The National Audit Office has concluded that the Charity Commission is too passive, is not adequately meeting its statutory objectives, and is not delivering value for money.

In a highly critical report published today, the NAO lists a number of failings by the charity regulator, and makes several recommendations.

The Charity Commission said it accepts and endorses many of the recommendations, and that a number are already being implemented. But it points out too that the NAO did not take an holistic view of the regulator's diverse activities and focused the review too narrowly on its investigatory and compliance functions.

Commission’s budget

While the NAO noted that the Charity Commission has had sharp budget cuts (40 per cent drop since 2007) as the size of the sector has remained stable, it added that the Commission has not been able to identify what budget it needs to regulate effectively.

The NAO found that internal reorganisation at the Charity Commission has successfully reduced the number of routine inquiries it receives, but there still are challenges to the Commission’s efficiency.

The report notes that the Commission is located at four sites across the UK and spends 10 per cent of its budget on accommodation. It highlights the Commission’s flat management structure, with chief executive Sam Younger having 11 staff directly reporting to him, placing heavy demands on his time. And it says the Commission’s new IT system has been unreliable and that staff find it difficult to find relevant information.

Too reliant on trustees’ assurances

The NAO is also critical of the Commission’s investigatory role. It points out that in 2001 the NAO reported that the Commission’s use of statutory powers was in decline, and argues its use of those powers have declined further since. While conceding that some practical and legislative barriers hinder the Commission’s use of its powers, it also says it had not been effective in getting these barriers removed.

It accuses the Charity Commission of being slow to act when investigating regulatory concerns, not taking tough enough action in some of the most serious regulatory cases, and relying too heavily on information solely from trustees and professional advisers. 

It continues that the charity regulator is “reactive rather than proactive” and makes insufficient use of the information it holds to identify risk; “Almost all of the Commission’s investigations are prompted by concerns received from external sources rather than its own data analysis.”

For these reasons, the NAO concludes that the Charity Commission is not regulating charities effectively, and not delivering value for money.

Recommendations

The NAO recommends that the Commission revisit its business model and think “radically” about alternative ways to meet its objectives within constrained resources. It also says that the Commission needs to develop ways to measure and report the effectiveness of its regulatory activity, and make greater use of its statutory powers.

The report adds that the Commission needs to develop an approach to identify and deal with trustees who deliberately abuse charitable status and introduce - “without delay” - sample checks of the information and assurances trustees provide.

It also says that the Charity Commission needs to work more closely with HMRC, and it asks the Cabinet Office to assist the Commission in securing legislative changes to address gaps and deficiencies in the Commission’s powers.

Charity Commission acknowledges it has been 'too cautious'

A Charity Commission spokeswoman said today it accepts and endorses the recommendations of the NAO, and that many are already being implemented. “We recognise our approach to tackling problems in charities has been too cautious at times, especially where there is a suspicion of deliberate abuse. We also recognise the need to use and analyse our own data more effectively.”

However, the spokeswoman also pointed out that the NAO did not review many areas of its core responsibilities, such as holding charities to account through the public Register of Charities; providing guidance for charities, professionals and the public on the legal and accounting framework; giving legal permissions and consents, or its partnership work to improve standards of governance in charities.

“The Commission considers this essential work, critical to preventing abuse and to driving public trust and confidence, and required by our statutory objectives,” she said. “We do not therefore believe the NAO's conclusions on the effectiveness of our regulation and value for money as a whole are justified by the evidence."

Sam Younger, chief executive of the Charity Commission, added: "The Charity Commission has complex tasks - as registrar, enabler and tackler of abuse in a large, diverse and almost entirely voluntary sector.

"The challenge before us is to identify which areas of activity should be reduced further to free up the extra resources to meet the NAO's recommendations on registrations and investigations. I would also welcome a wider debate about the implications of the report for the Commission's priorities and approach."

Some of the steps the Commission has already taken to improve its approach to tackling the most serious cases of abuse and mismanagement in charities include:

• Stepping up its serious case work - during the six months from April 2013, it opened 26 statutory inquiries (in comparison, during the 12 months 2012-13, it opened 15 inquiries)
• Changing its approach to gathering information during statutory inquiries – it now routinely uses its powers to direct charities to provide information, rather than requesting the voluntary release of information first
• Establishing a new dedicated operational monitoring team, which promotes compliance by conducting follow-up work with charities, and
• Agreeing a new memorandum of understanding with HMRC, which updates its existing regime of information exchange and makes a renewed commitment to ensuring necessary safeguards are in place that allow effective investigation and the exchange of information.