The Regulator for Charities in England and Wales
(July 2008)1
A full colour PDF version of the Risk and Proportionality Framework for the Commission’s compliance work is available.
The Charity Commission is the independent regulator of charities in England and Wales. Our aim is to provide the best possible regulation in order to increase charities' effectiveness and the public’s confidence and trust in them.
The Commission’s objectives, contained in the Charities Act 2006, are to:
The Commission is a risk-based and proportionate regulator. This means that we engage with charities in a way which will make most difference to them and those who benefit from them. Any regulatory action we take will be evidence-based and proportionate, fair and reasonable, taking account of the issue, the risk involved to the charity and its beneficiaries and the capacity of the charity to comply.
Our overall approach to regulation is set out in our publication The Charity Commission and Regulation. This framework has not changed. We target our resources where they are most likely to have the greatest impact and we follow the principles of regulatory best practice. We strive to ensure that our actions are proportionate, accountable, consistent, and transparent and only targeted at cases where action is needed.
As a modern regulator, the Commission’s overall approach emphasises providing support and guidance and promoting best practice as well as ensuring that charities comply with their legal obligations. We aim to encourage and support charities to improve their performance by working in partnership with them and with sector umbrella groups, to help define and facilitate best practice and share this knowledge widely. We put an emphasis on enabling charities to maximise their impact and on encouraging innovation, effectiveness and collaborative working across the sector.
We are in the process of refining and strengthening our risk-based approach to regulation. The purpose of this paper is to set out the enhanced approach we are applying in our compliance work. This is shaping the Commission’s approach to risk in a critical area.
We carried out an informal public consultation on the risk and proportionality framework between September and November 2007. This paper updates an earlier discussion paper and takes account of public responses to it.
The enhanced approach does not represent a change in policy, but it does introduce a model which publicly shares what we consider to be the areas of greatest risk for charities where we will target our resources. This approach is also reflected in our operational priorities for our compliance work.
This paper focuses primarily on the work of our Compliance function, which is responsible for the delivery of our ‘compliance objective’ involving regulatory work with charities where their assets, services or beneficiaries are at serious risk of abuse or damage. This includes risks to the reputation of individual charities and, by extension, concerns about public confidence in charities generally and the effective regulation of the sector. The role of the Compliance function is to identify and investigate apparent misconduct or mismanagement in the administration of charities and to resolve difficulties encountered, either by providing support to trustees or, where necessary, intervening to protect the charity by using the Commission’s legal powers.
The refinement of our approach to risk-based regulation in our compliance work is part of a wider process of improvement in the Commission to provide streamlined and effective regulation while minimising the burden on charities. Improvements include, for example, the introduction in 2006 of Charity Commission Direct, the single point of contact for all enquiries and requests coming into the Commission, resulting in faster response times, a better service and quicker decisions about whether we will or will not get involved.
We have taken further steps to ensure our regulation of charities is more proportionate and focussed on risk with serious incident reporting as a key driver. The Annual Return (which can be completed online) now requires trustees to declare that they have reported serious incidents to us. Serious incidents should also be reported to us as soon as possible after they occur, and also to the police and/or the charity’s insurers where this is appropriate. This is so we can provide assistance at the earliest opportunity (guidance on reporting serious incidents is available on our website). Such changes represent a part of the Commission’s drive to target our resources where the risks are highest.
Our December 2006 stakeholder survey ‘Sound strategy for effective delivery’ indicated that while more than 50% of respondents think that opening fewer investigations is a positive step, the Commission should not be seen to be soft in this area and must make sure that it acts decisively where needed. There is a suggestion that we do not have a decisive system in place for when we will and will not intervene, and a strong view across stakeholder groups that we need to develop our risk framework to alert us to possible illegal and/or improper behaviour at an earlier stage.
In addition, we have received case-specific criticism in the past from trustees, complainants and beneficiaries, and MPs representing them that our response is sometimes disproportionately tough, not taking account of the charity’s capacity to comply, while in other cases we take an inappropriately ‘light-touch’ approach.
The Commission’s purpose is to achieve its statutory objectives, and so the risk to us as the charity regulator is that we fail to do so. Each part of the organisation plays a role in fulfilling these objectives. For our Compliance function we have identified the following six specific objectives that will enable the Commission to achieve its objectives in the compliance area – promoting trustees' compliance with the law, and increasing public trust and confidence in charity.
The objectives are to:
Charities must comply with the law. When trustees act reasonably and honestly we respond flexibly and will take this into account in deciding whether to take regulatory action against trustees, and in assessing how to support trustees to put the charity back on a secure footing. Deliberate wrongdoing, illegal activity, criminality and serious abuse will be dealt with rigorously and decisively. An effective compliance and enforcement function in the Commission is, therefore, of vital importance.
Our revised approach recognises that we cannot eliminate, or seek to control, all risks as a regulator. We do not have the capacity to do so. It would also place an unacceptable regulatory burden on charities and would stifle the innovation and adaptability that characterises the sector.
Our enhanced approach to determining risk, and for ensuring that our actions and decisions are appropriate and consistent, moves away from a fairly prescriptive model that awards points for different factors, to a clearer and more flexible traffic light model that categorises risk into Green (low risk), Amber (medium risk) and Red (high risk) issues.
Green issues are routine matters that require less concentrated and/or immediate attention and support. Amber issues are more complex where we apply more resource to provide greater attention and support to resolve difficulties. Red issues are those major and complex issues that present serious risk to the charity and its beneficiaries; these are the issues that will receive the most attention and resources from the Commission.
The traffic light model is a tool used by our compliance staff to assess how a particular issue of concern arising in a charity will be handled and the level of resource the Commission should devote to it; it does not determine, or pre-determine, our ultimate response to the case.
We have identified what we consider to be the most serious issues and areas of greatest risk for charities. These are, in no order of priority:
When assessing whether to engage and how quickly, the Commission’s enhanced approach is based on levels of tolerance and identifies a number of ’zero-tolerance‘ issues. When we have concerns that such issues have or may arise in a charity, they receive immediate attention in the Compliance function due to the risks they pose to the charity, its beneficiaries, the public, and the integrity and reputation of charities in general.
Using our risk and proportionality framework we rapidly assess the most appropriate and proportionate course of action to take. This means we determine whether we will engage further with the issue; the level of priority, attention and resources we will give it, and where in the Commission it will be dealt with. This is based on the particular circumstances, the seriousness and scale of the problem and the available evidence. The ’zero-tolerance‘ issues are, in no order of priority:
Our assessment of concerns that come to our attention involves evaluating the likelihood of a risk occurring and the potential impact on the charity and more widely. This is informed by our past casework experience. We also take time to validate and verify the reliability and credibility of concerns, including allegations, along with the source of the concern. This includes consideration of previous Commission involvement and the scrutiny of information held by the Commission. It also involves liaison with other regulators, law enforcement and other agencies.
Our response to any case will not be determined just by the issue alone and we will treat each case individually. A risk can be considered more or less serious depending on how it is being managed and controlled by the charity. Some issues may start off as relatively low risk but when combined with a number of other modifying factors could move to being high risk, and we would devote more attention and resources to resolve it. Examples of modifying factors include the following:
Using our risk and proportionality framework will ensure that we prioritise our actions and target our resources where the risks are highest. Our Compliance function’s approach to casework is, where possible, to work with trustees to resolve issues through providing supervision, advice and guidance which will allow them to bring the charity back on a secure footing and restore the charity’s governance to a proper standard without the need for us to intervene. We follow up after a period of time to satisfy ourselves that the necessary action has been taken by trustees.
In some of the more serious cases of regulatory concern we may open a statutory inquiry under s.8 of the Charities Act 1993. The decision to open an inquiry by senior managers will usually be based on a matrix of factors where there is evidence or serious suspicion of misconduct or mismanagement or risk to property, including where any of the following features are present:
Added to this, we would also be justified in opening an inquiry under other circumstances including where it is:
The seriousness of the issue, whether the risk is ongoing and the level of co-operation of trustees will be additional factors to be considered.
The purpose of an inquiry is ultimately to ascertain the extent of misconduct and mismanagement, if any, assess the risk to the charity and what action needs to be taken to resolve the concerns. Opening an inquiry facilitates the use of the Commission’s regulatory powers of remedy and protection conferred under s.18 (1) and (2) of the Charities Act 1993. We do not open an inquiry solely on the basis that we want to exercise powers that can only be exercised once the inquiry is opened. However, it may be the case that as a result of assessing the risks and what action has to be taken, that we need to use our powers during the course of an inquiry. We will not always use our powers during the conduct of an inquiry, and will only do so where this approach is both proportionate and appropriate in the circumstances.
Our policy is to report the outcome of formal inquiries by publishing a statement of results on our website. We do this to account publicly for our investigatory work. For members of the public, inquiry reports are the most tangible way to understand the key issues of the case, our role as regulator and the impact of any action we have taken. Inquiry reports also set out our conclusions and the wider lessons for other charities.
We intend to complement these inquiry reports by publishing reports at the conclusion of other cases that do not merit a formal statutory inquiry. This will apply to selected cases where there is a significant public interest in the issues involved, and in the outcome. These reports will provide a mechanism for disseminating examples of good practice as well as poor practice and the lessons that other charities can learn from them, and for promoting transparency and accountability in the charity sector.
When charities, or those connected with them, have committed a criminal offence this is a matter for law enforcement agencies and we will refer suspicions of criminal activities to them as appropriate. This is in line with our general approach to issues of criminality within, or associated with, charities.
Another factor that has an impact on our compliance work and one of the keys to the Commission making good decisions is having access to and making intelligent use of all information available to the regulator. This falls into three broad categories:
David Walker
Head of Compliance Outreach and Development
Tel: 020 7674 2529
Email
Charity Commission Direct
PO Box 1227
LIVERPOOL
L69 3UG
1. Minor updates to terminology made in December 2009 .