1.The Department has paid out over 90% of the funding it has available for charities but could not adequately explain how it had determined the total value of the package that was needed. The Department expects the funding to support tens of thousands of charities and voluntary organisations but has not estimated a specific number of organisations that the funding would help. The Department asserts that it would be very difficult to estimate what the specific loss due to the pandemic would be for many charities. The Charity Commission suggests that individual donations might have increased at the start of the pandemic by as much as £800 million. However, estimates from the sector itself suggest that the overall loss of income could range from £4.3 billion to £6.7 billion. The Department is unable to clearly explain why the Culture Recovery Fund, a support package for cultural organisations unable to operate during the pandemic, received nearly three times more funding than was allocated to organisations supporting vulnerable individuals and providing frontline services – who were dealing with large increases in demand for their services. The Department notes that charities can access other sources of government funding and COVID-19 support schemes. However, some charities have struggled to access other pandemic support measures such as the furlough scheme.
Recommendation: The Department should, within three months, set out the specific actions it is taking to monitor and understand the financial health and resilience of the charity sector, including how charities are making use of all applicable government pandemic support schemes.
2.We are not convinced that the Department’s decisions about how to allocate funds were sufficiently transparent. The Department asserts that in order to help it work at pace it decided to involve special advisers in preparing its advice to Ministers on which charities should receive funding. We did not receive a satisfactory response to our questioning around how the code of conduct for special advisors was applied in this instance given that part of the role is to reinforce “the political impartiality of the permanent civil service by distinguishing the source of political advice and support”. However, the Department could not adequately explain the role taken by special advisers or the safeguards put in place during what it admits is an unusual form for funding discussions. In particular, the Department is unclear as to why special advisers met with officials after the assessment of bids from other government departments had been completed or how those discussions influenced the advice given to Ministers. The level of influence exerted by special advisers and their involvement at the point of decision making appears to go beyond what we have previously seen as Members of this Committee or in our previous Ministerial roles. Similarly, the Department is unable to adequately explain how four organisations whose bids were initially given the lowest ranking scores succeeded in securing funding as Community Match Challenge partners, meaning the Department matched the amounts fundraised by these organisations. The Department also could not clearly explain why the Zoo Support Fund received funding intended for vulnerable people, particularly when the Department for Environment, Food and Rural Affairs already has a separate Zoo Animals Fund in place and many zoos are businesses rather than charities. The Department, however, told us that Ministers took the decision to allocate money to zoos because of concerns about the welfare of animals and the potential impact of zoo closures.
Recommendation: When applying new or innovative processes in unusual circumstances such as those experienced during the pandemic, the Department should ensure that it keeps appropriate records of decisions, including when this incorporates advice from special advisers. The Department, as part of learning lessons for the future, should examine how the steps it took to ensure there was a clear distinction between impartial advice from civil servants and the political advice offered by special advisers. It should then write to us setting out the steps it took and the lessons it has learnt for future.
3.The Department cannot explain the additional benefit it has received from its contract with a professional services firm to perform due diligence on charity applications to The National Lottery Challenge Fund (TNLCF). TNLCF is an organisation that is experienced in distributing funding, which formed part of the justification by the Department in selecting them as a partner. But the Department paid PwC £2 million for specialist support on data collection, analytical support and due diligence, including checks on all award decisions by TNLCF for the CCSF. TNLCF, however, was confident in the processes it already had in place to conduct these checks and award funding. The Department revised the arrangements after a short amount of time because reviewing awards under £10,000 was overly onerous. The Department asserts that the support from PwC was necessary due to the fast paced and pressured environment it was operating in but has no evidence of the added value it received from these additional checks. While the Department has been focussed on distributing money as quickly as possible, its objective has also been to distribute it in the right way and prevent fraud. The Department has to date identified fraud valued at £624,000 in the CCSF and has committed to reclaiming this money. Whilst we welcome this commitment, we know from our other reports on COVID responses such as procuring Personal Protective Equipment and administering bounce back loans that the need to act at speed can reduce transparency and increase the risk of fraud and error.
Recommendation: The Department should write to us within three months, setting out: how it judges the value for money of this contract and any lessons learned as to how and when it would apply a similar approach in future; and the fraud position across the package including how much money it has recovered.
4.The Department cannot demonstrate how its funding decisions have benefited charities and will not be able to do so until it completes is evaluation of the funding at the end of 2021. The Department has a limited understanding of the impacts of the funding on vulnerable groups and communities. Initial evaluation work conducted by TNLCF, which distributed £188 million through the CCSF, found that 75% of charities said that the funds enabled them to reach people that they had not worked with previously. The Department asserts that charities who had either religious or moral objections to accessing funds through the TNLCF, because of its links to gambling, were still able to benefit through other elements of the funding package, such as the Community Match Challenge scheme. However, the Department has no information on where 18% of the funds awarded are being used, equivalent to £101 million of taxpayers’ money and 2,882 funding awards. The Department admits that it does not have all the information it would like about the regional distribution of funds, in part because sometimes the geographical location of a charity’s headquarters is not the place where the money is spent. Initial results on the outcomes that are being achieved by the TNLCF appear positive. Four in five of those who have received funding report that it has helped them deliver improvements to mental health, and almost two in three said that it has enabled them to improve social connections. The Department is currently procuring an evaluation to understand the impact of the full funding package, which it expects to be available by the end of 2021.
Recommendation: The Department should, within three months, write to us to explain the criteria it will use to assess the impact of the funding. It should, by the end of December 2021, write to us with the outcome of the evaluation, ensuring this exercise represents charities that did not receive funding as well as those that did.
5.The Department cannot yet demonstrate that it fully understands the financial health and resilience of the charity sector or whether further government financial support will be necessary. The funding covers the period up until the end of March 2021 and any unspent funding will be returned to HM Treasury. The Department is unable to guarantee that the funding that has been provided will have met all increased demand across the sector. The Department asserts that fundraising activity has increased over the last year with rapid growth in private philanthropy and fundraising. The Charity Commission, however, reports that financial resilience within the sector is worsening, with more charities experiencing financial difficulties or at risk of insolvency. For example, the number of charities with incomes over £500,000 which have negative or no free reserves has more than tripled over the last year from 9% in April 2020 to 28% in March 2021. In addition, the number of auditor reports relating to matters of material significance within the sector has risen by 25%.
Recommendation: The Department should, within three months, set out the triggers that would prompt it to consider further government financial support to the charity sector.