Sam Younger, Chief Executive of the Charity Commission, gave a speech on the regulator's role following the review of the Charities Act.
Thank you, I’m delighted to be taking part in this very well timed event.
As we have heard, the government published its response to Lord Hodgson’s report a few days ago. That response concludes what has been a valuable process of reflection on the impact of the 2006 Act and more broadly on the purpose and definition of charity and the role of the Commission as regulator.
To me one of the most striking features of the process has been the degree of consensus that has accompanied it. Lord Hodgson’s report included recommendations that have divided opinion - the payment of trustees is an example of an area that is and will probably remain controversial. But all parties involved in this review are agreed on the fundamentals. For example that the purpose of legislation in this area is to strengthen charities and to protect their special status and their independence for posterity. It is almost a tautology to say that having many charities fulfilling diverse functions in society is a good thing. But the central role charities play in all areas of public life, from education to culture to social welfare and beyond, is a particularity of our political culture which we should not take for granted. Few other countries have so many independent organisations contributing so much to the daily lives of people of all backgrounds.
Another point on which there is a great deal of consensus is the role of the Charity Commission. Lord Hodgson in his report, the Public Administration Select Committee in its review, and the government all agree that the Commission must focus on its core regulatory functions.
Again, it might seem self-evident that a regulator’s main job should be to keep the organisations it regulates on the straight and narrow. But the Commission’s statutory aims - which Lord Hodgson’s report did not recommend be changed - have long gone beyond those we might think of as purely regulatory. For example, one of our statutory aims is to promote the effectiveness and efficiency of charities. This slightly broader remit for the Commission recognised that we regulate a special class of organisations. 40% of charities on the register have annual incomes of less than £10,000, in other words are tiny groups run by busy and overwhelmingly well-meaning trustees. Regulating these groups has, in the past, been as much about providing support as responding to serious cases as they arise. This perhaps explains why the Commission had existed for over 100 years before it was granted powers to investigate charities in 1960. It’s hard to imagine a regulator for any other sector being established without investigatory powers.
But over the years, consensus has grown that it is for others - notably charities themselves - to provide the nurturing support that charities need to succeed. The regulator’s role is to promote compliance. The Commission must, through our guidance and case work ensure willing but often inexperienced trustees know what charity law expects of them. And we must tackle serious non-compliance and hold trustees to account.
This is certainly a conclusion the Commission itself has come to. Lord Hodgson’s recommendation regarding our priorities echoed the findings of the Commission’s own 2010-11 strategic review, which came in the context of significant cuts to our budget and which involved extensive consultation with charities themselves. That review concluded that we must serve the public by prioritising tasks only a regulator can fulfil. That is the principle underlying our current strategic plan, which identifies our two main priorities: promoting compliance and accountability among charities, and promoting the self-reliance of the sector. We have been working to that strategic plan since January 2012 and I think that in many respects we have been doing so successfully.
But I think it is now time for us to look again at whether we really are using our resources as effectively as we can and for the purposes the public expects.
The world has changed since 2010, public attitudes have hardened. I certainly don’t think public now cut charities any more slack than they do private sector organisations or public institutions when it comes to abuse or dishonesty. In fact, I think it is precisely because people’s expectations of charities are so high that failures in charities cause such outrage. And the criticism the Commission has faced over its handling of particular cases, as well as wider public scandals around the regulation of health care and the financial institutions have convinced me that what the public primarily expect of a regulator is the ability to identify and deal with the most serious failures and the most serious incidences of abuse.
The Commission must respond to this. Certainly the new board and I agree that we must put more energy into tackling abuse and holding charities to account. There are three areas in particular which we need to improve our performance.
First, we are going to have to become more proactive in identifying the most serious cases of abuse and trustee dishonesty. I think it’s fair to say that we have, in the past, been too focused on responding to complaints raised with us, for example by whistleblowers, and not hungry enough in searching out the abuses that are as yet undetected. Of course, cases of dishonesty are easy to spot in hindsight. Detecting them in advance, when we first start looking into a charity, is more of a challenge. But we must do better. One of the ways in which we intend to improve in this area is by dramatically stepping up our action against charities that repeatedly fail to file their accounts on time. Our experience tells us that defaulting on accounts is often associated with mismanagement and dishonesty.
To date, our efforts to tackle this problem have revolved around cajoling charities and raising public awareness of the online register which marks defaulting charities with a red banner. There is evidence that this is working. Over all, we’ve seen a gradual increase in charities filing on time in recent years - around 14% of charities filed their accounts late last year - and I think we’ve done a good job, given our limited resources, in prompting most late filers to get their act together. But I’m not convinced we’ve done enough so far to deal with trustees who persistently file late. Those who are willfully negligent, or worse, have may have something to hide. So we are stepping up our approach to those cases. If a charity’s income is over £25,000 its trustees are under a legal obligation to file a return and set of accounts with the Commission. My message to the trustees of charities in default is take action now to get your accounts in. You have been warned. My message to the public and corporate and government donors is don’t give to charities that have not filed their accounts with us.
We will also step up our account monitoring work, for example by examining closely accounts that are qualified by an auditor or independent examiner, for example because of concerns about a lack or proper accounting records. We will also be making it clear on our online register when charities’ accounts are qualified so the public is aware of this and can make more informed choices.
We have been criticised by the Public Accounts Committee for using our powers too infrequently during investigations. For example our power to remove trustees whom we suspect of wrong-doing. I don’t agree with all of the criticisms the committee made. For example, we sometimes start to use our powers to remove trustees but then find that the trustees in question resign when they receive the formal notice - a notice we are required to issue in law. We then have no power to disqualify them. We have been calling for more powers and raising issues about the existing powers for some time (including as part of our response to the Hodgson Review). A power to disqualify trustees is essential we believe for us to be a modern, effective regulator.
And it’s not just a matter of our legal powers. The Commission’s regulatory approach to date has been to focus on assisting trustees to resolve non-compliance and abuse within their charity by providing specific corrective regulatory advice. We do not take interventionist action unless it is clear that the trustees cannot resolve the issues themselves and/or that there is deliberate wrongdoing. This approach stems in large part from the fact that the overwhelming majority of charities the Commission regulates are run by volunteers who are for the most part giving their time and effort free of charge; our regulatory role is therefore quite different from that of other regulators.
That said, I accept that, in our investigations, we have too often been giving trustees the benefit of the doubt, allowing them too many chances to take steps themselves voluntarily to resolve problems and allowing them too long to respond to our requests. So we will be getting tougher with charities particularly once they are under investigation and tightening up on these points.
But to be clear - tackling the most serious abuses must not come at the expense of our work to promote compliance among the well-intentioned majority. We would be building up enormous risks for the future if we focused all of our resources on dealing with abuses that have occurred, neglecting our duty to help prevent problems from happening in the first place. So I am determined that we will continue to produce excellent online guidance that explains trustees’ duties towards their charities. This work, after all, was recognised by Lord Hodgson as being a key part of our role as regulator.
So the challenge for the Commission over coming months will be to strike a new balance that allows us to better detect serious wrong-doing, without weakening our ability to promote compliance. This is no small challenge - especially in light of our declining budget - but I am confident the new board and the Commission’s staff are equal to it.