In regulators we trust

By Iona Joy 8 May 2013

One of the key purposes of the Charity Commission is to engender public trust in charities. They say:

Charities receive support from society in many ways and the public have the right to expect charities to be open and accountable. Public trust and confidence in charities is high – we want to make sure it stays that way.’

It’s true that public trust is high – recent polling by Ipsos MORI suggests that 75% agree that most charities are trustworthy and act in the public interest.

But public trust is an incredibly fragile thing. The Charity Commission sometimes makes the case that attacking bad practice in public contaminates the entire charity brand—unlike in most sectors where coming down hard inspires confidence. But there isn’t a comparison. In every instance, a regulator baring its teeth when trust is breached will make the public feel more secure rather than less. A feeble regulator doesn’t inspire confidence.  No-one thanked the Financial Services Authority for failing to protect us from the banking crisis. And no-one will thank the Charity Commission for failing to deal with the Cup Trust.

We’d like the regulator  to follow the spirit of the law, rather than look  for excuses to sit back, legal uncertainties notwithstanding. Cup trust had £78m washing through its bank accounts in 2011, and £97m in 2010. I’ve looked at the 2011 accounts; they are extraordinary. In those two years The Trust raised a total of £175m through donations, spent almost the entire sum on gilts, which is fine if you are creating a foundation. But at the end of each year, the year end balance sheet had no investments on it at all, just  £162,000 of cash. So where did the gilts go? In the notes under ‘fundraising income’  it has ‘sale of gilts’. It seems in they sold the gilts for £7,542 in 2011 and £9,457 in 2010. I thought that gilts (UK governments bonds) were supposed to be sound investments, not something you lose 99.9% of the value on. You couldn’t make it up.

In my previous venture capital career, If we saw an anomaly like that, we called in the forensic accountants to investigate a ‘sale at under value’.  And to add insult to injury, by 2012, Cup Trust no longer had to file accounts, because its turnover had sunk to below the filing threshold of £10,000.

NPC’s concern is that there might be more Cup Trusts out there. We’ve seen accounts that similarly don’t ring true, and we’d like the regulator to be extremely vigilant—especially at this scale—to ensure that abuses of the system do not go unnoticed.

So good on Sir Stuart Etherington for chastising the Charity Commission leadership on its inaction. As he said in an interview with Civil Society: ‘They have a lot of work to do if they are to regain the trust of the sector.’