Unrevised

Oral Evidence

Taken before the Joint Committee

on Tuesday 18 November 2014

Members present:

Lord Hope of Craighead (Chairman)

Lord Hodgson of Astley Abbotts

Baroness Warwick of Undercliffe

Lord Watson of Invergowrie

Viscount Younger of Leckie

Nick Hurd

Mark Menzies

Sarah Teather

Chris Williamson

________________

Examination of Witnesses

Witnesses: Ben Harrison, Senior Policy Adviser, Office for Civil Society, Cabinet Office, Michelle Russell, Director of Investigations, Monitoring and Enforcement, Charity Commission, and Kenneth Dibble, Director of Legal Services, Charity Commission, examined.

Q1 Chairman: Good afternoon and welcome back to what is now a formal evidence session. I am sure you know the normal procedures, but perhaps I should make it clear that the evidence you are going give will be webcast and will also be the subject of transcription, which will be circulated in unamended form as soon as it is available. Of course, you are free to suggest amendments if you notice anything incorrect. I encourage you to go over the evidence carefully to be sure that it is an accurate record of what you have had to tell us.

Before I ask my first question I should explain that I have two interests to declare. One is that I am a trustee of a trust in Edinburgh called the Bute House Trust, which looks after the property occupied by the First Minister of Scotland. I am also a council member of the Commonwealth Magistrates’ and Judges’ Association, which is spread throughout the Commonwealth. All its council members are trustees of the association, which is based as a charity in London.

I will begin by asking you some rather general questions. This is a question to all three of you, one by one. Could each of you tell us what you think the main problems are in the charity sector from the regulatory point of view, so that we can identify the key issues we should be thinking about and also get a feel for how widespread they are? Perhaps, Mr Harrison, we can begin with you. Can you give us a very short answer to that?

Ben Harrison: Thank you very much, Lord Chairman. To start with, I think we should say that public trust and confidence in charities is pretty high, but one questions whether or not that is built on firm foundations. It would not be difficult to conceive of some high-profile serious cases that could quite significantly undermine public trust and confidence in charities generally. Our job is about making sure that we have a regulatory regime and a regulator in place that supports public trust and confidence in the work of charities, the vast majority of which are doing amazing things in their communities. There is no evidence to suggest that serious abuse is particularly widespread, but just because it is not widespread is not a reason to ignore it or to do nothing. That could invite further abuse that could then escalate into a real problem for the wider charity sector.

We can differentiate issues in a regulatory sense. First, there are the honest mistakes that trustees make. We have to remember that there are around 1 million charity trustee positions. The vast majority of trustees are volunteers doing it in their spare time and for the right reasons. Everyone makes honest mistakes. We all make them, as do charity trustees. That is by far the most common issue that the Charity Commission has to face.

Secondly, you have persistent poor management of charities—failure to file accounts on time. That is perhaps one step beyond the simple honest mistake.

Finally, you have deliberate abuse, where people are going out of their way to abuse their position in a charity for personal gain or to abuse vulnerable beneficiaries, or for some other non-charitable purpose. That is rare. I do not think there is evidence to suggest that it is incredibly widespread, but, by its nature, people do not want to be found out if they are undertaking that sort of abuse so it is hard to say with any certainty. I will defer to Michelle and Kenneth on that one.

Q2 Chairman: Is there a problem of bodies masquerading as charities and being set up for the wrong purpose, or a purpose that is absolutely not charitable?

Ben Harrison: I think that does happen. Michelle might be able to say a little more about that. There are sham charities, where on the face of it people are establishing them ostensibly for charitable purposes, but in practice it is to line their own pockets or for some other reason. I think that does happen.

The NAO in its report last year found that the Commission was being too passive in protecting the good name of charity. Lord Hodgson himself, in his report on the Charities Act 2006, also referenced the point about proactively identifying and tackling fraud and abuse, and the fact that it should be a key part of the Charity Commission’s work and an expectation of high performance from the Commission in that respect. I will hand over to Michelle.

Michelle Russell: We would echo some of the regulatory issues that Ben Harrison has pointed out. From our perspective there is a graduated range of abuses and non-compliance that happen—from the very minor and the very simple through to deliberate abuse at the other end. Yes, financial abuse and financial mismanagement is a core part of our work, as is governance. We quite often see that simple mistakes in governance and poor governance can lead to more serious problems down the line. Perhaps the other area that was not mentioned was safeguarding in relation to child protection in terms of some of the charities. Those are some of the themes that we see. Indeed we publish those themes in our annual publication “Tackling Abuse and Mismanagement” so that all charities can see and learn from some of the issues that we deal with.

One of the questions you asked at the beginning was about the extent and nature of the abuse. It is quite hard to quantify how difficult and widespread the issues are. What I can say is that there are 164,000 registered charities, and we have some scope over those that are not necessarily registered. Of the ones at the more serious compliance end, in terms of operational compliance cases, there were 1,972 cases of that nature. From there we run about 200 to 300 monitoring or compliance visits cases. At the upper end of the triangle, last year we opened 64 statutory inquiries. At the half-year end that number is at about 68. As Ben Harrison said, one of the areas that we are stepping up on, and that is of concern, is about defaulting on the basics in terms of accounts non-compliance.

Q3 Chairman: We will come on to some of the details later, so we can move on fairly quickly from this. Is there any more you would like to add of a general nature before we get into detail?

Michelle Russell: The only thing I would say is that the more we look and the more we become proactive, the more we uncover in terms of how much of a problem there is. The more the regulator responds to being proactive and risk-based, particularly at the reckless, negligent and deliberate abuse end, the more we uncover.

Q4 Chairman: Mr Dibble, I have a supplementary question. Are the powers in the draft Bill the right ones, given the nature of the problem we are considering?

Kenneth Dibble: Perhaps I could go over a little of what Michelle said. The number of charities is 165,000-plus on the register, plus some more in which we have regulatory responsibility. As has been said, the mistakes, culpability and deliberate acts and abuses of charity cover a whole range in that area. Therefore, the Commission, as regulator, has to have a wealth of regulatory powers to deal with that whole range. Most charities want to do the right thing and administer their charities properly, fairly and honestly. We have to provide adequate guidance for them to do that, and this is what we do.

Charities who want to do the right thing are helped and supported by the Commission, as far as they can be. Where there is wrongdoing, ranging from honest to negligent to deliberate wrongdoing, we have to have a range of regulatory weapons at our disposal to deal with that range of abuse. One of the Commission’s statutory duties is always to act in a proportionate manner; that is written into the statute. To do that, we want a range of regulatory actions we can take that are proportionate to the issue in the charity. This may range from just giving a warning where there are minimal errors to the more serious investigations we will get to later.

The powers set out in the Bill are all drawn, as seen in the consultation document, from actual regulatory examples of cases or issues that we have come across where we feel we cannot effectively deal with the issue in a proportionate way. That is a real issue for us. Of course, if we have to take stronger measures in a particular case that does not actually deserve them, it wastes the resources of the Commission. We want to have a range of powers—the powers in the Bill build on and complement what we already have—to deal with the whole range of situations in which charities sometimes unwittingly find themselves. They are all evidence based. The Commission will hopefully want to address you on some areas which are not included in the Bill, but broadly we support the content of the Bill, which in our view arises from our regulatory experience.

Q5 Chairman: Thank you very much. Mr Harrison, does that fit in with your understanding of the Bill and what it is seeking to do?

Ben Harrison: Absolutely. It is based on a list of proposals that the Charity Commission itself drew up, based on its regulatory experience. I can very briefly summarise it in three categories.

The first area of the Bill tackles people whose conduct makes them unfit to manage a charity as a trustee: by extending the automatic disqualification criteria; making various changes to the existing suspension and removal powers that the Charity Commission already has to make them operate more effectively, such as preventing resignation as a means of avoiding disqualification; and by giving the Charity Commission a new power to disqualify someone from being a charity trustee.

Chairman: I am going to stop you there because we have quite a lot to cover and time is fairly short. Lord Watson had a point.

Q6 Lord Watson of Invergowrie: I want to pick up on what Ms Russell said in her remarks. If I noted it down correctly, you said that the Commission initiated 64 statutory inquiries last year and you have already initiated 68 in the first half of this year. That sounds like quite a dramatic increase. Is there an obvious reason for that?

Michelle Russell: Yes. It is the double defaulters accounts inquiry, where we have stepped up our regulatory response to charities that persistently fail to submit their annual accounts and reporting information. We took some specific regulatory action at the end of last year and during this year. That covers some of them. We have also generally increased the number of inquiries in terms of things that are coming across our table, both indicating recklessness or deliberate abuse, but not forgetting that part of our responsibility is about public assurance. When there are claims circulating in the public domain that there may be something going wrong in a charity, we have a responsibility as regulator to investigate and see if that is true or not and to put it on the public record.

Q7 Lord Hodgson of Astley Abbotts: I should declare that I am chairman of the Armed Forces Charity Advisory Committee and a trustee of Fair Trials International. I prepared the report, some of which was picked up in these proposals. I have worked closely with Ben Harrison, who ran the civil service team extremely well. Without Ben I would have disappeared and drowned in a sea of submissions. If I say “we” occasionally, Chairman, it is because these are issues that Ben and I spent quite a lot of time working on.

How many charities regulated by the Commission will be directly affected by the changes proposed in the Bill? It would be helpful if you could introduce to the members of the Committee the question of excepted and exempt charities, what they are and how they will be covered. This is a whole area that has so far not appeared in our discussions.

Michelle Russell: I will start by answering the question about how many charities may be impacted. I hope that from our introductory remarks you have picked up that we think the number of charities that will be impacted will be targeted and focused. We are not looking to deal with the vast majority of the sector. In the consultation document and the impact assessment, we tried to give an estimation of how many times we would use the powers. Leaving aside the number of individuals who may be affected by the increased number of offences, I think you will find we estimated that we would use them over 100 times on a year-by-year basis. The consultation remarks indicate that most of the charities that were consulted thought that the vast majority of charities would not be impacted by it, because it is focused on the bad and rotten eggs that we are trying to deal with, and charity trustees who are perhaps a little bit reckless or negligent.

The other thing I would say before addressing your point about exempt and excepted charities is that there should be a little bit of caution about just looking at the numbers. With one power we can protect either £10,000 or £1 million. Sometimes people tend to look at us and judge us by how many powers we have exercised. Actually we need to be looked at by how smartly we exercise those powers. Are we doing it in the right ways and proportionately? Also, are we having any impact in terms of protecting the assets of the charity, and not just that charity but the next charity the individual who is the rotten egg may go on to be involved with? That is why we publish how much money we have protected by the exercise of our powers. For example, last year £31 million was protected by the exercise of our powers.

In terms of excepted and exempt charities, the exempt regime is that another regulator is the principal regulator; to try to avoid duplication and regulators getting in the way of each other. The exempt regulators—for example, with the universities—have the ability in the statute to refer a serious matter to us to open an inquiry. We have been close once or twice, but so far we have never exercised that power. We do have regulatory remit over the excepted charities, so we could exercise our compliance powers in that context. I do not know whether my colleagues want to supplement that.

Ben Harrison: Excepted charities include scouts, guides, certain armed forces, non-public funds and certain Christian religious charities. There are thought to be about 10,000 of them in total. There are then of course charities that have an income of less than £5,000 per annum, which is the threshold for registration. All of those are under the Charity Commission’s regulatory jurisdiction, so it could intervene if it felt it necessary and appropriate.

As Michelle said, for the exempt charities we have principal regulators in place. For example, there is the Higher Education Funding Council in England for universities in England. There is the Secretary of State for Education in relation to academy schools. Because those principal regulators already have an oversight role, be it funding or regulatory, they have their own powers available to them. If they feel there is a charity issue, they can call in the Charity Commission and then the Commission can exercise its investigative and enforcement powers if necessary.

Q8 Chairman: Are the exemptions or exceptions statutory?

Ben Harrison: Yes, they are.

Q9 Chairman: Can they all be found in one regulation?

Ben Harrison: The exempt charities are set out in a schedule to the Charities Act 2011. The excepted charities are largely excepted by regulation. We can provide a list for you.

Q10 Baroness Warwick of Undercliffe: My question is about proportionality. You said that the vast majority or the most common of the cases that you deal with are honest mistakes—in other words, not the deliberate misdeeds that I think you are telling us are a relatively small proportion of the work that you do, although I noted your comment that the more you look, the more you find. I would quite like you to say something about that and how that is working. Could you tell us how that shapes your work? If the pressure, or the decision, is now for the focus to be much more clearly on regulatory activity—yet if the majority of what is going wrong is honest mistakes that could, if properly corrected, ensure that major mistakes do not take place—how will that be balanced? How does it affect your work now, and how will it be balanced when you are focusing much more on the regulatory role?

Michelle Russell: I will start and then hand over to Kenneth in relation to the honest mistakes and how we deal with feeding back lessons. You are right; I said that at the moment the vast majority of the Commission’s work stays in our First Contact area and can be contained there. As I said, the First Contact area assesses it to see whether it is something a bit more serious that needs to be looked into. There are 1,900 cases where we do that. Of those, it is the cream on top of that which are more serious.

You are right; the more we look, the more we uncover. Halfway through last year we set up a proactive Monitoring Unit, which has looked at 300 cases where we were concerned about some of the issues that were going on. It is also true to say that, at least as long as I have been at the Commission, the types of cases that we deal with in the inquiry area are not straightforward. They are becoming more complicated. There are group structures with charities, where there are individuals outside the charity who are trying to take some profit or take captive the charity. There are more and more cases where we are dealing with the police; quite often our investigations work is conducted concurrently with the police. You will know that the police do not necessarily take everything that the Commission may want to give them. Nevertheless, there is a risk to charity, and our role as regulator is to make sure that we use our temporary protective powers and our remedial powers.

To give you a little flavour of the numbers, in the last financial year our staff produced 32 witness statements for the police and law enforcement agencies. We made nine proactive referrals ourselves to other agencies, including the police, HMRC, SFO and others where we had concerns about something quite serious in charities; the more we look, the more we need to make sure we have the powers to deal with that. You are right that we also need to feed back the lessons from the negligent, the reckless and the honest mistakes that lead to a bigger problem, and to help the vast majority of the sector make sure they do not get into that mess. That is where that work is important.

Kenneth Dibble: In terms of trying to rebalance our work with the limited resources we have—fewer than 300 staff—quite clearly if more difficult cases of abuse are uncovered we have to focus on those cases. The more difficult cases consume more individual attention in terms of process and individual caseworking. We have to find a way of moving our resource into the area of dealing with more difficult cases and at the same time providing a basis for other less wrongful acts to be dealt with in a different way.

The Commission is approaching this in two strands. First, as Michelle says, we are proactively gearing up our advice and guidance to the sector. This involves having published guidance on our website which covers most of the range of issues that face charity trustees, such as financial controls, conflicts of interest, campaigning and political activity and those sorts of issues. Charities and their advisers can look at those and keep themselves on the straight and narrow. Additionally, every time we publish an inquiry report it will have at the back of it wider lessons for the sector, to act as a guide and steer. It has a deterrent value so that others do not fall into the same problems as the particular charity or charities.

In addition, we issue alerts to the sector. We issued an alert when charities were inappropriately using council tax relief for wrongful occupation of premises. There was abuse of the tax system. We issued alerts on the payment of money in Syria and Gaza—those sorts of issues. We are proactively trying to steer the sector and improve performance as we go along.

The other main strand of work is to try to develop an information technology infrastructure to support the work we do. As you probably know—maybe we will come on to this later—we have been given £8 million by the Treasury from the “invest to save” budget. That will be used to make our underlying systems much more sophisticated, so that we can automate lots of our interaction services like changing governing documents, which at the moment consume quite a lot of staff time. These can be automated in the low-risk areas, which will free up more staff time for the front end, the sharp end, of the regulatory work we do.

We will also use those systems to have better management information, which we can then use, and which will focus our regulatory attention on cases where the sectorial risk may be greater than other risks. In the next few years we will be trying to automate services and move staff time into dealing with more difficult cases. We will make greater the public awareness of charity and trustee issues in the sector where charities go off the rails. By so doing, we will free up internally resource to deal with wrongdoing, which from what we see in our day-to-day work is becoming more and more prevalent.

Chairman: We only have about half an hour left and quite a lot of ground to cover. Could I suggest that you keep your answers fairly short? Bear in mind, too, that we will be asking you to come back towards the end of our inquiry with one or two more particular questions in the light of the other evidence, so if possible could you keep your answers fairly short?

Q11 Lord Hodgson of Astley Abbotts: Do you have a responsibility to do random checks? Among the larger charities, do you pick a charity and say, “Let’s go and see how it works”?

Kenneth Dibble: We do have random checking.

Q12 Lord Hodgson of Astley Abbotts: Are you doing that now?

Kenneth Dibble: We are.

Michelle Russell: We have different layers of checks as part of our monitoring of cases. Sometimes it will be a regulatory engagement meeting. Sometimes we carry out compliance inspection visits, when we may do a targeted books and records visit, either on a particular issue or on a wider basis. That is across the board.

Q13 Chris Williamson: If the powers contained within the Bill are passed into law, how will you assess their impact, and could you tell us what outcomes would constitute success?

Ben Harrison: First, it is worth mentioning that there is a review clause in the draft legislation which would require the legislation to be reviewed at least every five years. We set out in our impact assessment what we expect the impact of the draft legislation to be. It is then incumbent upon us, when we review it, to look back and say, “Did it actually achieve the effects that we hoped it would?”

We would look at the number of times the Commission exercised the powers, and the way in which the powers were exercised. They have been designed not just with effectiveness but efficiency in mind, because we need to bear in mind the limited resources of the regulator. We would want to see whether the powers had been challenged, either through decision, review or an appeal to the tribunal, and whether or not those challenges had been successful.

In terms of judging the success of the legislation overall, one would hope to see levels of public trust and confidence at least being maintained at the relatively high levels that they are now and not seeing a decrease over time—perhaps even seeing an increase. One could make an argument that, by bringing to light abuse that may not previously have been brought to light, you could see it start to drop before it goes up. Long term, one would hope to see trust and confidence going up.

Q14 Chairman: I have a supplementary on that. Do you see a tension between maintaining public confidence and the investigatory function?

Ben Harrison: Yes. If you highlight the problems in the charity sector, where people are abusing charity, it could initially reduce public trust and confidence, but over the long term it should increase public trust and confidence in charities. That goes back to one of my early comments, which was that, whilst it is fairly high, one is not entirely sure that trust and confidence are necessarily built on firm foundations.

Q15 Sarah Teather: I am not personally convinced that public trust and confidence follow quite such a linear relationship with regulation. We have a set of questions around trustees, but my question in a sense could almost be a follow-up to Baroness Warwick’s question a minute ago. If most of the cases that the Commission deals with are essentially honest mistakes rather than deliberate misdeeds, do you think more work is required to make clear the minimum requirements of being a trustee? Would that help? Would that make any difference?

Kenneth Dibble: It is very difficult, particularly in a statutory framework, to set out the minimum requirements to be a trustee. The responsibilities of a trustee are mainly to act, in a legal sense, as a prudent man of business in the conduct of his own affairs, acting with due care and skill and acting always in the best interests of the charity. Those principles are reflected in the Commission’s guidance “The Essential Trustee”, which is published on our website; it is widely available and is accessed frequently by trustees, particularly new trustees taking up office. That sets out their duties and responsibilities.

The individual responsibility of a trustee may vary depending on the type of charity to which they are being appointed. For certain charities involved in specialist areas you might want someone with detailed knowledge of that area. In other cases, you may want people who are familiar with the experiences that beneficiaries themselves have to undergo. It is very difficult to say what the right level is within a statutory context.

The charity regime is based on voluntary acts—voluntary giving and people giving up their time for no reward, to help other people. There are about a million trustees who do that. To set what might be an artificial or imprudent standard might deter people from coming forward. It is well known that most trustees in this country are of an age profile and not necessarily from diverse backgrounds. Any assessment criteria might deter the very people that one would want to take up trusteeship, like younger people and people from ethnic backgrounds. Our view is that everyone would accept the model set out in the legislation, whereby people who have been convicted of certain offences or where certain things have happened to them—bankruptcy and the like—are automatically disqualified from being charity trustees.

The other side is a discretionary area whereby, if it comes to the Commission’s attention that individuals are acting wrongfully in some way that is inimical to the way a charity can act, they can declare them not fit to have trusteeship. We believe that that is the right approach rather than setting what might be an artificial and difficult standard in legislation.

Q16 Baroness Warwick of Undercliffe: My question relates to something that is not in the Bill. The consultation suggested a power to prevent disqualified trustees acting in another capacity in the charity. That has not been brought forward because, as I understand it, it could impinge on the person’s ability to earn a livelihood. Could you comment on that? Obviously it got a lot of support during the consultation. Do you think it is right that one should trump the other?

Kenneth Dibble: As you say, it is not in the Bill. The Commission’s view is that it is counter-intuitive that an individual who is disqualified from being a trustee, because of either statutory prohibition or intervention by the Commission, should be able to have senior office as an employee in that charity, or in any other charity. With due respect to the issue that individuals should not be prevented from earning a livelihood, we feel that this should be pursued further. Perhaps the matter is not as extreme as might be suggested, because there may well be expertise in the charity sector, but the not-for-profit sector is wider than the narrower charity sector. In addition, if people were disqualified both from being a trustee and from holding a senior position in a charity, they would be subject to the same time duration as in the disqualification of trustees in criminal offences—like the rehabilitation of offenders—or for bankruptcy or voluntary settlement with creditors. It would be the same length and duration.

In most cases, we can be asked for a waiver, and the waiver provisions would apply to an individual who could not act in employment for a charity as well. We have a pretty good record on waivers. Most waivers that people come to us for, we agree either completely or partially. A refusal to grant a waiver is justiciable in the Charity Tribunal. In a case where the Commission might wish to disqualify someone as unfit, and therefore unfit to be employed in a charity, we could provide for a specific time line in that order, during which that could take effect. Again, such an order would be appealable to the Charity Tribunal, so in the Commission’s view there are plenty of safeguards that can be built into such a power. In our view, it would be proportionate and sensible that persons who could not hold office as trustee in a charity should not hold senior positions, as would have to be defined in the legislation, in relation to employment by a charity. That is the Commission’s view.

Q17 Baroness Warwick of Undercliffe: We looked at other regulators; I do not know if you have. In particular, it is quite clear that the Financial Conduct Authority has a similar power. The argument that appears to be applied in the charity sector has not been applied in the financial sector.

Ben Harrison: I would comment briefly on that. We are clearly open-minded. We would like to leave this matter open, and we would be really interested in the Committee’s views on it. In part, whilst it was reasonably well supported on consultation, there were some who argued that such a broad power should not rest with the Charity Commission. If one looks at company directors’ disqualification, that is a power exercisable by the court. That is one argument: whether or not such a broad power should rest with the regulator or whether it should be for the court to make that decision. If it were to be extended, we would need to look at the extent and the safeguards that would go with it. As I say, we are very much open to including it in the legislation and we would certainly welcome the views of the Committee.

Q18 Mark Menzies: The Bill proposes a list of new offences that would lead to automatic disqualification from being a trustee. For clarity, how was this list arrived at? Were other offences or classes of offence considered but not included?

Michelle Russell: It was the Commission that did the work, first of all, of identifying that there were certain offences individuals that came before us had been convicted of that did not disqualify them from being a trustee, and for one reason or another we were not able to take action to deal with it. The one that sparked this was in relation to money laundering. Under the current provisions, the offence has to contain an element of deception or dishonesty. Money laundering does not. When we saw people convicted of money laundering offences—there were two last year—those individuals were free to go back into another charity straight away. When we looked at it, there was a collection of offences around the financial aspect with that element of dishonesty or deception, which should be there.

There is also the area in relation to terrorism. In particular, terrorist financing is again one of those definitions. If you get convicted of terrorist financing, there is no element of dishonesty or deception and it would not be caught under the current legislation. You may be aware that in the past couple of years there have been a couple of convictions for terrorist financing involving charities. That is an area of concern for us. The third area refers to offences that relate to contempt for the judicial process in terms of misconduct in public office, perjury and those sorts of offences. They are the three themes that led us to that.

I will respond very briefly, as you asked, in relation to other offences. You will see from the consultation document that we originally had some hate offences in there—racial and religious hatred, hatred on the basis of sexual orientation—and public order offences. Following the consultation they have not been included.

Q19 Chairman: How can one be sure that the list is kept up to date? Obviously a lot of work is done from time to time, but is there a process of studying how society is developing and looking at amendments to statutes, new statutes and so on?

Ben Harrison: First, we have the five-yearly review of the legislation. Secondly, I would expect that, if there were to be new offences proposed that chimed with the Commission’s experience as a regulator of issues that were coming across its desk, it would be a trigger for us to discuss inclusion of that offence on the list.

Michelle Russell: I can see that coming from the discretionary disqualification provision. For example, if there was a concern about an individual with a sexual offence being involved in a children’s charity, under the current draft Bill we would deal with that under the discretionary disqualification power.

Ben Harrison: It may be worth adding that we did consider whether or not to include serious sexual offences, and in effect create a regime for disqualifying people who held convictions for those offences from acting as trustees of charities involving children, for example. We concluded that we already have the DBS checking regime in place, and we did not want to create a parallel regime just for charity trustees when there is a regime that applies to employees, volunteers, trustees and so on.

Q20 Lord Watson of Invergowrie: In what circumstances could you envisage the Commission using its power to wind up a charity? That is obviously the ultimate sanction. I would be interested to know how you foresee that.

Kenneth Dibble: Very exceptionally. It is the ultimate power that the Commission could possibly deploy. That is why the proposed legislation sets quite a high bar for it to happen. There has to be an inquiry. There has to be a conclusion that there is misconduct or mismanagement with a need to protect the property of the charity. It must be clear that the trustees are not operating the charity and probably will not operate the charity. We have to conclude that it is to preserve public trust and confidence for the assets of that charity to be put to work in another charity that will use them for good purposes.

Occasions like this happen very rarely, but every now and again you get a case where the charity has completely broken down and the trustees cannot or will not act. You cannot get anyone to come along and be a trustee of such a charity because of its reputation and because of what has gone on in the past. Removal from the register is not a remedy in itself because of the nature of what charity is and the recognition of charity as a legal status. The only way to deal with it is to provide that its assets are put to good use in another charity. Such a power is appealable to the Charity Tribunal, so there will be accountability for the Commission’s decision in a case like that.

Q21 Lord Watson of Invergowrie: Do you think these provisions need to be laid out in legislation?

Kenneth Dibble: Those provisions are all in the legislation, both in the Charity Act 2011 and in the new legislative power. In our view, there are adequate safeguards in place for the use of a particular exceptional power.

Q22 Lord Watson of Invergowrie: In the past has the Commission wound up a charity? You outlined a case where they were incapable of continuing.

Kenneth Dibble: Yes.

Q23 Lord Watson of Invergowrie: When you identify a situation where there had been serious wrongdoing and they were capable of remedying that but, for whatever reason, they had refused to go along with your recommendations, are you then obliged to say, “Well, that’s it; we have no alternative but to wind you up”?

Kenneth Dibble: That might be possible, but, of course, the power is to direct the trustees to wind up the charity rather than the Commission. It would be a better power if we had power to do it ourselves, but there are enormous problems with the Commission having the power to wind up, for example, because of the issue of creditors and those sorts of other issues—companies who are a particular exception.

Q24 Viscount Younger of Leckie: I start by declaring my interest as President of the Highland Society of London, a member of the Parliament Choir and a member of the London Committee of the National Trust for Scotland.

I would like to move on to the area of warnings and deterrents. I want to ask you whether the Commission needs a formal power to issue a warning. How would the use of a statutory power differ from a non-statutory one, if one is looking at it in practice?

Michelle Russell: This is a really important power for the Commission to have, not just in dealing with instances of deliberate abuse but also as a graduation in relation to proportionality. At the moment the only power we have to warn a charity has the status of regulatory advice and guidance. Our regulatory advice and guidance stems from engaging with innocent and honest trustees on something that is quite simple or a minor breach, so one of the reasons why we want this power is so that it is very clear to the charity trustees we are talking to that this is a different sort of warning for the Commission to be making. That is also important not just to the charities at the time but for future charity trustees that are going to come in afterwards, so that they can see the Commission’s engagement in this way.

This is really important to us because we cannot currently use our power of direction within an inquiry. For the power of direction we have under the legislation in section 84 of the Act, we have to have an inquiry open. If we have been engaging with a charity for three or six months and we have uncovered that there is something wrong, such as misconduct or mismanagement, we would then have to open an inquiry to be able to use some of the powers that require an inquiry to act. This is a really important power for us to have, and it would be associated with breaches. I can see it being used, for example, on persistent defaulters—the people who are always late and then get their accounts in. We can command and direct them to get their accounts in if they are in a double defaulters inquiry, but we have persistent defaulters who are always late. There are quite a lot of charities that are late with their accounts. Using this tool to deal with that gives us a proportionate and graduated range of powers. It is completely normal.

We have done some research in relation to some of the other regulators and they tend to have either warning notices or notice provisions to give a very serious and clear message to the regulated body or individual they are dealing with that if they do something again they are in a different arena. That also goes for the publication of some of those warnings and reports.

Kenneth Dibble: I would add to that; it is on the Commission’s wish list but it is not included in the draft Bill at the moment. The Commission would like to have a power to give a direction outside an inquiry. As Michelle was saying, that is part of the graduated range of interventions we can make. You would start with a warning, a more serious direction and then you move on to whether you should open an inquiry or not.

The reason why we think the power to give a direction ought to be available outside an inquiry is that in many cases the facts are known. If you felt that a case was serious enough to warrant a direction, you would have to open an inquiry merely to issue the direction. That is not what the Commission wants to do. Opening an inquiry is for the most serious issues and the most serious cases. If we could make a direction outside the remit of an inquiry, we think that again would strengthen the range of regulatory actions that we could take in a proportionate way, depending on the gravity of the issue. It is not included in the Bill. It was issue 10 in the consultation document, but it is on the Commission’s wish list for inclusion in the Bill.

Q25 Viscount Younger of Leckie: Michelle, you mentioned this in your answer, but to what extent is there clear evidence that such powers would act as a deterrent? You mentioned the fact that greater publicity can provide that, but it is not always necessarily the case.

Michelle Russell: No, it is not. Transparency is an important tool, both in education and prevention. It is also a deterrent to those few individuals who insist on abusing the sector. They need to see that the regulator is willing to use its powers in those ways. It is also important for the public who are donating to charities and are choosing which of the 164,000 charities on the Register they want to give their support to: “Do I want to give to one that is persistently late in filing its basic accounts? No, I don’t think I do.” That is very important.

It is hard for us to track exactly in figure terms, but in the last financial year we issued 74 action plans, and if we had the power of direction outside inquiry we would probably have issued that 74 times. In a broader sense, when our investigators follow up whether or not charities are doing what they have told us they are going to do as a result of our engagement, between about 20% and 30% of those cases either have not done it at all or they have only done it partially. There is an issue about us having enough teeth to be able to make it clear that we expect breaches to be remedied. I hope that is helpful.

Q26 Viscount Younger of Leckie: This is a question for Ben. To what extent have you looked at other regulators in respect of warning powers, to use them as an example of how you might operate these?

Ben Harrison: We did look at other regulators. We specifically looked at the Care Quality Commission’s power to issue a statutory warning under the Health and Social Care Act 2008. That enables them to issue a warning notice to a person, saying that they are not complying with a condition of registration or a requirement of the legislation, or any other legal requirement they think is important or relevant. They have a mechanism for representations but no right of appeal. We very much followed that vein in creating the power for the Commission, so that there would be a right to make representations against a statutory warning but no right of appeal to the tribunal. We do not want to make it an unwieldy power. It has to be one that the Commission can exercise and use efficiently.

Q27 Chairman: We have one or two very short questions to finish; we have about five more minutes. Will the Commission require additional funding if it is granted the powers set out in the draft Bill?

Kenneth Dibble: The answer is no, for reasons I set out earlier. We hope to support our work with information technology infrastructure to enable the more routine transactional matters to be dealt with in a swifter way. We hope to have greater proportionality in our powers—some offered by the Bill—which will enable us to deal with issues at a lower level than serious elevation within the Commission. We hope to manage all this within the same budget framework as we have at the moment.

Q28 Chairman: That is assuming that the budget framework remains as it is. There has been a reduction in some recent years but, provided it remains static, it is a position you can cope with.

Kenneth Dibble: The Commission has to be a more effective regulator. It has to focus on the highest risk cases. It has to support with advice and guidance charities that don’t get into too much trouble. It has to shape its regulatory offering with the money it has in the best possible way. We think the powers in this Bill will help us to do that.

Q29 Chairman: A related question is about the use of modern technology and IT right across the board. I take it that you do use that. Is there room for improvement in the way you use it?

Kenneth Dibble: Vast room for improvement. That is why the £8 million given to us by the Treasury over the next three years under the “invest to save” budget will help us develop what we have. Some might say that at the moment our systems, although we think they are adequate for current purposes, are woefully inadequate when one looks at what one can do in terms of a supporting IT infrastructure. We have an online registration system at the moment. As you probably know, we hope to have a joint portal with HMRC for registration of new charities. We have submission of annual returns done electronically, and we have some transactional work done electronically. Some might regard those as rather primitive tools compared with what one could do with a substantial new injection of investment on the IT front.

Q30 Lord Hodgson of Astley Abbotts: I would like to follow up on that. I hope you will forgive me, but I sometimes thought your attitude towards regulation was a trifle imperial. “What we have, we hold.” I thought that discussions about whether Companies House, which, for example, operates a huge database and has huge skill in doing it, could help the Charity Commission in manipulating data, analysing it, providing follow-up and doing so in a way which was cheaper than you could do in-house got fairly short shrift. Are there not opportunities for you to collaborate with other people, other regulators or bodies who have experience that could supplement your own and not require you to reinvent the wheel all the time?

Kenneth Dibble: We do and we will. That is an excellent suggestion. In looking at these particular powers, for example, we have a wide spread of regulation. When looking at our current strategic review and the way we regulate our own constituency of charities, we have gone to a range of other regulators to see how they do it, how they are organised, how they are structured and how they work. All that learning has been brought back into the Commission in terms of its organisational change, and its current focus on the real regulatory issues which are of concern in the sector, and from which we think we can drive up public trust and confidence in the sector by having a modern proactive, risk-based regulator.

Q31 Baroness Warwick of Undercliffe: I have one further question which is a follow-on to one you raised, Chair. It is about resource, but it is really about staffing in relation to direct inspection. You can do so much with technology, but in the end you have to look and you have to uncover, and that needs people. If you discover that in fact the more you do, the more you find, and therefore the more you have to look, what is the staffing consequence? I presume you have modelled this. What judgments have you made about the staffing consequence?

Michelle Russell: First of all, you are right that we will have to monitor that, the more we become proactive. That is targeted, so we are controlling it at the moment through different business models. The first business model for the Monitoring Unit has lasted us until now. Currently we are re-evaluating the business model going forward. In fact, they are modelling it on what other work we can do with other agencies to try and be more effective and targeted in that way. As we uncover more, we will have to monitor how much we are producing and also how we are doing it. We are always looking for smarter ways of doing things.

We may have to make some hard choices about which of the individuals before us are the ones where we are going to get a result, and look to see whether one of the other partners around the table can have disruptive or deterrent effect. We are also looking at joint working with other agencies to see which of the regulators are going to have the best effect in terms of the resources we have. There will be careful decisions about what work we take up and where we target, but we also need to monitor. We are hoping through “invest to save” that we will be able to redirect some more resource into not just monitoring and investigations but registration, because looking at compliance at registration is an important part of our regulatory remit. We hope to do that and we think that will help as we uncover more, but we need to monitor it as we go forward.

Chairman: Thank you very much. We have to leave it there, as time has run out. We are extremely grateful to all of you for coming to see us. We look forward to seeing you again, probably after the new year, when we may have some more targeted questions to put to you. For the time being, many thanks indeed.

Examination of Witness

Witness: Victoria Keilthy, Director, Private and Third Sector Delivery, National Audit Office, examined.

Q32 Chairman: Ms Keilthy, you are director of private and third sector delivery of the NAO. Could you explain in a sentence what that sector deals with, so that we can place where you come from?

Victoria Keilthy: My work involves looking at where Government delivers services through third sector providers or private sector providers.

Q33 Chairman: The first question I have to put to you relates to the report of December 2013. You will recall that in the conclusion chapter of that report on value for money, which is your particular province, you were fairly critical of the Commission.

Victoria Keilthy: Yes.

Q34 Chairman: I do not need to go over the criticisms because they are set out in the paper we have before us. Could you explain a little about the evidential basis for the criticisms that are set out there?

Victoria Keilthy: Yes. You referred to the report, and we concluded that the Commission was not regulating charities effectively at the time we wrote, in December 2013. The evidence we used was gathered over a three-month period in the middle of 2013. We looked at the Commission’s own data on its use of powers, the number of statutory inquiries it had opened and had in progress, the number of investigations and the number of registrations it had processed. We also looked at its own performance and quality data and complaints data.

We did our own case review of a small sample of the casework of the Commission. We looked at 40 registration cases, 36 operations cases and eight statutory inquiries. I am not sure whether the Committee has seen this, but we also did an accompanying volume on the case of the Cup Trust, which was a high-profile case of a charity that the Public Accounts Committee has described as a tax-avoidance vehicle. Furthermore, we interviewed Commission staff and had focus groups with Commission staff. We held interviews with stakeholders in the sector—representatives of charities and legal advisers.

Q35 Chairman: Is there a date as at which we can take those comments relating to? Is it right to say that that was the position as at last December?

Victoria Keilthy: As at December 2013.

Q36 Chairman: There may have been changes since, but they are not taken into account for obvious reasons.

Victoria Keilthy: Absolutely. We published on 4 December, so the findings were as we found them as at that date.

Q37 Viscount Younger of Leckie: I have read the key findings of the report. Nearly all of them are very critical. First of all, where the Commission was found by the NAO to be failing to deal effectively with abuse and mismanagement, what in general are your views as to what the barriers were to those failings?

Victoria Keilthy: I would say that there were five barriers to effective regulation. Let me just run through them for the record and then I can talk in more detail about them: first, the overall regulatory approach and the culture within the Commission; its resources; poor use of its own data; weaknesses in sharing information; and gaps and deficiencies in legal powers. I am very happy to expand a little on those five, if you would like me to.

Q38 Viscount Younger of Leckie: Yes, please. One of the important aspects as I see it for us as a Committee is to look at the resources aspect. I slightly twist things by comparing it with the press complaints issue and their lack of resources. My point really is, to what extent do you think that the Commission was woefully short of resources, both in terms of people and funding, and perhaps you could comment on either/or, and that severely curtailed their ability—this is the important bit—to get into as many charities as possible to find out what actually was going on?

Victoria Keilthy: I think lack of resources did have an impact on the Commission’s ability to regulate. There are a couple of points in the report. In paragraph 1.30, we talk about a decline in the number of monitoring cases which were opened because the Commission had taken the decision to reduce the number of staff in that area. At paragraph 3.10, we state that the Commission told us that statutory inquiries were taking longer to conclude because of lack of staff to work on them.

However, by no means do I think that the weaknesses we found were solely down to resources. As I said, and it was the first barrier I listed, I believe that the overall regulatory approach and the culture within the Commission at the time we carried out this audit played a very large part in the failings that we found. We found over-reliance on trustee assurances and lack of checking to make sure that what trustees had said had actually happened. As you know, we found reluctance to use the statutory powers that Parliament has granted the Commission. We found the Commission much more likely to offer advice and guidance than to use its powers. There was a general overall reluctance to act with vigour and pace in tackling regulatory issues.

Q39 Baroness Warwick of Undercliffe: I think you have largely answered the question that I was going to ask, but perhaps I could pursue the final point you made about culture, linking it to the greater likelihood of offering advice and guidance. Did you perceive that that was avoiding, or not meeting, real problems in those charities? As a regulator, it is often a wise choice to use advice and guidance rather than the heavy hand. Were you able to see a balance there and you came down very much on the side that they were not exercising that balance appropriately?

Victoria Keilthy: Yes, we did. Trustees are very largely volunteers. When a mistake is made, in large part that mistake is made not because of a deliberate desire to do bad things; it is simply because people do not understand what they are supposed to be doing. Clearly, there is a very significant role for advice and guidance in most cases where something goes wrong in a charity. The Commission has made clear in its annual report that this is its approach when there is a genuine mistake and the consequences are relatively minor. The Commission will assist the charity to get back on to its proper footing.

In our report, and also in fact in the Cup Trust, we found some very serious problems within charities that the Commission was still dealing with through advice and guidance. It seemed to us wholly inappropriate, where there are instances of deliberate wrongdoing, to continue to pursue the advice and guidance route. It is just inappropriate. It is the wrong tool to use when people are deliberately trying to abuse charitable status.

Q40 Baroness Warwick of Undercliffe: Could you point the Committee to the paragraphs, as you very helpfully did before, where you specifically say that? That would be quite useful.

Victoria Keilthy: The end of paragraph 3.13 talks about a number of investigations being closed with advice and guidance to trustees. We also talk about closure with advice and guidance being given in the Cup Trust. I will come back to you on that; I do not quite have the paragraph reference to hand.

Q41 Baroness Warwick of Undercliffe: But you see my point; it is a question of whether the advice and guidance was not just relevant to the problem but actually resolved the problem, or whether in fact it avoided the problem.

Victoria Keilthy: Absolutely. At paragraph 3.13 we say that there were four separate investigations in one charity, “opening and closing one statutory inquiry and beginning four separate investigations between 2003 and 2009.” They keep going round the same cycle of advice and guidance. Not much happens, the problem recurs and they start another investigation and give a bit more advice and guidance.

Q42 Chairman: Is that what you mean by the use of the word “pace”? I was not quite sure what you meant by that. You talked about a lack of pace in the use of the regulatory process. Is that what the criticism amounts to, or is there something more to it?

Victoria Keilthy: There is more to it than that. At paragraph 3.15 we found that the Commission permitted delays to occur in their investigations, because trustees did not comply with requests for information: “In one case, the trustees failed to substantively answer the Commission’s questions for six months.” These kinds of instances were allowed to introduce delay, when I would expect a robust regulator to ratchet up the interventions they are making when it is apparent that a trustee is simply unwilling to engage.

Chris Williamson: Lord Chairman, I omitted inadvertently to declare my interest before we quizzed the previous panel. I will do it now.

Chairman: It is a special rule for the House of Lords, but please do, if you have some interest.

Q43 Chris Williamson: I am a trustee of the League Against Cruel Sports. I confirm that for the record, if that is helpful.

As you know, the Charity Commission told the National Audit Office that there were a number of areas of their powers that needed review. The NAO in turn called on the Cabinet Office to look at this and to close the loopholes to empower the Charity Commission to deal with issues of abuse and mismanagement a bit more robustly than they had probably been able to do in the past. Could you comment on whether or not you feel that the powers contained in the draft Bill go far enough, and deal with the concerns that were identified?

Victoria Keilthy: I know that the Charity Commission would like there to be additional powers beyond those which made it to the Bill. From my perspective, I am satisfied that the issues we identified in our report are covered in the Bill. Indeed, there are some other powers in the Bill that we did not alight on in our report but that, to me, seem eminently sensible powers for the Commission to have.

Q44 Sarah Teather: This question picks up a little bit on something you said earlier. The sector regulated by the Commission is obviously large and very diverse. As you suggest, trustees vary very much in background and they give their time on a voluntary basis. What proportion of the sector do you think is likely to be affected by the provisions in the Bill? Do you think it is proportionate for the number of trustees who are likely to be subject to the powers in the Bill?

Victoria Keilthy: It is important to put on the record that abuse of charitable status is rare. There are 160,000 registered charities that are regulated by the Commission, and abuse is very rare. If the powers are passed, they would be there to help the Commission tackle those rare instances of abuse. I believe that in fact they will materially affect a very small number of charities. In terms of proportionality, the value that we get from the Commission having better tools in its toolkit to tackle abuse is worth the very small impact that those powers will have on charities.

Q45 Sarah Teather: Do you think the powers are likely to be used proportionately? Certainly the discussion we had in the last panel was the extent to which, particularly in a small charity, a problem had arisen because of incompetence. Do you have any concerns about the greater powers being used disproportionately on failure in a small charity where it might not have been deliberate?

Victoria Keilthy: When we wrote our last report we did not find instances of powers being used inappropriately. In a peculiar way we found the opposite; we found powers not being used, and reliance on advice and guidance. I think the Commission will continue to use advice and guidance as its first response to concerns in charities. It has said publicly that that is what it wants to do in the first instance; where it believes that mistakes have been honestly made, it will seek to assist the charity.

The warning power that the Bill proposes is a very helpful measure. It will allow a stepped approach so that, rather than just having, on the one hand, advice and guidance and then the nuclear option of a statutory inquiry, it gives the Commission something in between, which puts trustees on alert that the Commission is now moving away from seeking to assist and is starting to move up the regulatory hill towards something more rigorous.

Q46 Chairman: Have you identified cases where, in your experience, powers have to date not been properly used, and where that warning power would have been useful?

Victoria Keilthy: Yes, I have. This morning, I was looking at some background papers to our last report. It referred to how the power to warn would have been useful. Certainly the fact that advice and guidance is given so many times but not moved to a statutory inquiry means that the warning power would be very useful to the Commission, as signalling the severity with which it views the regulatory concerns.

Q47 Lord Watson of Invergowrie: I would like to ask a question about your view, and perhaps you could answer it with two hats on; I see from your biography that you are also a trustee of two charities. You may not have the same answer to give us wearing your professional hat and your personal hat.

On the question of some form of basic requirement or qualification before someone can act as a trustee, first, is that a good idea? Is it feasible? If you felt that it was, what sort of impact might that have on the sector, and indeed, beyond that, on the work of the Commission in dealing with issues that arise? I accept, as you say, that it is a very small number of problems that do arise.

Victoria Keilthy: I am not sure whether I am obliged to, but I feel I ought to have put on the record that I am a trustee of a charity regulated by the Commission. Thank you for enabling me to do that.

On the point about a qualification for trustees, I understand the issue that it is trying to get at. In principle, it would improve the knowledge of some trustees, but I am concerned that there are downsides that would need to be properly explored and fully considered before such a proposal went ahead. Requiring trustees to do some sort of training or pass some sort of qualification is likely to put off some people from becoming trustees. Charities in this country already struggle to get trustees. I am concerned that this would make the problem of recruiting trustees even harder.

It would also disproportionately put off, for example, younger people or people who have not been so successful in formal education. That would have a negative impact on the diversity of trustees. Again, that is something we want to promote. A healthy charity sector draws on the diverse experience of its trustees. If we start putting barriers in the way, I believe it will put off some people who would bring a lot of value to the role. It would increase the work load on charities because they would need to check that the prospective trustees had done the qualification. I am wondering whether perhaps the charities would have to pay for it; I do not know.

In terms of the impact on the Commission, I believe that it would actually change the nature of the Commission’s role. At the moment the Commission regulates charities; it does not license trustees. If we move to the point where trustees were required to have a qualification, whose role is it to set that bar and monitor it? If it is to be the Commission’s, we are starting to see a change in the role for the Commission. In principle, I like the idea because I understand the issue it is trying to get at, which is making trustees better at their role, but there are some practical concerns that would need to be worked through before such a proposal could be made to work.

Q48 Lord Watson of Invergowrie: Would it be wrong to characterise what you have just said as that you feel the disadvantages would outweigh any potential advantages?

Victoria Keilthy: Yes, although I would like to qualify that. I am just giving you an answer off the top of my head. I have not done any research into this. Off the top of my head, that is my feeling.

Q49 Baroness Warwick of Undercliffe: I fear I also forgot to declare my additional interests over and above those already in the Register. I am a member of the advisory council for the NCVO and a council member of Nottingham Trent university. My apologies for that.

My question is this. We are looking at it from the same point really, but I am trying to get at how best the Commission might intervene in order to enhance the knowledge and awareness of trustees. The Commission members of staff giving us evidence suggested that this might be done at registration. It seemed to me that that was a very appropriate role for the Commission; I share some of your doubts about requiring them to manage the training process. Could you say something about that? Would it be something that the NAO, as part of looking at the work of the Commission, would think is a valuable way of seeking to ensure that trustees understood their role before they even took on the role?

Victoria Keilthy: I am not sure what to add to my last answer. I can see that it would be helpful if there was some assurance before trustees take up their role that they are fully acquainted with what the role entails. At the very least, they should be aware of the Charity Commission’s guidance. Yes, I suppose you could ask charities to confirm to the Commission that they have provided that guidance to their prospective trustee when the charity lets the Commission know that that trustee has come on board. You could do it that way, but again I remain concerned about the impact it might have on the diversity and number of trustees. I think it would need to be thought through as to how it impacts the Commission’s role.

Q50 Chairman: I have a question that is somewhat related to that, although not exactly on the same point. Looking at the position of the Charity Commission itself from inside, as it were, does the NAO recognise that they have a function in preserving or promoting public confidence in charities?

Victoria Keilthy: Absolutely.

Q51 Chairman: Therefore, it is a question of the balance to be struck. Obviously your function is to look at value for money and the regulatory function, but is it possible to say that you have concentrated rather heavily on that and not given enough credit for the balance they have to strike between maintaining confidence and encouraging charities and so on?

Victoria Keilthy: Being a strong regulator helps to build public trust and confidence in charities, so I do not think that being a strong regulator is contrary to the Commission’s statutory objective, which is to increase public trust and confidence in the sector. It is absolutely critical to public trust and confidence that the Commission acts as a robust regulator.

We looked at regulatory issues in our 2013 report for a number of reasons. Lord Hodgson’s report and the report of the Public Administration Select Committee both said that the Commission really needs to focus on its regulatory role and stop doing things that others can do. There had also been the high-profile case of the Cup Trust charity, which I mentioned earlier, which was a regulatory failure. In addition, the NAO and the PAC had looked at the Charity Commission four times previously over the course of the last 25 years. Issues about use of statutory powers, good use of data and performance management were recurring themes. That is why, when we came to scope our work in 2013, we focused on those issues.

It is true to say that we did not look at, for example, the quality of the guidance that the Commission puts out. I recognise that that is a valuable and important function, but I had to direct my resources where I thought it was most appropriate to do so, and for the reasons I have set out, we went down to look at the regulatory capacity.

Q52 Chairman: I fully understand why you took the approach you did, but is there any acknowledgement in your report of the public confidence aspect of the Commission’s work?

Victoria Keilthy: Certainly we set out in part 1 the statutory objectives. Figure 1, on page 12, sets out the Commission’s statutory objectives—the first being to increase public trust and confidence.

Q53 Chairman: I have one other question which relates to something that I think you said earlier when you were referring to statutory inquiries. I think you used the words “nuclear option”. Could you explain what you meant by that? One is familiar with the nuclear option as a deterrent that is never used. That is plainly not what you meant, but could you just expand a little on what you meant by that?

Victoria Keilthy: I cannot strike things from the record, but perhaps that was loose wording. It is the most serious intervention that the Commission can take. Once a statutory inquiry is open, it enables the Commission to use some powers that they cannot use until a statutory inquiry is open. It is the heaviest and sharpest tool they have. I apologise for using the term “nuclear option”. You are right; it is used rarely, but not used never.

Q54 Chairman: But it is there to be used if circumstances require it.

Victoria Keilthy: Absolutely. Those will be few, but we expect to see statutory inquiries used where there is evidence of deliberate abuse of charitable status.

Q55 Viscount Younger of Leckie: May I go back to the question of trustees? I noted that one of your recommendations, which you mentioned earlier, was “Introduce, without delay, sample checks of the information and assurances trustees provide”. Would you be able to expand on that to explain how it might work, or do you see its being up to the Commission to decide how it would work? For example, would references be required—say, two references per trustee? How would you monitor that?

Victoria Keilthy: This is not about taking up references. It is about when the Commission seeks information from a charity, and the trustees or the trustees’ legal advisers write back saying, “These are the measures we have taken.” I am treating those as trustee assurances. As you say, it is up to the Commission to work out what is the best use of their resources, but I might suggest that for high-risk cases they check at least on a sample basis. “You said you were going to develop a new policy on so-and-so or that you were going to develop an action plan for something or other,” and we would expect them to go back in a few weeks’ time and say, “Now I would like to see evidence of that, please.” We found too much reliance on written assurances that something had happened and very little checking that actions had actually been enacted.

Chairman: Thank you very much indeed for coming. I should have explained at the beginning, although I think you already know, that your evidence is being transcribed. An unrevised version of it will be circulated. I encourage you to check it, and if there are errors of transcription please let us know. Thank you very much indeed for your evidence; we are most grateful.