Around one in four charities that the Charity Commission issued action plans to last year either partially or wholly ignored them, the Commission’s most senior investigator admitted yesterday.

Michelle Russell (pictured), director of investigation, monitoring and enforcement, was giving evidence to the joint committee of peers and MPs scrutinising the draft Protection of Charities Bill, which proposes giving the regulator tougher powers to deal with abuse and mismanagement within charities.

She was emphasising the importance of one of the new powers contained in the bill, namely the ability to issue an official warning outside of a statutory inquiry if charity law is breached.

“A warning power is a really important power for the Commission to have,” she said. “At the moment the only power to warn a charity has the status of regulatory advice and guidance. We need a different sort of warning.”

The power to issue an official warning would be a valuable new weapon in a graduated range of powers, she said, which the Commission currently lacks.

Russell said that in the last financial year the Commission issued 74 ‘action plans’ – directions made outside a statutory inquiry – but when investigators followed up with the charities on their progress, they found that 20 to 30 per cent had ignored the advice given, either partially or completely.

“There is an issue about us having enough teeth,” she said.

She said the Commission could use such a warning power against, for example, charities who are persistently late filing their accounts.

Victoria Keilthy, director of private and third sector delivery at the National Audit Office, said: “A warning power would be something in between advice and guidance and the nuclear option of a statutory inquiry, to put trustees on alert. I think the warning power would be very useful.”

Ben Harrison, OCS, added that the Care Quality Commission and other regulators already have such powers.

Barring trustees from executive posts

The Commission’s representatives also argued for the inclusion in the bill of a power to ban trustees from holding a senior executive position within a charity as well as a trusteeship, if they have been guilty of mismanagement.

Director of legal services Kenneth Dibble said trustees affected by such a ban would only be affected for a specific period, would be able to apply to the regulator for a waiver, and could appeal to the Charity Tribunal if they opposed the ruling. “In our view the power would be proportionate,” he said.

But Ben Harrison, senior policy adviser at the Office for Civil Society, said the Cabinet Office was open-minded about whether such a power should lie with the Commission.  Some respondents to the bill consultation said the power to disqualify should rest with the Commission, Harrison said,  but others felt that, as with disqualification from company directorship, it should rest with the courts.

He added that the Cabinet Office did look at whether the list of disqualifiable offences should include sexual offences “but we thought that was covered already by the Disclosure and Barring Service and we didn't want to create a new offence just for charity trustees”.

Dibble added that all the powers set out in the bill were “all examples of cases we have come across or issues that we feel we can't effectively deal with at present”.

No more money needed

He said the Commission would not need any more funding to implement the new powers as the £8m already allocated to the Commission from the Invest to Save budget would allow it to improve its IT infrastructure to support its more routine tasks, freeing up more resource for the “sharp end” of its regulatory work.

In response to a question from Chris Williamson MP about how the impact of the bill would be evaluated and what would constitute success, Ben Harrison said it would contain a review clause that would require it to be reviewed at least every five years.  Also, the government has already set out what it hopes the effect of the new law would be in its impact assessment, so it can look back and compare.  

He said success indicators would include the number of times the powers were used, the way they were exercised, the number of times use of the powers was challenged, whether these challenges were successful, and whether public trust and confidence in charities has improved.

“If we bring things to light that weren't before then trust could start to drop before it goes up,” he admitted, “but long term it should go up.”