The Regulator for Charities in England and Wales
April 2005
This independent report was commissioned by the Charity Commission, the regulator for charities in England and Wales. It is the result of 74 in-depth interviews with some of its key external stakeholders. These stakeholders work in both large and smaller charities; social enterprise interests; umbrella organisations; Whitehall and Westminster; other regulatory bodies; the media and funding organisations. The interviews were conducted between October and December 2004.
This research explores views on the role and function of the Commission as the sector faces change. It assesses the key challenges it faces and how they may be addressed from an organisational and strategic perspective.
The research was led by Daniel Harris, Director, DHA Communications. Further research and analysis was provided by Judy Tasker, Matt Cain and Karen Bartlett, DHA Consultants. Additional support came from Jackie Humphreys, DHA Administrator.
DHA is grateful to staff and commissioners at the Commission who have contributed their advice and expertise to the development of this project. We would also like to thank contributors to the research who have given up valuable time to conduct interviews for this project.
We look forward to their views following the publication of this report.
| Daniel Harris, Director DHA Communications |
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This report; The Charity Commission: Regulating for the future is published at an important time for both the charity sector and the Charity Commission.
The Charity Commission stands at the centre of a diverse and changing sector. Its role is to ensure that charities operate effectively and that public trust and confidence is maintained and improved.
As the sector grows and its activities and sources of funding change so too do the challenges facing the Commission. In order to be a modern regulator and to protect the public interest the Commission has to continually reassess its role and its skills and capacity to fulfil its duties.
This process has acquired a particular focus following the publication in 2002 of Private Action, Public Benefit - the Cabinet Office review of the context in which charities operate. This review paved the way for the publication of the Charities Bill in December 2004 which gave charities greater flexibility to respond to developments in the wider community and put the concept of public benefit at the heart of charitable activity. Whilst the Bill was not enacted in the last Parliamentary session before the election, its key concepts are already driving changes within the sector.
In financial terms, the Comprehensive Spending Review in July 2004 gave a cash-flat settlement to the Commission putting increased pressure on resources and the need to target activities effectively.
The Charity Commission has already made changes to the way it operates through the publication of a new set of principles that underpin effective regulation. It has opened up its own processes to greater public scrutiny through the publication of decision-making processes and holding open board meetings. It is developing new methods of engagement with its stakeholders and is investing in information technology and its web-driven services. It has also split the functions of chair and chief executive and made new appointments to these posts in 2004.
In recent months the Commission has undertaken a comprehensive strategic review and published Charity: Working at the heart of society - setting out a new vision and mission for charity regulation and key priorities towards 2008.
The Charity Commission: Regulating for the future has sought the views of many of the people who will directly and indirectly shape the future of the Commission. Their knowledge of the Commission and the context in which it operates is generally high. Some have strong views about what an effective regulator for charities should look like. The survey group was never meant to represent the sector or indeed the Commission’s customer base. It reflects a broad spread of individuals and organisations that would ensure the research gained useful insights from different perspectives.
All agree that, with a dynamic and engaging regulator, charities and public confidence will flourish and they welcome the changes that the Charity Commission is already starting to make.
Through the comments and opinions expressed during the course of this research, a picture of a modern regulator for charities has emerged. These views have been brought together to create key attributes of a regulator for the future.
This survey group wants the Charity Commission to be:
This survey assesses patterns of opinion and includes a series of options and areas of focus, some of which are already being progressed, that respondents believe will enhance the Commission’s role and functions.
The Charity Commission may wish to consider:
Overwhelmingly, this survey has found that respondents want the Charity Commission to help maximise the impact of the work that charities do. Most believe that requires the regulator to have a strategic purpose.
Charities and other key opinion-formers want the Commission to achieve this aim by becoming more focused on improving the effective operation of charities and encouraging higher standards of performance.
“The Commission should be absolutely clear that its role is about driving improvement. That means figuring out what works and sharing it with a wider group. And improvement needs tools and devices to create the pressure to improve.”
Most in the survey believe that the strategic purpose of regulation must therefore be about the performance and improvement of charities so that they have more impact. This, they believe, will increase public trust and confidence in the sector.
“They need to take the concept of regulation and make it real – for the sector and the public – making it a catalyst for improvement not an instrument of bureaucracy.”
A majority of those in this survey think that the Commission’s strategic aim can be achieved by adopting a more proactive and risk-based approach to regulation. This means the Commission using the information at its disposal more intelligently to ‘track’ the performance of charities over time.
Most in the survey believe that, for the majority of charities, regulation should be ‘light’. This means that they will be subject to minimum standards of performance and behaviour. They will be given support and information to help them self-regulate and improve. They will also be monitored proactively to determine whether intervention is required. If they are found to have acted in bad faith or fraudulently they will be subject to swift and decisive action.
“The weight of regulation should be appropriate. Very small charities should receive very little regulation. Advice and help should be enough for most.”
However, it is clear that, with a diverse sector and finite resources, not all charities can be regulated in exactly the same way. There is a strong sense across this survey group that the Charity Commission should concentrate more resources on the larger charities in the sector. This is because, in general, the risk to public confidence is great if larger charities get into difficulty. They are more complex organisations, handle larger sums of money and usually deal with greater numbers of people.
Overall, whilst the majority say there needs to be a proportionate approach to regulation, respondents believe that regulation must not hinder the day-to-day running of organisations. In order to have the greatest impact, charities need the freedom to operate.
This view is largely borne out in the area of mergers. Whilst many agree that there is a great deal of duplication of activity, most feel that is not the Commission’s role to decide whether or not organisations should exist. It is for the Commission to ensure rigour at the point of registration and to highlight the implications of duplicated activity, say respondents.
Those questioned for this research want regulation to support and facilitate what charities do, rather than it representing a bureaucratic obstacle. This means targeting regulation where it is most needed, minimising bureaucracy and maximising the impact of regulation.
Some respondents believe it is important for the Commission to build on its work with sub-sectors of charitable organisations and those that work with them. By developing its understanding of organisations by type or those working in certain fields, the Commission can ensure that its advice and approaches are appropriate and help those organisations perform better.
“There needs to be sub categories of charities that take into account their specific requirements. A private trust will not be run like a large charity, for example. The Commission needs to have rules that apply to all, and good practice advice that applies to segments of the sector.”
The focus on public benefit within the Charities Bill means that respondents place the impact of the work of charities high on the agenda. One in five respondents think it vital the Commission plays a leading role in helping to define and apply this emerging policy area.
Whilst some urge caution that the Commission does not become involved in controversial debates around the status of public schools, a large number of respondents say that the Commission should conduct a significant programme on public benefit over the next phase of its operation. This is likely to bring together those within the sector and beyond to define public benefit; explore and develop assessment models; and create the framework within which charities can apply methodologies for themselves.
“It is difficult to measure impact and public benefit, but there are methodologies and impact tools being developed that the Charity Commission should explore as finding its own ways to quantify social benefit will be expensive and time-consuming.”
Whilst there is potential for a broader role for the Commission, making sure that charities comply with their legal obligations is clearly central to the function of an effective regulator, say respondents.
However, it is widely felt that compliance with the law is not simply an issue of the Commission using its legal powers and directing the actions of charities. Some believe that the Commission has been dominated by legal views of what is acceptable at the expense of a flexible approach towards genuine behaviour, though change is acknowledged in this area.
Most respondents believe that effective compliance is also achieved by the provision of clear and effective information to charities, through the encouragement of self-regulation and through partnerships and joint-working that build consensus and ownership of regulation. These ‘softer’ functions, say respondents, should operate alongside a more graduated approach to regulation that becomes firmer with those charities that persistently fail to meet their obligations.
“The regulatory function is the Commission’s principal role. Advice and support must help deliver that role and not be general and unfocused.”
Effective compliance requires the highest quality administrative systems and advice functions to be provided by the Commission. A large number of those questioned for this survey believe that the Commission must place a significant emphasis on ensuring the consistency and accuracy of both ‘back office’ and customer-facing operations. There is a strong view that the Commission must invest in the skills and competencies of its staff.
A number of those surveyed say that the Commission should develop and publish new standards that set out what charities can expect from the Commission. This may include guarantees on response times as well as the processes for dealing with enquiries, the filing of accounts and opportunities for feed back.
More than a third of those included in the survey believe that it should be seen to be using its strong legal powers more decisively against the worst performing charities and those that operate fraudulently. All respondents want to see the Commission apply the maximum sanctions against the few who deliberately flout the law. This may involve sending ‘hit squads’ into charities; suspending trading and freezing accounts; and ensuring there are high profile prosecutions of those involved in fraud. This, they believe, will send a strong message to charities, encouraging greater compliance, and building confidence among the public.
“The sector needs a proactive regulator, prepared to take firm action where it needs to and letting people know the consequences of non-compliance.”
Some respondents also want to see the Commission take firm action in the area of unclaimed assets and ‘excessive’ charity reserves.
A key finding emerging from the survey is that the Commission must make a very clear distinction between what charities ‘must do’ – because it is a legal requirement – and what charities ‘should do’ – because it is deemed good practice or more acceptable behaviour. This may be achieved by the coding of information as well as the separation of functions within the Commission.
Many respondents see the Commission becoming a more information-driven organisation. Providing better information to charities and using the information received from charities will ensure that they comply with the law more effectively.
“Any good regulation requires an evidence base. That means focused information, research, analysis and thinking about what matters most.”
Some say that the arrival of Guidestar UK will encourage charities to provide better and more accurate information because it is potentially open to public scrutiny. Some say that this will encourage charities to be more rigorous in complying with their legal requirements.
Information is also important simply to ensure clarity on what is required of charities. Many respondents say that the Commission already produces useful booklets and printed information and a respected and well-used web site. These methods of communication and information should be developed further, say respondents.
“Much more emphasis now needs to go on IT. There is tremendous power through the web to inform, capacity build, encourage self-regulation and deliver specific functions such as form filling.”
A number of others also say that the information the Commission receives through the annual submission of accounts, the SORP, and the Summary Information Return should enable the Commission to become far more proactive in ensuring the compliance of charities with the law.
Using the information it holds on charities and by developing links with other regulators, the Commission will be able to build a more comprehensive picture of an individual charity and how it is performing. Where it meets its obligations, such as filing accounts on time, it will not be subject to intervention. However, if it makes standard deviations from practice, then this is likely to instigate a scale of interventions that increase in severity if it continues to operate outside of recommended practice.
“There needs to be a risk-based approach to regulation. There should be factors that alert the Commission to become more involved, starting with late filing of accounts.”
There is little appetite amongst respondents for the introduction of penalties, such as charges, for the late filing of accounts in order to ensure that charities comply.
A strongly held view is that there is more direct and regular contact with trustees of charities. Supporting effective governance is essential to ensure charities are better able to comply with the law. Some recommend that, just as new company directors receive information on their responsibilities, so should trustees. The Commission may also consider a range of initiatives to develop networks and build their capacity including seminar programmes, targeted newsletters, links with representative bodies, public campaigns and a dedicated information resource. Respondents believe that this group is key to the future health of the sector and that the Commission should continue to build on its work to support the development of their skills.
“The Commission could work with others to devise and promote competencies for trustees. ‘These are the things that make you a good governor’. “
Whilst effective regulation is central to its future success, a strong finding from this survey is that the Commission could become more of a ‘knowledge broker’, encouraging the discussion of ideas, and working with the sector to develop new approaches to improve performance and effectiveness.
Respondents believe that this approach is fundamentally about the Commission working with the sector to become an enabler, ensuring, as far as possible, that the sector itself owns the processes and ideas from which it can benefit. It also involves creating frameworks and models that will support the Commission’s strategic purpose.
“The Commission needs to design solutions with the sector – not for it – with the prime aim of protecting the public.”
Many see the Commission in the future concentrating on its own areas of expertise and becoming more of a ‘signposting’ organisation to other sources of skills and knowledge. Most respondents also want to see the Commission involved in joint-working with other experts to develop policy and guidance where it may not have direct expertise, such as in banking and investments.
A minority of respondents think that the Commission should charge for the provision of expertise in the future. The introduction of charges would have to follow improvements to core advice and information functions, they say. Most believe, however, that charging may compromise the Commission’s independence and may be seen to take money away from good causes.
It is widely felt that the Commission should develop structured and constructive relationships with umbrella bodies in particular. This would enable the Commission to access important networks and research. It would also bring expertise and new ideas into the Commission.
“There are many others who provide excellent advice and guidance. So the Commission should not duplicate this work. It should ensure its advice and guidance is targeted principally at the regulatory function of the organisation. This would mean areas such as governance, tax and finance, and reporting.”
It is also felt that the Commission should work more closely with other regulators so that it might develop shared approaches where necessary and learn from innovative approaches to regulation applied elsewhere. Some respondents believe that the Commission might develop closer relations with Companies House where charitable organisations have company status. Others see potential for different bodies to develop joint guidance with the Commission in specific areas such as charity advertising.
Many in this survey also expect the Commission to build its own expertise both through key appointments and secondments from and into the sector.
“Through secondments the Commission could bring in some new thinking and invigorate parts of the organisation. It could also give existing staff useful experience of how the sector works.”
Organisationally, there is a view that the Commission needs to develop its institutional memory and ‘corporate brain’. This development is likely to see improved strategic and policy functions alongside an improved capacity to define and assess best-practice behaviour and innovations across the sector. Almost 4 in 10 respondents want to see the Commission involved in the assessment and dissemination of best-practice behaviour.
“The Commission can be an effective regulator if it is at the forefront of current thinking. It can set standards if it knows the impact of policies and implications of legislation. This requires a strong corporate and strategic function.”
At the top of the organisation, there is support for the development of functions that will build capacity around the leadership and promote its new approach.
There is also considerable support for a wider board of the Commission representing a range of skills that will help the organisation both interpret and access different aspects of the sector.
With regard to specific areas of activity, many in this survey see the review visit as an area where innovation will support improvement. Whilst some have seen the review visit as a positive experience, they are seen by many as too random and lacking in strategic focus.
A number of respondents believe that review visits should be targeted interventions conducted when charities have failed to meet key requirements, as well as with charities that are seen as best performers and innovators. The knowledge gained from restructured review visits will ensure the Commission develops more effective frameworks for supporting improvement and that it targets its resources where they are most needed.
A number of respondents also believe that the Commission should look to create a peer review system. This should be seen as an area where the Commission is encouraging the sector to design its own solutions. Peer reviews would comprise trained and experienced senior practitioners from the sector. They would be requested by the receiving organisation or be recommended as a pathway to improvement by the Commission.
“The concept of peer review could work for charities. They are best placed to understand the pressures they face. But they need to want to do it – and could be part of an accredited scheme issued by the Commission.”
Some respondents also expressed the view that the Commission may wish to explore a range of incentives that recognise the improvement or adoption of best-practice approaches. These range from publicising those charities actively engaged in accredited improvement schemes to the award of ‘kite marks’ of quality to those that surpass commission criteria.
The Commission clearly plays a pivotal role in how the sector is seen by a wide range of stakeholders from policy makers to the general public.
Most in this survey believe that there is potential for the Commission to develop its leadership role and become a champion for the sector. The new split functions of chair and chief executive are widely supported by respondents to this survey.
Whilst it is not felt that the Commission should advocate on behalf of charities themselves, it is believed that it should promote the idea of charity, its role and importance in public life. To do the former would compromise the Commission’s regulatory function and create a confusion of roles with umbrella bodies in particular.
“The Commission should be championing the concept of charity, instilling trust in the sector through regulation and highlighting the value of what charities do.”
Championing charity will see the Commission presenting to different audiences a picture of the sector, its size, changing role, income and attributes. A large number of those surveyed believe that the Commission should achieve this through the structured and regular publication of reports and analysis that take advantage of its unique position at the centre of the sector using the information it receives about charities to inform wider audiences.
“With the information at its disposal, the Commission should be publishing its data so that others can interpret what it means. An annual ‘State of the Charitable Nation’ report would be a good start.”
Many believe that the Commission should develop a more outward-facing and proactive role. In relation to the public, it is felt that the Commission should be more visible in the media on wider issues than its regulatory activity. Some believe that the public is the key ‘customer’ of the Commission.
“The principal audience of the Commission is the public. They are there to give confidence in charities through their good ‘guardianship.”
The Commission is seen by many as a protector of the charity ‘brand’ on behalf of the public. This may involve the Commission developing more public campaigns in areas such as good governance, volunteering and fraudulent activity.
“People generally need a much better understanding of what the Charity Commission is about. One of its key roles should be about explaining what it does and what charities do.”
Responses to the survey also make clear that the Commission must be clearly independent from government. It must ensure that it has excellent links across government so that it can influence policy making and disseminate information and developments that impact upon charities. However, it must also be prepared to be constructively critical where necessary and to intervene where it believes the interests of charities may be hindered by the decisions of policy makers.
“The Commission should not articulate the concerns of the sector. But it should influence policy and thinking in the corridors of power by spelling out the implications of decisions on the effective operation of charitable organisations.”
Equally, to become a champion for the sector requires the Commission to develop clear and appropriate methods of engagement with it in order that it can both inform and learn from the sector more effectively.
There are a range of ideas expressed as to how this may be achieved. Many respondents want to see more consultation and discussion with charities and other bodies in the sector using meetings, paper-based exercises, policy groups and advisory bodies. Customer networks are supported by many in this survey with the proviso that they are part of a structured engagement process and focus on specific themes and areas of interest.
Many in the survey want to see the leadership of the Commission, including senior staff and commissioners, going out to meetings, conferences and debates as well as holding sessions across the regions where ideas can be discussed and presented.
“The Commission needs to be out there running seminars, contributing to more conferences and giving talks. There should be a proactive events programme designed to get the Commission out there where it matters.”
There is support for the Commission holding a high profile annual event where the Commission sets out its plans and explains key policy developments, changes to guidelines and legislation as well as providing a forum for debate.
There is broad support for a bold programme of change within the Commission.
In coming years, respondents expect to see the Commission improving its internal operations to become more proactive, expert and customer-focused. The Commission should refine its regulatory approaches focusing action where needed and reducing unnecessary bureaucracy. Information and advice should develop and support further self-regulation. Regulation should have a strategic purpose focusing on the improvement of charities for public benefit.
It should have strong leadership and invest in communications and web-driven activities, engaging effectively with key stakeholders and building its profile among decision-makers, opinion-formers and the wider public. It should develop its knowledge base to benefit the sector and other stakeholders. It should assess patterns for improvement building its understanding of best-practice behaviour. It should work in partnership and access more skills from outside the Commission.
This research finds that with a new energy and vision the Charity Commission can be truly regulating for the future.
| Charity Sector | ||
| Lord Victor Adebowale | CEO | Turning Point |
| Lesley-Anne Alexander | CEO | RNIB |
| Julian Corner | CEO | Revolving Doors Agency |
| Kevin Curley | CEO | NACVS |
| Stuart Etherington | CEO | NCVO |
| Keith Hickey | Finance Director | Help the Aged |
| Dame Elisabeth Hoodless | Executive Director | CSV |
| Christine Kent | CEO | Raleigh International |
| Jon Low | CEO | RNID |
| Mary Marsh | CEO | NSPCC |
| Nigel Harris | CEO | New Philanthropy Capital |
| Shirley Scott | CEO | Charity Finance Director’s Group |
| Barbara Stocking | CEO | OXFAM |
| John Weth | Chair | Association for Charities |
| Stephen Lloyd | Chair | Charity Law Association |
| Linda Laurance | Chair | Charity Trustee Network |
| Ray Goodfellow | Solicitor | RSPCA |
| Deborah Clarke | Information Officer | ACRE |
| Clive Sefia | CEO | Black Voluntary Sector Network |
| Roger Singleton | CEO | Barnardos |
| Christopher Spence | CEO | Volunteering England |
| Helen Calder/John Smith | Head of Finance UK Director | The Evangelical Alliance |
| Ramesh Kallidai | General Secretary | Hindu Forum of Britain |
| Rob Pickering | CEO | Cornwall Voluntary Sector Forum |
| Susan Daniels | CEO | National Deaf Children’s Society |
| Andrew Mawson | CEO | Community Action Network |
| Jonathan Moore | CEO | Suffolk Association of Voluntary Organisations |
| Graham Benfield | CEO | Welsh Council for Voluntary Action |
| Barbara Frost | CEO | Action for Disability and Development |
| Hilary Browne-Wilkinson | Director | Institute for Philanthropy |
| Lindsay Boswell | CEO | Institute of Fundraising |
| Andrew Gibbs | Managing Director | CCLA Investment Management |
| Diana Garnham | CEO | Association of Medical Research Charities |
| Whitehall/Westminster | ||
| Lord Bhatia | Chair | Ethnic Minority Foundation |
| Krishna Sarda | CEO | Ethnic Minority Foundation |
| Lord Phillips of Sudbury | Member | Joint Parliamentary Scrutiny Committee |
| Baroness Jill Pitkeathley | Chair | CAFCASS Board |
| Baroness Usha Prashar | First Civil Service Commissioner | |
| Baroness Sally Morgan | Director of Government Relations | Prime Minister’s Office |
| Lord Richard Best | Member | Joint Parliamentary Scrutiny Committee |
| Pat Samuels | Public Services Directorate | HM Treasury |
| Simon Morys | Senior Policy Advisor | Prime Minister’s Office |
| Professor Michael Barber | Head of Delivery Unit | Prime Minister’s Office |
| Richard Weatherall | Active Communities Unit | Home Office |
| Huw Rawlings | Director of Local Government & Culture | Welsh Assembly |
| Sanjiv Vedi | Head of Voluntary Sector & Inclusion | Welsh Assembly |
| Mark Nellthorp | Director of Policy | Inland Revenue |
| Regulators | ||
| James Strachan | Chair | Audit Commission |
| Robert Green | Director of Strategy & Resources | OFSTED |
| Bob Dinwiddy | Assistant CEO | Housing Corporation |
| Simon Gillespie | Head of Operations | Healthcare Commission |
| Funding | ||
| Stephen Dunmore | CEO | Big Lottery Fund |
| Gerald Oppenheim | Director of Planning | |
| David Emerson | CEO | Association of Charitable Foundations |
| Chris Staples | Director of Community Affairs | Zurich Financial Services |
| John Barwick | Head of Internal Communications | Coutts Bank |
| Alison Grieve/Liz Cox | Finance Director | Business in the Community |
| Peter Wheelan | Chair | Futurebuilders |
| Richard Gutch | CEO | Futurebuilders |
| Kathleen Duncan | Director General | Lloyds TSB Foundation |
| Pesh Framjee | Head of Non Profits | Deloittes |
| Social Enterprise | ||
| Sir Ronald Cohen | Chair | Social Investment Taskforce |
| Steve Wyler | Director | Development Trusts Association |
| Professor Sandra Dawson | Director | Judge Institute of Management |
| Debra Allcock Tyler | CEO | Directory of Social Change |
| Other | ||
| Jodi Berg | Independent Complaints Reviewer | |
| Lucy de Groot | Executive Director | IDEA |
| David Evans | Economics & Environment Policy | Local Government Association |
| Rodney Buse | Vice chairman | NCVO |
| Ashley Sweetland | Co Chairman | UK Youth Parliament |
| Media | ||
| Alex Frean | The Times | |
| Peter Davy | Charity Times | |
| Stephen Cook | Third Sector Magazine | |
| Kurt Barling | BBC London | |
| Alison Benjamin | Guardian Society | |
| David Landau | Sunrise Radio | |
| Daniel Phelan | Charity Finance Magazine |