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NAO: Charity Commission must do better

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5th Dec 2013
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Charity finance managers have advised the Charity Commission to make better use of data on the charities it regulates to help spot potential fraud, tax avoidance and other abuses of public money.

The comments came after the National Audit Office said that the commission was not tackling abuses of charitable status properly, including tax avoidance.

Public Accounts Committee (PAC) chair Margaret Hodge said the commission had "tough questions to answer". The committee will question the commission this month.

In figures

£32.6 Annual budget of the commission in 2007-8

£22.7m Annual budget of the commission in 2013-14

163,000  Main registered charities in England and Wales that the commission oversees

15 Statutory inquiries into charities opened by the Commission

The NAO investigation followed a PAC report into The Cup Trust, a charity used by donors to avoid tax.

The NAO said that commission is not regulating charities properly. It is slow to act on potential abuses among charities and does isn’t tough enough on serious abuses by charities. It also makes poor use of the information it has on charities, which could help it identity potential fraud or other abuses of public money, the NAO said.

The commission has the power to suspend a trustee of employee of a charity, appoint additional trustees to administer the charity properly and freeze charity bank accounts.

“The Commission is not regulating charities effectively. It does important and necessary work and its independent status is highly valued, but it does not do enough to identify and tackle abuse of charitable status,” the NAO report said.

Jane Tully, head of policy and public affairsat Charity Finance Group, which represents more than 2,200 charity UK finance managers, said that when the commission investigates charities tax arrangements and other activities it should consider whether they are in the public interest, not just their legality.

“There is definitely scope for improvement [at the Charity Commission],” Tully told Accounting WEB. “We have always felt that the commission take a very narrow legal position when investigating [cases such as the Cup Trust].”

She said that the commission could make better use of the registration data it has on charities to improve its assessment of whether charities are at risk of financial problems or fraud.

She added that commission did some “effective” work, for example on setting accounting guidelines for charities.

The NAO recommended that the commission should work more closely with HMRC, sharing information and collaborate on “risk profiling” charities.

Other recommendations include to review how it can meet its objectives within constrained resources”; make greater use of its statutory powers in line with its objective of maintaining confidence in the sector; and do random checks on the information and assurances from trustees.

Budget cuts

Commenting on the NAO report, Hodge, said: "The Public Accounts Committee asked the NAO to carry out this work earlier this year after our inquiry into the Cup Trust raised serious questions about whether or not the Charity Commission is fit for purpose. This report suggests it is not.

"People in this country are hugely generous in giving to charities but the failure of the Charity Commission to detect and tackle abuse effectively risks undermining public trust in the whole sector."

The commission oversees more than 160,000 charities in England and Wales. Its annual budget has decreased by 40% in real terms to £22.7m over the past seven years.

The commission said that it accepted the main recommendations of the NAO report and said that it had already started to act on some of them.

But it said that the NAO did not review many areas of its core responsibilities: holding charities to account through the public register of charities; guidance for charities, professionals and the public on the legal and accounting framework.

Tax avoidance

The NAO report was prompted by revelations that The Cup Trust was operating a complex tax avoidance scheme on behalf of its wealthy donors.

Out of every £100 donated, just three pence went to good causes.

In a separate report, the NAO concluded that the Charity Commission failed to check the Cup Trust met the legal requirements when it registered it as a charity and was then too slow to act when problems emerged.

The Cup Trust submitted claims for £46m of Gift Aid on £176m of payments from participants to the tax avoidance scheme, but it gave just £152,292 to charitable causes between April 2009 and March 2013, the NAO.

In June, the PAC said that the commission could easily have spotted the Cup Trust’s tax avoidance a few “elementary checks” before the charity was registered.

The Trust’s sole trustee was Mountstar, an entity based in the British Virgin Islands whose directors are already well-known to HMRC as being involved in tax avoidance, the committee said.

Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said the commission had taken a "soft-touch approach" in even the most serious cases.

He said: "This report reflects what we have said for years. In order to maintain public trust, charities want a vigilant and effective regulator which takes prompt action in the rare instances of abuse."

AccountingWEB columnist Philip Fisher also suggested that the Cup Trust case posed an ethical challenge to advisers. In a post considering the morality surrounding the case he commented, "Using the wrapper of an organisation theoretically designed to help those in need as a means to obtain tax relief does sound very much closer to fraud than even tax evasion, let alone avoidance."

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By Bagel
06th Dec 2013 11:10

So, if I've got this right:

"..Mountstar, an entity based in the British Virgin Islands whose directors are already well-known to HMRC.."

have claimed Gift Aid on donations, which is a claim that goes to HMRC and is assessed and paid out by HMRC, a process which does not involve the Charity Commission in any way, but somehow it's the Charity Commission which gets all the stick, even to the point of Margaret Hodge of the PAC suggesting it ought to be scrapped and HMRC take over its role...?

And HMRC are such beacons of good practice, of course... 

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