The National Audit Office (NAO) says that the Charity Commission is not regulating charities effectively and is failing to do enough to identify and tackle any abuse of charitable status such as the recent example of the Cup Trust.
According to the NAO's report, The regulatory effectiveness of the Charity Commission, the Charity Commission fails to assess risk effectively and often relies solely on trustees' assurances.
The watchdog is critical of the Charity Commission's failure to make more use of its enforcement powers, and said it is slow to act when investigating regulatory concerns, sometimes taking no action for several months. In total, only two trustees of charities had been suspended in 2012/13, and none had been fully removed .>
NAO issued a separate report on the Cup Trust, which the Public Accounts Committee (PAC) concluded earlier this year had been set up as a tax avoidance scheme. The Cup Trust submitted claims for £46m Gift Aid on £176m of payments from participants to the scheme, but gave just £152,292 to charitable causes between April 2009 and March 2013. The Gift Aid claims have not been paid.
The NAO said that the Charity Commission did not properly consider whether the Cup Trust met the key legal requirement of being within the jurisdiction of the High Court of England and Wales before registering it as a charity in 2009, and was slow in handling the case. It took two years to investigate the Trust, including ten months to gather information, and only opened a statutory investigation more than three years after its initial investigation began.
The Charity Commission did not take sufficient account of the scale and nature of the tax avoidance scheme in its case strategy, was narrowly focused on the legal position and paid insufficient attention to the wider issues of public detriment, which it would have been appropriate to pursue further, the report said.
In particular, NAO says the Commission should have taken more note of the fact that all of the Cup Trust funding would have come from Gift Aid, despite HMRC making clear that it did not think that Gift Aid was payable on this type of scheme. In assessing whether tax avoidance was acceptable for charities, the Commission used advice from 2001 relating to a materially different type of scheme.
NAO reports that the Commission has reviewed its register to identify charities with characteristics similar to The Cup Trust, such as low charitable expenditure as a proportion of income. It identified potential regulatory issues in 13 charities and is looking into these issues, but has concluded that it is unlikely that there are charities similar to The Cup Trust on the register. HMRC has confirmed that The Cup Trust is the only charity in England and Wales included within the eight avoidance schemes involving charities that have been disclosed to HMRC.
Among the NAO's recommendations is that the Charity Commission thinks radically about alternative ways of meeting its objectives with constrained resources. It also needs to make greater use of its statutory powers in line with its objective of maintaining confidence in the sector; and develop an approach to identify and deal with those few trustees who deliberately abuse charitable status.
Amyas Morse, NAO head, said: 'The Charity Commission has responsibility for protecting the good name of the charity sector as a whole, as well as other specific duties. It is too passive in pursuing this objective and in making the case for the resources to allow it to do so effectively.'
