PAC chair Margaret Hodge warned that there would be some “tough questions to answer” following publication of the National Audit Office’s report on the role the Commission played in dealing with the Cup Trust, a charity that turned out to be a tax avoidance scheme.
The PAC asked the government watchdog to investigate in June after its inquiry into the Cup Trust “raised serious questions about whether or not the Charity Commission was fit for purpose”, Hodge said. “This report suggests it is not.
“People in this country are hugely generous in giving to charities,” she added, “but the failure of the Charity Commission to detect and tackle abuse effectively risks undermining public trust in the whole sector.”
In its report on the Cup Trust, the NAO concluded that the commission’s approach had been too passive. It did not make enough checks when it registered the Trust in 2009 to ensure it met the legal requirements to register as a charity and was reluctant to take strong action during the initial investigation.
It even used the wrong guidance – dating back to 2001 and relating to a materially different type of scheme – in assessing whether tax avoidance was acceptable for charities.
The commission was also slow to appreciate the potential impact of the case on public confidence in charities, which it has a statutory duty to increase. It took it two years to investigate, including 10 months to gather information, and only opened a statutory inquiry into the Trust more than three years after its initial investigation began.
Yet alarm bells should have been ringing all along. Overall, the Cup Trust submitted claims for £46m Gift Aid on £176m of payments from participants in the tax avoidance scheme but it only gave £152,292 to charitable causes between April 2009 and March 2013.
“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,” the NAO report says. “It did not fully appreciate the scale and nature of the Gift Aid scheme.”
In a second damning report, this time on the regulatory effectiveness of the commission, the NAO concludes that although the commission does important and necessary work, it does not do enough to identify and tackle abuse of charitable status.
“It uses its information poorly to assess risk and often relies solely on trustees’ assurances,” the NAO says. “When 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.
“This undermines the commission’s ability to meet its statutory objective to increase public trust and confidence in charities. We conclude that the commission is not delivering value for money.”
NAO head Amyas Morse welcomed plans by the commission’s new board to reset its approach and strategy and encourages it “not to fall short of the radical change of pace and rigour which is evidently needed”.