The Charity Commission whistleblower who won his case for constructive unfair dismissal against the regulator earlier this year has detailed the weaknesses inherent in the Commission’s regulatory approach in an explosive submission to a Commons select committee.

In a lengthy submission to the Public Administration Select Committee which is holding an inquiry into the Charities Act 2006 and regulation of the sector, former Commission senior case worker David Orbison said the regulator "acts like the Wizard of Oz" but is actually weak.

He described the culture of the Charity Commission at the time he resigned as “extremely risk-averse and disproportionately focused on avoiding Charity Tribunal proceedings”.

He added: “There is something seriously wrong when a regulator is so afraid of criticism that they would prefer to take no action against a sham charity or trustees that they themselves have reported to the police.”

‘Many weaknesses in regulation of the sector’

Orbison said the case which sparked his own downfall was simply one illustration of “many weaknesses” in the regulation of the sector.

Criminals can easily exploit the Commission’s ‘proportionality’ approach by operating “below the radar” and submitting returns showing income of less than £100,000, he said.

“’Below the radar’ activity is shockingly easy to achieve. There are few if any checks on the accuracy of data submitted and no formal tie-in to bank information to verify false returns.

“Sham charities are unlikely to be found out as the Commission relies on complaints. Most shams are therefore undetected and if one is, if the charity is deemed to be small…the complaint will almost certainly be dismissed.”

Orbison added that the Commission has never prosecuted any charity for misleading it during a statutory inquiry: “The Commission simply does not enforce [that part of the Act]. Consequently, dishonest trustees lie with no shame or any concerns that such misconduct will result in any personal sanction. Unsurprisingly this makes investigation weak and ineffective.”

Antiquated investigation techniques

He said the investigative techniques used by case workers are “60 years out of date”. Investigators rely only on paper documents submitted by the trustees, and so investigations “preclude any examination of any IT-based documents – spreadsheets, accounts etc”.

Trustees under investigation control what documents are provided and case officers can only visit a charity’s premises with the agreement of the trustees. They must also rely on declarations from trustees as to where the charity’s money is held.

“Hence if a sham charity uses five bank accounts in the name of the charity but claims only to have one account that is all the Commission will look at. Siphoning off funds is a simple process.”

Commission ‘acts like the Wizard of Oz’

Orbison concluded: “The Commission acts as a Wizard of Oz with much huffing and puffing when it comes to the proper management of the sector but are wholly ineffective.

“The challenge facing the sector does not arise from reputable charities or from those running small charities where trustees make occasional slips, but with the determined criminal underworld that regard the Commission as nothing but a joke and something that does not need to be taken seriously at all.

“I believe the PASC should order a fundamental review of how the compliance function of the Commission should be strengthened.”

The Charity Commission declined to comment, though a spokeswoman said its chair and chief executive would be appearing before the Committee next week to answer questions.

Orbison’s case

David Orbison resigned from his post as senior case officer at the Commission in November 2010 after becoming too ill from stress to continue working. He alleged he had sustained bullying and victimisation by management in retaliation for formal complaints he had made about the regulator’s handling of an investigation into a charity the previous year.

Orbison claimed that despite concluding earlier in the investigation that the charity’s trustees were guilty of serious misconduct, the Charity Commission was so nervous of being challenged in the Charity Tribunal over the case, that it simply issued a letter of advice to the trustees and closed the investigation. He said this amounted to a “miscarriage of justice” by the Commission.

In the summer, Orbison won his case for constructive unfair dismissal at the Employment Tribunal in Liverpool by a majority verdict. But his three other claims were dismissed and the Charity Commission has since lodged an appeal against the unfair dismissal decision.

The Commission told the Employment Tribunal that the decision not to pursue the case further was taken by senior managers who considered it carefully for many months, and that Orbison had limited experience of the Commission’s regulatory role.