAMEWORK (QQ54–5)

A copy of the Commission’s current risk framework can be seen here: http://www.charitycommission.gov.uk/our_regulatory_activity/our_approach/risk_framework.aspx

And here: http://www.charitycommission.gov.uk/media/89112/application-of-the-charity-commissions-risk-framework.pdf

The risk framework is a living document and changes regularly depending on a variety of circumstances, internal and external, to ensure it remains relevant and up to date.

AFGHAN HEROES (QQ87–8 and 99–103)

The Commission opened a statutory inquiry into Afghan Heroes (registered charity no 1132430) on 22 November 2013. The purpose of the inquiry is to examine various regulatory concerns about the management and administration of the charity, including:

¾ the significant risk to, and potential loss of, the charity’s funds or other property;

¾ unmanaged conflicts of interest and unauthorised trustee benefits;

¾ whether, and to what extent, there was mismanagement or misconduct on the part of the trustees, in particular, financial mismanagement and/or serious governance failures; and

¾ whether, and to what extent, the trustees have discharged their legal duties as charity trustees.

We have used our legal powers to restrict the charity’s and its trading subsidiaries’ bank accounts and the transactions they may conduct, so that the trustees cannot make payments from the accounts or dispose of property without the consent of the Commission.

We informed trustees that the inquiry had been opened on 13 December 2013 and told them then that we intended to make this public in due course. We have now done so, issuing a press release on 17 December 2013. We have kept the complainant updated.

INTERPAL (Q117)

Interpal is a registered charity (under the name Palestinian Relief and Development Fund, charity no 1040094). It has been designated by the US government, but this is not effective in the UK under UK law. As an entity it is nether proscribed under UK criminal law or designated under the asset freezing legislation in the UK (or under UN measures) and nor are its trustees. The Charity Commission has undertaken three statutory inquiries into Interpal in 1996, 2003 and 2006–09.

At the conclusion of our most recent inquiry into Interpal in 2009 we issued the charity with an order to carry out a review of the trustees’ due diligence and monitoring procedures, to dissociate the charity from the Union for Good, and to ensure that no trustee holds any office or role with the Union for Good. We monitored the charity’s compliance with the order closely, meeting with the trustees and their advisers on several occasions and seeking evidence to verify their assurances. We also conducted an onsite monitoring visit, inspecting records to ensure the processes and procedures as outlined in the charity’s Partnership and Funding Operations manual were being applied, suitable records maintained by the trustees to demonstrate the effectiveness of their decision making and that the trustees were properly exercising their trustee duties to safeguard the charity’s assets.

A copy of the supplementary report we published in 2012 detailing our assessment of Interpal’s compliance with the order is attached.

CHARITIES AND TERRORISM (Q109)

The Commission takes concerns about terrorist abuse of charities very seriously and acts robustly to deal with this issue. Where there are concerns about suspected terrorist abuse connected to a charity, the Commission will always liaise with and work closely with the police and the security services-sometimes on their advice we have to let the police and law enforcement agencies do their work first and delay our action, instead coming in later. Sometimes we work alongside other agencies, always mindful of the need to take care and do nothing that would hamper or prejudice a criminal investigation.

A copy of our evidence submitted to the Home Affairs Select Committee was published by the HAC in January 2014 as part of its ongoing inquiry into counter-terrorism and is available online here http://www.parliament.uk/documents/commons-committees/home-affairs/CT%20Written%20Evidence.pdf

In its evidence session the Committee referred to two cases, the Al Ikhlas Foundation and the IQRA bookshop.

THE AL IKHLAS FOUNDATION (no longer a registered charity)

The Commission did open two inquiries into this charity, for different reasons.

In the first inquiry, in 2007–08, we suspended and went on to remove an individual who was designated under asset freezing legislation as a trustee. We used grounds that had never been used before in an innovative way, as we were concerned the existing disqualification provisions did not cover the situation with the trustee. (Proposals to change these powers are currently being consulted on by the Cabinet Office).

The Commission opened the second inquiry into the charity in 2008 within days of the arrest of one of the trustees. We suspended the trustee during that inquiry and he resigned (again the limitations of our current powers meant once he had resigned we had no power to remove and disqualify the individual from acting a s a trustee in the future). We used our legal powers at the end of the inquiry to direct the trustees to take action. The charity was monitored and we proactively contacted them before the deadlines expired and proceeded to enforce it. This led, under pressure from us (where again we currently have no legal power to force a winding up of a charity) to removal of the charity from the register.

The report of our inquiry is attached.

IQRA (no longer a registered charity)

It is not true that the Commission was tardy in investigating this charity. We worked from the beginning with the police in the criminal investigation into the 7 July bombings and monitored the charity’s operations throughout; as any responsible civil regulator would and as the public would expect, we had to give primacy to the police investigation which seized the charity’s records. The Commission’s inquiry was opened immediately after the criminal proceedings finished, when we had the all clear from the police to do so.

The report of our inquiry is attached.

APPROACH TO MONITORING

The Commission has since the strategic review in 2011 had a team dedicated to pre-investigation monitoring and assessment; in October this year we set up a new operations monitoring team to bolster our monitoring capability.

We monitor charities where there are concerns relating to serious non-compliance, or where it is believed that there is a significant risk of serious non-compliance within a charity or class of charities. Our monitoring includes:

¾ close liaison with other government regulators and law enforcement agencies;

¾ reviewing information that charities supply to the Commission, along with appropriate and targeted scrutiny of accounts;

¾ formal monitoring to ensure that trustees have complied with regulatory advice and guidance following the conclusion of our formal regulatory engagement with a charity;

¾ proactive monitoring of the sector in areas that we identify as high risk and proactive engagement with those charities that may operate in high risk areas and may be facing problems; and

¾ conducting compliance visits to charities identified as potentially at risk so that we can establish if there are any serious regulatory concerns, and if so, provide regulatory advice and supervisory support.

Monitoring a charity may also be appropriate where we are unable to take immediate action, or are restricted in the action we can take to address regulatory concerns, because a law enforcement investigation takes primacy to our own, and where our intervention may prejudice or frustrate the criminal investigation.

The new operations monitoring unit set up in October 2013 is currently monitoring 103 charities. These are cases which are not assessed against our risk framework as presenting the highest risk or involving the most serious concerns, but which nonetheless need monitoring. Cases can be referred from one monitoring unit to the other, or to investigations or operations, if our assessment changes during the course of a case or we identify serious regulatory concerns which warrant formal investigation or corrective regulatory action.

Cases in the operations monitoring unit include:

¾ charities given an action plan following the closure of operational cases-where we monitor the charity to ensure compliance with the action plan through appropriate routes including correspondence, books and records inspections and meetings with trustees;

¾ referrals received from registration-where an organisation meets the legal requirements for charitable status and must be registered, but concerns have been raised by registration that the charity may not function as stated at the time of application, perhaps regarding levels of charitable activity or funds being used overseas. In these cases we might conduct a books and records inspection and a meeting with the trustee board. Our engagement so far has led to two charities dissolving as they could not satisfy the CC that they were charitable;

¾ referrals and disclosures to/from HMRC-involving a two way secondment and joint working and visits on cases of mutual interest as measured against both organisations’ risk frameworks;

¾ referrals and disclosures to/from UKBA-sharing information of concern to both organisations through a single point of contact and joint working in cases where serious concerns have been identified regarding tier 2, tier 4 and tier 5 licensing applications. The major impact regarding these applications will be on religious and educational charities with links overseas; and

¾ joint working with FRSB and major supermarkets, Transport for London, Network Rail to agree a standard format for requests to fundraise with increased security checks.

REVIEWS OF OTHER CHARITIES FOLLOWING THE CUP TRUST CASE (QQ89–91)

In addition to our ongoing work considering information passed to us by HMRC through the statutory gateway about charities of concern (which is detailed below) , the Commission last year undertook its own review to ascertain whether there were other charities operating in the same manner as the Cup Trust or if there were other charities operating solely for tax avoidance purposes. Accountants reviewed all charities on the register focusing on three characteristics:

¾ low charitable expenditure as a proportion of total income;

¾ high cost of generating voluntary income as a percentage of the voluntary income generated; and

¾ a corporate trustee registered outside the UK.

As a result of this review we set up monitoring on five charities and opened operational cases on 13. 10 cases have since been closed; two are awaiting a response from HMRC and one is being pursued for a response. There is no indication that any of the charities identified are set up in the same way as The Cup Trust.

Many of the issues we have identified are connected to the way matters are accounted for and a lack of clarity in the accounts, rather than significant regulatory concerns about how the charity actually operates. A common theme is the lack of information or clarity in the trustees’ annual reports.

In a number of cases more detail should have been provided about a charity’s achievements and investment, reserves and grant making policies. This would have helped to provide a clear overview of the charity’s activities and how the trustees made decisions in relation to the assets to ensure that the charity’s purposes are furthered effectively.

Other issues include ensuring activities are in furtherance of the charity’s objects (for example in relation to grants), the level and management of reserves and investments, the way the relationship between different organisations is presented in the accounts to ensure clarity, potential trustee benefits and conflicts of interests. However, none of these issues have been deemed serious or high risk and have all been dealt with through the provision of regulatory advice and guidance where appropriate.

We have also identified some complex structures and relationships between different charities, although so far have not identified any specific regulatory concerns in relation to this.

WORKING WITH HMRC

We have a strong working relationship with HMRC but since March we have made progress in strengthening this further. A revised Memorandum of Understanding was signed on 7 November 2013 which has made a renewed commitment to our relationship with HMRC and strengthened the provisions under the information sharing gateway.

There has been over recent years a significant increase in information sharing between both departments. We already have in place a well-established system of formal information exchanges to ensure this is performed consistently and in accordance with the law. However, the new memorandum is more specific about what type of information the agencies agree to exchange with each other and when. One criticism in the NAO report was that we did not always routinely notify HMRC of investigation cases if it was not a financial issue. We now let HMRC know of all inquiries even if there is not a financial aspect to the investigation.

More specifically, HMRC has provided information about relevant charities of concern under the statutory gateway, including the names of 12 charities they are investigating for possible criminal prosecution. The Commission has one open inquiry into these charities and has closed one compliance case and provided a witness statement to HMRC. We have also received additional intelligence from HMRC on four of the 12 charities they are investigating. Intelligence cases have been opened into these charities and witness statements provided to HMRC. We are awaiting additional information from HMRC on two of these cases. Two charities are no longer registered.

CABINET OFFICE CONSULTATION ON EXTENDING CHARITY COMMISSION’S POWERS TO TACKLE ABUSE IN CHARITIES (Q64)

We have long pressed for extensions to our powers to prevent and tackle abuse in charities. We raised this in the discussions which led to the 2006 Charities Act and our response to Lord Hodgson’s review of the Charities Act. Our discussions last month about the difficult in removing trustees, and the fact many resign when they are served notice, emphasises this.

We welcome and support the Cabinet Office consultation launched in December on amending and extending our statutory powers. If enacted, the changes in this consultation would make us a stronger, more robust and more agile regulator. In particular, we are especially keen to see the law strengthened with regards to trustee disqualification and powers to prevent and remedy deliberate abuse-the Committee can see from the cases of Al Ikhlas and IQRA highlighted in this submission examples of the impact such a change would have. We will continue to press for changes in legislation if we feel the current framework hinders our regulatory approach.

7 January 2013

Prepared 4th February 2014