Regulator rejects Public Accounts Committee report, but sector groups are divided

Today the Public Accounts Committee (PAC) delivered another damning verdict on the performance of the Charity Commission, claiming it is ‘not fit for purpose’ in its latest report, resulting in a firm rejection of these findings from the Charity Commision.

In their report the Committee accuse the Commission of ‘feeble’ performance, lacking any strategy and ultimately failing to regulate charities effectively.

The report goes even further than the National Audit Office (NAO) report from last December, which also criticised the Commission’s performance and concluded it was not regulating charities effectively.

At the time the PAC chair, Labour MP Margaret Hodge, suggested that the Commission might be abolished with its functions absorbed by HMRC, however, this threat was not repeated today.

But today, Hodge said: "We are dismayed by the fact that the Charity Commission is still performing poorly and failing to regulate the charity sector effectively. It is obvious that it has no coherent strategy and has been simply buffeted by external events.

"It is clear that the Charity Commission is not fit for purpose.

"The Commission too willingly accepts what charities tell it when it is investigating alleged abuses. It too often fails to verify or challenge the claims made.

"Some of the most serious cases of abuse have not been properly investigated. It has been too slow in removing or suspending trustees and in pursuing investigations promptly - as demonstrated in its feeble investigation into the Cup Trust."

Responding, William Shawcross, chairman of the Charity Commission, said: “I completely reject the suggestion that the Commission lacks a coherent strategy. We have already begun to implement the recommendations of the National Audit Office.

"We are making rapid, visible progress. The figures on new statutory inquiries and the increased use of our powers demonstrates that our new board and senior management team are implementing significant change.

"I am confident that we are taking the Commission in the right direction. We recognise that we must strengthen our approach to identifying and tackling the most serious abuses of charity – and we have asked for new powers to enable us to do this. We also have to ensure that the few cases of serious mismanagement and abuse do not undermine public trust and confidence in charities more widely. It is a shame the Committee hasn’t recognised this progress.”

Shawcross added that the Charity Commission has accepted and is already implementing many of the recommendations set out in the Public Accounts Committee report published today.

It has already acknowledged that its approach to tackling problems in charities was in the past too cautious at times and that it must improve the way in which it identifies and addresses deliberate abuse in charities. It has also accepted the need to make better use of its own data.

The Commission is opening more statutory inquiries into charities and using its legal enforcement powers more, as was recognised by the NAO.

For example, it now routinely uses its powers immediately to gather information during statutory inquiries, rather than asking trustees to volunteer information in the first instance.

The Commission confirms that it has:

Opened 48 inquiries since 1 April 2013; during the previous financial year (April 2012- March 2013) it opened 15 inquiries

Used its legal enforcement powers 657 times in statutory inquiries and operational compliance cases since 1 April 2013. The figure for the previous financial year was 216.

The Commission has been clear that its enforcement powers are insufficient and has welcomed the Cabinet Office consultation to extend and strengthen its legal powers, for example by giving the Commission a discretionary power of disqualification to prevent trustees from resigning to avoid removal.

The regulator is hopeful that Parliament will grant these powers, which will strengthen and speed up its most serious investigations into charities.

Other changes made since the NAO reported in 2013 include:

A major increase in the Commission’s programme of scrutinising and reviewing charities accounts: in 2012-13, the Commission analysed 5% of the sets of charity accounts received.

To date this financial year, the Commission has monitored 18% of accounts received to help it identify serious abuse in charities and improve the quality of charity reporting.

A new dedicated operational monitoring team, which promotes compliance by conducting follow-up work with charities involved in non-inquiry compliance cases.

A new Memorandum of Understanding with HMRC, strengthening the provisions under the information sharing gateway.

Shawcross noted how the Commission’s resources will decline from £32.6 million in 2007-08 to £20.4 million by 2015-16, a reduction of 48% in real terms.

And the Commission is now conducting a thorough review of its regulatory and business delivery model, including risk appetite, management, and IT capability, in preparation for the next spending review.

The Committee's report refers to two specific cases in its criticism:
Afghan Heroes (registered charity number 1132340): and Shawcross noted the Commissions do not accept that this is an example of slow progress.

The Commission contacted the charity in September 2013 about how much income was spent on charitable activities and various payments to companies connected to some of the trustees.

At a meeting in October 2013 the trustees were unable to allay the Commission’s concerns and so it opened a statutory inquiry into the charity in November 2013 and used powers to restrict the charity’s bank accounts.

The Commission expects to announce further developments in the case shortly.

Secondly, the Cup Trust, registered charity number 1129044: the Commission noted that it opened a statutory inquiry into the Cup Trust in March 2013 and appointed an interim manager to the exclusion of the trustees.

The NAO published a detailed report on this case in December 2013.

The Commission do not accept the Committee’s suggestion that its investigation was “feeble” and this was not the finding of the NAO, nor of the Charity Tribunal whose judgment in October 2013 reflected the strength of the Commission’s investigative processes and procedures.

ACEVO: another wake-up call
But ACEVO director of Public Policy, Asheem Singh, said this was another wake-up call for the Charity Commission.

"The Public Accounts Committee have issued yet another wake up call for both the Charity Commission and for the Government.

"At ACEVO, we have argued time and again that the Charity Commission has been crippled by cuts to its budget. These have undoubtedly had an impact on its ability to do its job.

"But the Commission cannot be absolved of all blame. In many cases it has been its own worst enemy.

"It’s crucial that the commission is capable of upholding the integrity of the sector and we support its call for stronger powers to do so.

"But we are concerned that it is often too ready to lose sight of its core mandate. The Commission’s intervention on the Lobbying bill, where it argued against a charity exemption, was particularly unfortunate.

"The independent charity sector needs an independent regulator. We urge the Government to heed the clarion call of the committee and hypothecate adequate resources to the Charity Commission.

"And we urge the Commission to focus on the things that matter: investigating wrongdoing and providing the regulation that will inspire confidence in the charity sector.”

CFG: sweeping criticisms
Caron Bradshaw, chief executive of Charity Finance Group, also said of the report: "The Public Accounts Committee report on the Charity Commission is a damning indictment of the sector’s regulator."

But she qualified this, by adding: "While there are certainly areas of the Commission’s work that need urgent improvement, such as how it registers and investigates charities, it’s too easy to make sweeping criticisms and declare wholesale failure.

"Worryingly, this approach may create a damaging impression of how well charities are run in the public mind and ultimately push the Commission in an unhelpful direction.

"Yes, there have been failings, instances of unchecked abuse and oversights; these must be addressed, but the Commission has also achieved a lot in helping charities to professionalise and comply with their duties.

"The impression created by the report is that the sector could be awash with rogue charities and cases of mismanagement."

Bradshaw said such impressions are particularly unhelpful at a time when charities are facing sustained and often unwarranted criticism.

But she noted: "By and large, charities operate to high standards, demonstrating trustworthiness and probity."

She added: "While we welcome regular scrutiny of the regulator, we are concerned that the requirement to report back to the Public Accounts Committee in a years time will result in a knee-jerk reaction by the Commission’s leadership.

"The new board have already taken steps introduced in a range of new measures to tackle many of the points highlighted by the NAO.

"It should continue on this route but also engage with the sector at this critical juncture. It is also vital that it both makes full use of the powers that it has and seeks additional resources as necessary."

DSC: failure of the Government
The charity Directory of Social Change (DSC) took a stronger stance, criticising the report.

Jay Kennedy, director of Policy and Research at DSC, said: "The Commission clearly needs to improve in some areas and is taking action, which is made increasingly difficult by the fact that its budget has been halved. That’s not its fault – that’s the utter failure of the Government to value the function they provide to the public and charities.

"Further, these kinds of brickbat statements from politicians like ‘not fit for purpose’ are totally irresponsible. Frankly I expect better from the PAC. The charitable sector depends on its regulator not just to take action against wrongdoing, but to enable charities to get things right in the first place – this is especially true for small charities, which represent the majority of the sector.

"These kinds of attacks won’t help the Commission to regulate better – quite the opposite. They simply demoralise staff and provide cheap soundbites that will be recycled ad nauseam in the press and political debate over coming months, forcing the Commission to spend more on its PR apparatus to defend itself.’

"We’re also deeply concerned that politicians seem to be pushing the Commission to focus purely towards a ‘bad-cop’ enforcement role above all else. Charities, their trustees and the wider public still need the Commission to enable a simple registration process, maintain the public register and provide accurate and publicly available guidance.

"In fact, it is impossible to adequately regulate such a vast and diverse sector without these functions. To presume that enforcement alone can achieve ‘effective regulation’ is pure fantasy. In fact, it’s also a false economy.’

"The PAC report comes a day after Charity Commission Chair William Shawcross announced that he would be lobbying the Treasury for more funding for the Commission to fight terrorism."

Kennedy concluded: "This is an almost microscopic issue in the charitable sector. There is little evidence of any widespread problem. Yet currently the Commission’s leadership seems to be prioritising it above all else.

"It is the Commission’s job to maintain public trust and confidence in charities but their masters ought to be wary of unintended consequences."

NCVO: welcome PAC's plan
But Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, was more sympathetic to the Committee’s findinds. He said: "The approach the Charity Commission took to regulation in recent years risked harming the reputation of charitable status.

"The Commission has to be an effective regulator in order to maintain the public’s trust in charities. Although cases of abuse are rare, in the past the Commission has been too slow to act when they do arise.

"We are pleased it is now making moves in the right direction. It has started taking firmer action and is seeking to enhance its legal powers.

"The Charity Commission still has significant work to do in order to restore its reputation but we could not do without its specialist role.

"I welcome the Public Accounts Committee’s plan to review the Commission again in a year and I hope it will be able to demonstrate that it is continuing to improve."

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