Watchdog 'failing to tackle abuse'
The Charity Commission is putting public faith in good causes at risk by failing to investigate abuses properly, a public spending watchdog warned.
In a highly-critical report, the National Audit Office (NAO) said it was too slow and passive and needed a "radical change of pace and rigour".
Commission chiefs were warned to expect "tough questions" when they appear before the Commons public accounts committee later this month.
Its chair, Labour MP Margaret Hodge, said the report suggested the body was not "fit for purpose" and "risks undermining public trust" in charities.
The NAO probe was prompted by the MPs' concerns over a complex tax avoidance scheme engaged in by The Cup Trust, a registered charity.
It gave just £152,292 to good causes despite attempting to claim £46 million back from the tax authorities in Gift Aid on its £177 million income.
The commission launched a full investigation in April, admitting that the outcry over the case had been "a disaster for the charity sector".
It insists a trawl of its records suggests the case was unique - though it did identify 13 other charities which required investigation.
But the NAO backed complaints the commission should have acted against the Trust far sooner - suggesting the case was symptomatic of widespread failings.
Its report concluded that the commission was "not regulating charities effectively" and was failing to provide value for money to the taxpayer for its £22.7 million a year budget.
"It does important and necessary work and its independent status is highly valued, but it does not do enough to identify and tackle abuse of charitable status," it said - noting that the NAO had "repeatedly identified concerns" in reports stretching back more than 25 years.
"It uses its information poorly to assess risk and often relies solely on trustees' assurances. Where it does identify concerns in charities, it makes little use of its powers and fails to take tough action in some of the most serious cases.
"The commission is too passive in pursuing its objectives, letting practical and legal barriers prevent action, rather than considering alternative ways to prevent abuse of charitable status and developing a sufficiently persuasive case for legislative change."
In the three years to March, not one charity trustee had been removed by the commission, only two had been suspended and there were just 17 instances where it intervened to prevent charities entering transactions, the report pointed out.
And it highlighted that one pound in every 10 of its budget was spent on accommodation in four separate centres and staff complaints about an over-complex and unreliable IT system.
Recent efforts to deal with a 40% cut in its budget failed to " put sufficient emphasis on the rigour of its registration process and its investigation of wrongdoing in charities", the NAO said.
"Its restructuring has not been informed by an assessment of the costs, benefits and risk of different models for regulating charities, and it has not identified the resources it needs to meet its statutory objectives.
"We welcome the commission's intention to change its strategy, and encourage the new board to bring about the radical change of pace and rigour which is so evidently needed."
In an accompanying report into the Cup Trust case, the NAO said the commission failed to check the organisation met the legal requirements when it registered as a charity in April 2009.
Its sole corporate trustee was a company called Mountstar, registered in the British Virgin Islands.
In 2011, despite concerns raised by HMRC - which has refused to pay back the claimed Gift Aid - the commission failed to open a statutory investigation and remained "too passive", the NAO said.
"The commission took too narrow a view of its remit, seeing the scheme as something for HMRC to deal with rather than seeing the bigger picture.
"It did not fully appreciate the scale and nature of the Gift Aid scheme nor the potentially detrimental impact of the case on public confidence in charities."
Commission chief executive Sam Younger has been summoned to appear before the public accounts committee on December 16, nine months after he was last grilled by the MPs about the case.
Mrs Hodge suggested at the time that there could be as many as 50 other tax avoidance cases - but the NAO report said the commission's internal investigations had discounted that claim.
"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," it said.
Mrs Hodge said: " The public accounts committee asked the NAO to carry out this work earlier this year after our inquiry into the Cup Trust raised serious questions about whether or not the Charity Commission is fit for purpose.
"This report suggests it is not.
"People in this country are hugely generous in giving to charities but the failure of the Charity Commission to detect and tackle abuse effectively risks undermining public trust in the whole sector.
"The Charity Commission...have some tough questions to answer."
Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said: " This report reflects what we have said for years. In order to maintain public trust, charities want a vigilant and effective regulator which takes prompt action in the rare instances of abuse.
"While it's important the commission doesn't throw the book at charities that have made a simple mistake, for too long it has veered the other way, taking a soft-touch approach in even the most serious cases.
'In the case of the Cup Trust, the commission became paralysed by a narrow, legalistic view which demonstrated a real lack of common sense.
'The commissioners seem to have realised the error of their ways and there is some evidence of progress. The commission is now making greater use of the legal powers it has to investigate charities, for example. But there is a long way to go.
"In particular there needs to be cultural change throughout the commission to take it from a period in which it was expected to be a friend to charities to one in which it must be an effective regulator, focusing on compliance with charity law.
"The NAO should review progress against its recommendations in 2015."
The Cabinet Office said it would launch a consultation "to address any gaps in (the Commission's) current legal authority" - in line with a recommendation from the NAO.
"In the past the Charity Commission tried to do too much and achieved too little," a spokesman said.
"This Government expects the Commission to focus on its core responsibility of regulating the sector.
"William Shawcross and his new board have started this work but we all know there is much more to do.
"As the NAO notes, the Commission should exercise the power it has more often.
"However, in line with NAO recommendations, the Cabinet Office will also launch a consultation to address any gaps in its current legal authority."