Margaret Hodge

The Charity Commission: down but not out – yet

By Dan Corry 4 December 2013

Margaret Hodge has described the Charity Commission as not ‘fit for purpose’ after a report from the National Audit Office (NAO) warns that its failure to clamp down on abuses ‘risks undermining public trust in the whole sector’.

She is certainly right to highlight some very serious failings from the Charity Commission in carrying out their basic functions. But this is also an opportunity to think more widely about what the Charity Commission should be doing and to be realistic about what can be achieved with a severely reduced budget.

The inquiry was driven by MPs’ concerns over the Cup Trust, a registered charity that gave only £55,000 to good causes while attempting to claim £46m back in Gift Aid on £176m donations. The Commission did little to quell public outcry, with a spokeswoman for the Commission maintaining the trust was not in breach of charity laws: ‘we could not conclude that the trustees have not complied with their duties under charity law’.

Margaret Hodge MP, chair of the Public Accounts Committee, came down hard on such apathy in the face of flagrant abuse, calling the Commission before the Public Accounts Committee (PAC) in April. The Committee concluded that ‘the Commission’s approach to regulation and enforcement lacks rigour. It has carried out few enforcement visits, rarely mounts prosecutions and removes very few trustees.’

It has to be said that the Commission had already taken some initiative of its own, launching a full investigation into the Cup Trust in April. Meanwhile almost its entire board was replaced in May. It more recently admitted that its handling of the Cup Trust was ‘mistaken’ and that it ‘should have gone further into considering the detail.’ And it has now accepted all recommendations made by the PAC, many of which have already been implemented.

The Commission has also identified 13 other charities requiring investigation. These double defaulters had failed to submit annual documents (annual reports, accounts and returns) twice in the preceding five years. However—although praiseworthy—this tally gives a false impression of a high rate of compliance. The Commission applied a narrow definition of default, looking only at charities that have failed to file two sets of documents in the last 5 years. Excessively and consistently late filings don’t feature in these numbers.

Today’s report backs complaints that the Cup Trust case is symptomatic of greater failings within the Commission, claiming it ‘continues to make little use of its statutory enforcement powers’ and ‘can be slow to act when investigating regulatory concerns’. Essentially, the Commission does important and necessary work, but it needs to provide better value for money to the taxpayer, and take tougher and more proactive action.

It’s being called on to display increased regulatory rigour at a difficult time, with a 30% reduction in funding over a 5 year period and a 35% reduction in staff. The value for money of such changes is something that the PAC might do well to look at. But there are some recent signs of grit, with a newly established closer working relationship with HMRC, allowing charities to apply simultaneously for registration as a charity with the Commission and for recognition as a “charity for tax purposes” with HMRC. And Sam Younger has called for stronger powers to deal with the most serious cases of abuse in charities and has used the opportunities presented by Lord Hodgson’s review of the Charities Act and the Law Commission’s charity law project to ask for a general power of disqualification of trustees, something that surely makes sense.

Clearly, a huge amount of work remains to be done. We’ve argued in the past that pressure to report on impact could bring to light the activities and missions of more obscure organisations: to keep and restore trust in charities the  regulator needs to reassure the public not only that charities are not fronts for tax evasion, or  worse,  but that they really are transforming charitable donations into useful social outcomes. This is ultimately the best way to remove suspicion around what charities actually deliver and restore faith in the sector.

2013 has been a year of scandal but also lessons learned—let’s hope this latest report gives the Charity Commission the focus it badly needs.