The Regulator for Charities in England and Wales

Risk and Proportionality Framework for the Commission’s compliance work – A Response to the Informal Public Consultation

(July 2008)

Introduction

In September 2007 we published on our website a risk and proportionality discussion paper. The purpose of this was to set out the enhanced approach to risk based regulation that we intend applying in our compliance work. We invited comments from the public for a two month period which ended in November 2007. In particular, we sought views on three key questions which are set out below.

Summary of public responses

We received twelve responses in total, including seven from sector umbrella groups. A summary of the responses against each of the three consultation questions is provided below, along with a section highlighting key additional points that were made.

1. “Do you think that the risks our compliance teams have identified are right? Are there any other issues that our Compliance and Support Divisions should be looking at, and most importantly, do you agree with our assessment of what is high risk?”

  • Most respondents found our assessment of the highest risk issues to be broadly accurate.
  • Further clarification was requested on: - the risk factors where a charity’s independence is called into question (and how we will determine this); issues that could damage the reputation of individual charities or the wider charity sector; and issues that could damage public trust and confidence in charities (because, as one respondent pointed out, not all charities, due to the nature of their activities, enjoy public support).
  • One umbrella group suggested adding another risk factor where the issue could damage the reputation of another charity or charities. Also, instances of serious disputes between charities were suggested as another risk and
  • There was a call that our future guidance on risk and proportionality should rank risks in accordance with their likelihood of occurring, their potential impact on the sector, and that we should communicate this approach to the sector.

2. “We consider that most risks can be modified, for example, high profile media involvement may amplify an issue. Are there other modifiers not listed that you believe should be taken into account?”

  • The majority of the responses raised concerns about the use of the modifying factors relating to parliamentary and ministerial interest. This was seen to indicate that we could be subject to pressure and influence from parliament and ministers in deciding a course of action and therefore bring our independence into question.
  • Some respondents were concerned to see media interest as a modifying factor because this was perceived as a risk that we may allow our agenda to be determined by the media. Others felt that it is legitimate for us to be more ‘interventionist’ in instances when there is media interest, but that we should be explicit when doing so.
  • One respondent thought that some of the modifying factors may be open to misinterpretation (for example, the factor relating to the annual income and size of assets of a charity) and would benefit from further clarification. It was therefore considered that our definition of modifying factors needs greater explanation and to be stated with more precision, as these can be seen to be altering or heightening our response.
  • It was suggested that we provide greater clarification on what is meant by “curtailment or withdrawal of services” and that we should apply this modifier only after the initial risk is apparent and
  • A membership charity suggested that we consider adding a modifying factor to take into account networks or groups of charities that have a regulatory role and therefore the potential to help to resolve the problem.

3. “We have set out our ‘zero tolerance’ issues. Do you agree with the list, or are there issues here that you think should be removed or other issues not mentioned that should be?”

  • The majority of respondents endorsed the list of zero tolerance issues However, several indicated where a number of these would benefit from clearer definition and fuller explanation. Particular attention was drawn to the need for greater clarification of what we mean by “links to or support for terrorism” and “connections to proscribed organisations.” There was also a call for a more precise definition of “not having adequate measures in place to protect vulnerable beneficiaries” and “failure to take significant remedial action by trustees as required by the regulator.”
  • Two respondents strongly believed that in response to a zero tolerance issue, we should open inquiries only on the basis of robust evidence and not as a result of suspicions or allegations and
  • It was suggested that substantial misuse of charitable funds should be added as a zero tolerance issue.

Summary of other key points raised in response to the informal public consultation

  • There was concern over the inclusion of the criterion “where public censure is the means by which we deliver effective regulation” as a factor which may lead us to open a statutory inquiry.
  • There was some criticism that we did not conduct a formal three month consultation process (particularly as umbrella groups need time to gather input from members).
  • It was requested that we give effective feedback on the consultation to reassure participants that the process had been genuine and their effort in responding justified.
  • It was requested that we consult fully when revising our publication “The Charity Commission and Regulation” and
  • It was suggested that we work and consult with umbrella organisations which provide tailored help and guidance to charities.

Commission feedback on the consultation and next steps

As a result of the public response, we have made some revisions to the risk and proportionality framework Insert link.

In addition, we have clarified below several of the issues raised in the consultation to explain the wider regulatory context in which the framework is set. We have also highlighted where we already have existing policy or guidance in place.

  • The call for further clarification of the risk factors questioning a charity’s independence.

We have existing guidance on our website which relates to issues about charities’ independence. This includes RR7 – The Independence of Charities from the State, CC9 – Speaking Out - Guidance on Campaigning and Political Activity by Charities and CC35 – Charities and Trading.

The call for further clarification of issues that could damage the reputation of individual charities or the wider charity sector; and issues that could damage public trust and confidence in charities.

We would like to emphasise that the issue here is not about public opinion or support for a charity’s purposes or work, but rather, about public confidence that charities are acting within the law. As such, we have not added this to the issues that we consider to be of greatest risk to charities.

  • The request for an additional risk factor where the issue could damage the reputation of another charity or charities.

We do routinely consider this factor and have amended the framework to reflect this.

  • The request for an additional risk factor where there are serious disputes between charities.

Disputes are not always something that we can or should get involved in and therefore it is not always an indicator that our intervention is required. To ensure that it is clear when we will or will not become involved we have revisited our policy and have published a document  - Conflicts in your charity - A statement of approach by the Charity Commission explaining our approach.

The call that our future guidance on risk and proportionality should rank the highlighted risks in accordance with their likelihood of occurring and the potential impact on the sector.

We do not believe it is appropriate to rank risks in this way in the framework paper. However, in future, we do intend to report on trends in our compliance casework and on the frequency of different types of risks and problems that they cause. We assess cases throughout their life and part of this process includes looking at the likelihood of risks occurring and their potential impact. We have amended the framework to clarify this point.

  • Concerns about using media interest and parliamentary and ministerial interest as modifying factors.

Media, parliamentary and ministerial interest are in themselves, indicators of public interest in a charity or charities. This means that it is likely that we will need to apply more resource and at a more senior level to manage the demands arising from this interest. It does not mean that our actions and decisions are influenced by external media or any parliamentary agenda.

  • The call for clarification of “curtailment or withdrawal of services” as a modifying factor.

Our concern here is not whether the trustees have made a legitimate and justifiable decision to curtail or limit services offered, but rather whether this has occurred as a direct result of the mismanagement, misconduct or abuse.

  • The suggestion that we add a modifying factor to take into account networks or groups of charities that have a regulatory role and therefore the potential to help resolve the problem.

We have taken on board this suggestion and have included in the framework an additional modifying factor which allows us to take into account the potential for self regulation through an umbrella body or other charity groups.

  • The call for clarification of some of the zero tolerance issues such as “connections to proscribed organisations” and “not having adequate measures in place to protect vulnerable beneficiaries”.

Our operational guidance on Charities and Terrorism - OG96 provides guidance on the law relating to proscribed organisations and we have committed to develop this further, along with other guidance on charities’ legal obligations under the UK’s terrorism legislation as part of our counter-terrorism strategy. Our Reporting Serious Incidents guidance for charity trustees provides useful information in relation to protecting vulnerable beneficiaries.

  • The request that inquiries should be triggered only on the basis of evidence and not as a result of suspicions or allegations.

We take very seriously the decision to open an inquiry. In most instances, when we do so, it is based on our initial assessment of the allegations or supporting evidence. However, there may be occasions when, due to the potential seriousness of the concerns, we consider it necessary to act on the basis of allegations only. In these instances, it is usual that the allegations have been made by a verifiable source, for example, another regulator, or that further enquiries have given the allegation more weight.

  • It was suggested that substantial misuse of charitable funds be added as a zero tolerance issue.

If we establish that charitable funds have been, or are likely to be misapplied, we always act swiftly to take any necessary protective action, usually by “freezing” bank accounts. As such, we do not consider that the substantial misuse of funds should be a zero tolerance issue.

  • Concern over the inclusion of the criterion “where public censure is the means by which we deliver effective regulation” as a factor which may lead us to open a statutory inquiry.

We realise that this statement may have been open to misinterpretation and have therefore removed it from the revised framework.

The Commission has not yet set a timetable for revising this publication.

  • The suggestion that the Commission work and consult with umbrella organisations which provide tailored help and guidance to charities.

We are fully committed to, and have for some time worked with umbrella organisations, assisting them, as appropriate, with the development of guidance and governance standards. For example, we are currently developing guidance 'Protecting charities from harm: Charity Compliance Toolkit' which will include, for example, guidance on risk management. As part of this, we will be actively engaging and consulting with relevant umbrella organisations as well as individual charities.