Public Policy Sources #31:
The Charity Commission of England and Wales as a Case Study

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In its consultation document, the Panel emphasized a number of the perceived strengths of the Charity Commission, and in the final report this is repeated:

In some respects, the model we have proposed bears a resemblance to the Charity Commission of England and Wales. It would share with the Charity Commission several strengths: independence but connectedness (sic) to both governments and the sector; an active advisory role in promoting better administration of charities; oversight and hands-on remedial work in helping to overcome problems; knowledge of the sector leading to respected decisions on registration; and public accessibility, including through an excellent web site. (Building on Strength, p. 64)

Taking one of the last points first, what is important is not that decisions on registration be respected, but that they be correct. Within the voluntary sector in Canada, there is a feeling that Revenue Canada has been too restrictive in its interpretation of the requirements for obtaining charitable status. However, as the Department lacks a mandate to interpret creatively past court rulings on the subject, it quite rightly has limited itself to enforcing the law as it exists. In Canada, the constriction is caused rather by the relative conservatism of Canadian courts in adapting the definition of charity to changing conditions.10

The Charity Commission is authorized to rule on applications for charity status, and to interpret the law in doing so. It apparently performs this quasi-judicial function quite well, as its decisions rarely are questioned by the English courts (Drache, p. 48). But its justified good reputation in this regard has been gained not merely by "knowledge of the sector," but by legal expertise.

The Charity Commission also is very visible to the public, and appears to do a good job disseminating information.11 Its role in this regard, however, is much more limited than that envisaged for the new VSC, which, as we have seen, seems to be concerned at least as much with making representations to government as with providing information to the public and to voluntary organizations. The performance of the Charity Commission has not been uniformly good, however--indeed, in some areas it has been abysmal.

The Charity Commission as an oversight and regulatory body

On March 25, 1998, the British House of Commons Committee of Public Accounts (CPA) published a highly critical report on the performance of the Charity Commission.12 The CPA reached two general conclusions: that there was a lack of active management of the Commission’s responsibilities, and that the Commission was failing to strike an appropriate balance between its responsibilities for regulating and advising charities (CPA, Twenty-Eighth Report, v). More particularly, the CPA found that the Commission (CPA, Twenty-Eighth Report, v-xviii):

• was "paying too little attention to enforcing the accountability of charities";
• "showed a lack of management grip";
• needed "to do more to ensure that charities already on the register [of charities maintained by the Commission]13 continue to merit registered status";
• had failed "to develop a policy for dealing with lack of co-operation by so many charities [in providing annual returns and accounts]"14;
• seemed "unclear about the appropriate target for accuracy, and about the likely effectiveness of its planned measures to improve the register";
• had "not had procedures in place to check that the prospective trustees of newly registered charities had not previously been removed from such posts by the Commission or the Courts";
• had not made sufficient efforts with other public sector organizations to arrange routine receipt of information regarding potential trustees;
• had failed to meet its targets for obtaining charity accounts;
• had set targets for account submission that did not meet the legal requirement15;
• had failed to use its powers to ensure submission of accounts;
• had not always followed up matters of concern in a timely manner;
• had displayed "a lack of rigour during the testing of its new monitoring arrangements and [had failed] to use the material generated about individual charities";
• lacked "a clear policy for dealing with charities which consistently ignore its requests for information about their activities and financial standing";
• should keep the Committee informed of its progress "in developing an effective monitoring relationship with charities";
• was slow in generating "management information about support work" and inefficient in exploiting fully that information;
• had accorded low priority to responding to charities’ requests for support, once the target time limit for responding to requests was passed;
• needed "to demonstrate that it is responding to charities’ suggestions for improvements in charity support";
• needed to improve its record in rectifying "cases involving inefficiency or irregularity"16;
• should increase substantially the resources devoted to investigations;
• should review, in light of the lack of evidence supporting it, its assumption that abuse and maladministration were minor problems in the sector;
• saw its role as "first and foremost to support and promote charities" despite the fact that under legislation its "overriding aim is to promote public confidence in the charitable sector";
• employed only 8 percent of staff on investigative work,17 more than a quarter on charity support work, and nearly a third on resource management tasks such as personnel, training, finance, and information systems;
• "had made limited use of some of the powers" granted it under the Charities Act of 1993, and "had not yet set indicators or targets to reflect the requirements under the Act"18;
• had "achieved only eight of 22 performance targets in 1995/96, half of its targets in 1996/97, and expected to meet only two-thirds of its targets in 1997/98, despite the strengthened legislation" and a restructuring of management in 1995;
• "did not [systematically] pursue individual cases of concern arising from the questionnaire returns" sent out in the development phase of the new computerized monitoring system;
• "did not have a target for reducing the number of charities with no recorded income"19 despite its acknowledgement "that there were likely to be a lot of inaccuracies, particularly at the smaller end of the charitable sector";
• had "failed to deliver the accuracy of the register [of charities] promised"20;
• had failed to meet its legislative responsibility to maintain "a publicly available register of all persons removed as trustees by the Commission or the Courts";
• could not demonstrate that recommendations for remedial action made to charities were followed up on a routine basis;
• had "frequently left outstanding for a long period [survey cases referred to the support or investigation division] with little or no action taken, or [with] relevant paperwork ... missing or ... destroyed";
• had failed to use its power to demand response by charities to its mailings; and
• did not pursue potential matters of concern in a timely and thorough manner.

Although the CPA noted that the Commission was improving in certain areas,21 this record cannot be described in any other than highly negative terms. It could be argued that this poor performance was the responsibility of the current commissioners, but previous reports by the CPA in 1988 and 1991 had been equally critical of the performance of previous commissioners. Even passing the Charities Act of 1993, which granted increased powers to the Commission in order to assist it to achieve its mandate, appears not to have improved matters materially. From the minutes of evidence of the CPA’s proceedings, held on December 3, 1997, it is clear that the members of the CPA considered the Commission’s poor performance an ongoing problem, related as much to the structure and mission of the Commission itself as to its management. (See Appendix A for extracts from the minutes.)

Inland Revenue and the Charity Commission

Happily for the United Kingdom, the Charity Commission does not have sole responsibility for supervising charity compliance with legislation. Inland Revenue’s Financial Intermediaries and Claims Office (FICO) also plays a role, by monitoring tax exemptions claimed by charities. This is done simply by administering the existing tax regime, since the right to tax exemptions is decided by the Charity Commission.

On July 1, 1998, the CPA published a report22 examining FICO’s performance, and concluded that FICO was performing its role effectively. Indeed, FICO received praise for developing new risk-based criteria for determining which charitable organizations should be audited, and for its educational work with charities. This is not surprising given the fact that FICO has a clear mission and the expertise to carry it out.

As well, it was apparent from the testimony given to the CPA that both FICO and the CPA regarded FICO’s relationship with the Charity Commission to be less than ideal. Opinion was that difficulties stemmed partly from the fact that the Charity Commission reported to the Home Office and FICO to the Treasury, partly from legislatively-imposed restrictions on exchange of information and, in the eyes of at least one Committee member, partly from the differing agendas of the two organizations. Among other findings, the CPA concluded that the inaccuracy of the register of charities maintained by the Commission posed a risk to the Exchequer. (See Appendix B for the detailed findings of the report.)

Lessons from the British experience

As detailed above, the Charity Commission experienced difficulty performing the oversight and regulatory functions assigned to it, seeing itself more as a friend and facilitator for the voluntary sector. This would appear to be a systemic problem, and an explanation is readily discernible. Under its current mandate, the Charity Commission must act both as friend and enforcer simultaneously. Given the natural sympathies one would expect to develop in people working with the charity sector, it should not be surprising that the Commission is a fairly good friend to the sector and a very poor enforcer of legislative requirements. Almost inevitably, any organization with similarly conflicting goals would experience problems of this kind.

In its consultation document, the Panel argued against expanding Revenue Canada’s role in relation to charities, on the basis that the Department is primarily designed to be a "policeman," rather than a friend to charities, and that a culture change within the Department would be required if it was to perform effectively the other functions considered necessary to improve governance and accountability in the voluntary sector (Helping Canadians, p. 41). This point is valid, but the rationale applies equally on the other side. As it is not easy to see how a new VSC would not adopt the "friendly" culture of the Charity Commission,23 it would appear wise that "enforcement" responsibilities be reserved for Revenue Canada. Indeed, part of the Charity Division’s unpopularity in the voluntary sector may be attributable to its efficiency as an enforcement and regulatory body.

There is another phenomenon that is apparent in reviewing the CPA’s report on the Charity Commission--complacency. Over a period of years, under different management, the Charity Commission has demonstrated itself to be incapable of adapting itself to undertaking the roles expected of it, or indeed of improving materially its own efficiency, despite repeated injunctions for it to do so.24 The Commission was not even conducting some of its charity support functions adequately. It is almost inconceivable that a body dependent on funding from the private sector would have survived with a similar record for so long.

The lessons of the British experience, therefore, would seem to be that:

• combining regulatory and charity support functions in one organization is inadvisable;
• revenue departments are well suited to conducting regulatory oversight work on charities;
• the Charity Commission model has shown itself to be an ineffective means of monitoring charities’ compliance with legislation;
• the Charity Commission’s performance in supporting charities has not as effective as would be expected;
• the Charity Commission functions well as a quasi-judicial body authorized to make determinations on charitable status; and
• the performance of a monopoly body with guaranteed funding and lacking full accountability is likely to be poorer than expected by advocates of centralization.

Overall, the Charity Commission model does not seem to be very attractive if one is considering administrative efficiency and effectiveness of regulatory oversight.

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