The Charity Commission has made a good start towards becoming a proactive regulator, but still has a long way to go to make sure it is carrying out its functions effectively, quickly and within its budget, according to the National Audit Office.

In the follow-up report examining what progress the Commission has made against the recommendations of the critical NAO and Public Accounts Committee reports in 2013 and 2014, the NAO has concluded that so far the Commission had made “good early progress” in addressing the recommendations made by the previous reports and has “developed a credible high-level business plan”.

The Charity Commission launched its three-year change programme in September 2014 under new chief executive Paula Sussex. Its senior management team has been restructured and the Commission has redirected resources towards its investigations teams and regulatory activity.  

It has identified a number of areas where the Commission could improve further. These include: registering charities more quickly, making it clear to the sector and the public what can be expected from the Commission, increasing the sharing of data with other agencies and producing a breakdown of how much each of its functions cost. It has also warned the Commission’s board not to be involved in executive decision-making for longer than is necessary.

Amyas Morse, head of the National Audit Office, said: “It has clearly stated its intent to become a robust regulator. It now needs to deliver on its intent, and there is still much to do.”

William Shawcross, chair of the Charity Commission, said: “I am delighted that the NAO has recognised our ability and determination to transform the Commission into the robust, effective regulator the public and charities expect.”

He described the report as a “vote of confidence” in the Commission and its staff and that “the findings will spur us on to maintain the momentum of change. We have much hard work ahead of us and we are not complacent about the effort and the skills that are still needed to achieve our goals."

Margaret Hodge MP, chair of the Public Accounts Committee, said: "I am pleased that the Charity Commission has started to address my Committee’s recommendations and has begun a fundamental transformation of the way it works."

She added: "It ought to set alarm bells ringing that the NAO found examples in its random selection of cases where the Commission could have done more to check the accuracy of what trustees tell it. The Commission’s plans to automate some of its processes will need to be looked at very carefully so that serious cases of abuse don’t slip through the net.

"Although the Commission is sharing more information with other public authorities, it needs to get much better at gaining access to data held by others. HMRC should go further in providing information to the Commission if it is to preserve public confidence in the tax system." 

Backlog registering cases

The NAO report notes that the average time it takes for the Commission to register new charities has increased, with the number of applications rising from 5,949 to 6,661, and a backlog has built up.

The target for registering medium-risk cases within 30 days has not been met in the last 18 months and the target for registering high-risk cases within 50 days has not been met in the last four months.

To reduce the registrations team’s workload the responsibility for low-risk cases was transferred to the first contact team. The Commission told the NAO that it had taken time to train the first contact team and that long-term staff illness had contributed to the backlog.

In December 2014 the Commission appointed a temporary head of registration and has established a dedicated team to process those applications that are over the target time. It aims to clear the backlog by the end of January 2015.

Understanding how much it costs to regulate

Today’s NAO report emphasises the work that the Commission needs to do to understand how much money it needs, after it admitted to PAC that it did not know how much money it needed, to assist in budget negotiations with HMRC.

So far the Commission has worked out unit costs for 30 of its key activities, and the NAO report said: “The Commission told us it is confident it can manage the remodelled organisation within its 2014/15 budget of £21.1m.”

But it warns that: "It is not clear that the unit costs will remain the same when the Commission experiences increased pressure on its resources."

Automating routine tasks is key to saving money, and earlier this year the Commission received an extra £6m to improve its IT infrastructure.

Board involvement in executive functions

The Charities Act 2011 gives the Commission’s board the power to undertake executive activities.

In March 2014 Nick Hurd, then minister for civil society, agreed a temporary increase in the amount of time board members could dedicate to Commission work. It had previously been understood that they should spend between 12 and 18 days per year on their role.

Hurd increased this to 22 days for the six months leading up to September 2014, but said: “Once your new chief executive has settled into the role, I would expect to see board members stepping back into a more non-executive and less hands-on role.”

In January, Rob Wilson, current minister for civil society, extended this arrangement indefinitely to assist the organisation's transformation programme.

The NAO said that this approach was “justified” for the period up to mid-2014, but warned that: “However, the chief executive is now established in her role and in our view there is a risk that the board’s continuing close involvement in executive matters could become the norm.”

Sharing information with HMRC

The Commission shares information with other public bodies, including HMRC and the police. The overall volume of exchanges has increased but the Commission shares about twice as much as it receives in return.

It has 13 memoranda of understanding with other agencies and four others are being finalised.

Its agreement with HMRC, in April 2014, means that the Commission becomes aware of organisations that have registered to claim gift aid, but not applied to join the register.

Being clear about its role

As instructed by the NAO and PAC, the Commission is providing less advice and guidance to the sector and focusing on its regulatory role, but it needs to be clear with the charity sector and the public about the services they can expect.

The Commission has redirected 15 posts from corporate, policy and operations work to higher-risk monitoring and investigations work.

In June 2014 it cut the contact centre’s hours from 30 to 15 per week.

It has allowed umbrella bodies to offer pre-registration checking services since July 2014. And has seen the total number of “contacts” drop from 12,646 in January to 7,033 in September.