A deep dive into the Charity Commission's latest annual report and accounts

In July, the Charity Commission for England and Wales published its annual report and accounts for 2022-23. 

Like the charities it regulates, the Charity Commission is required to set out in its annual report the ways in which it has furthered its objectives during the year. 

In this article, we consider some of the facts and figures contained in the latest report. We contrast them with their equivalents in an earlier report to establish what trends they reveal, and what they can tell us about the current direction of travel for the Commission and the charity sector.

Background – the Commission's functions and objectives

The Charity Commission has six general functions, which are set out in section 15 of the Charities Act 2011 (the Act). Its key functions involve:

  • Determining whether or not institutions are charities.
  • Encouraging and facilitating the better administration of charities (by means including the provision of advice).
  • Identifying and investigating apparent misconduct or mismanagement in the administration of charities, taking appropriate remedial or protective action where necessary.
  • Obtaining, evaluating and disseminating relevant information (including the maintenance of an up-to-date register of charities).

The other general functions relate to the issuing of certificates in respect of public charitable collections, and the provision of advice and making of proposals to government ministers.

The Commission also has five statutory objectives, which are set out in section 14 of the Act. They are to:

  • Increase public trust and confidence in charities.
  • Promote awareness and understanding of the operation of the public benefit requirement (essentially, the requirement that, for an organisation to be regarded as a charity, it must exist exclusively for purposes that are recognised as charitable and that benefit a sufficiently large section of the public).
  • Promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities.
  • Promote the effective use of charitable resources.
  • Enhance the accountability of charities to donors, beneficiaries and the general public.

When performing its general functions, the Commission is required by section 16 of the Act, to act "so far as is reasonably practicable", in a way which is compatible with the above statutory objectives, and which it considers most appropriate for the purpose of meeting those objectives.

In October 2018, Commission opted to set itself the following five strategic objectives:

  • Holding charities to account.
  • Dealing with wrongdoing and harm.
  • Informing public choice.
  • Giving charities the understanding and tools they need to succeed.
  • Keeping charity relevant for today’s world.

Part of an overall five-year plan, these strategic objectives are expected to be reviewed over the coming months.

What is striking about the Commission's self-imposed strategic objectives is that they overlap somewhat with the statutory objectives contained in the Charities Act. Whether the Commission prefers the rather more general wording of its strategic objects it is not possible to say, and of course the statutory objectives remain – although it is noticeable that, in recent years, the Commission has moved away from reporting progress against its statutory objectives, choosing instead to report against the strategic objectives that it has selected for itself.

The Commission's report in context

As has become the norm, this year's report includes an infographic designed to provide an overview of the sector, and give a sense of the scale of what is expected of the Commission. In particular, the infographic shows that, while there were around 169,000 charities on the register, between them making £88 billion during the year, the Commission was given a budget of only £32.35 million with which to regulate them. The report later reveals that the Commission had an average of only 464 permanent employees during the year – that's one employee for every 364 charities on the register.

If that information alone doesn't make the Commission's task sound like an uphill struggle, it's also worth bearing in mind that its current budget and staffing levels are largely the same as they were in 2009-10, at a time when the sector's income was only £52 billion.

In 2010, the Commission's budget was cut by a third from almost £31 million to £21 million, then frozen for a time, and it was forced to reduce staffing levels, despite concerns that it would not be able to operate as an effective regulator with such drastically reduced resources. Arguably, those concerns were well-founded: the ensuing years gave rise to a series of charity scandals and, while they weren't necessarily the Commission's fault, it received an unhealthy dose of the associated criticism.

In particular, the 2013 Cup Trust scandal (which involved a registered charity being used as part of a large-scale tax avoidance scheme) gave rise to questions about the Commission's credibility and powers on the grounds that it had not identified and dealt with the problem sooner.

The Commission was admonished by the Public Accounts Committee, and former employees of the Commission branded it "toothless", claiming that it only ever acted in response to complaints – or, in this case, investigations by the press – rather than being proactive.

Closely following the Cup Trust scandal were the collapse of Kids' Company and the suicide of Olive Cooke – the poppy seller who was believed to have received almost 3,000 mailings from charities in a year – and there were various negative press stories questioning the operation of so-called "tie-ins" between charities and commercial entities, and the oversight of charities' overseas activities.

While all this was happening, the level of public trust and confidence in charities began to fall and, by mid-2018 it had reached an all-time low of 55%. This meant that charities were seen at that time as being less trustworthy than the average person in the street, who was afforded a trust rating of 57%. For further context: the highest trust rating that year was awarded to doctors (74%) and the lowest to MPs (36%).

Understandably, since this low point, the Commission has been at great pains to demonstrate its effectiveness, and it has petitioned for – and been given – additional powers to enable it to take enforcement action where appropriate. But only now are its resources returning to pre-austerity levels, despite the growth of the sector since that time and, while it has increased since 2018, public trust in charities currently stands at 63%, which suggests that at least one in three people continue to treat charities with suspicion.

The combined effect of this appears to be that, as the Commission does not have the means do everything, it has little choice but to focus its resources on those of its functions it believes will have the greatest impact – particularly in terms of public trust and confidence in charities but also, perhaps, in terms of trust and confidence in the Commission itself. This would appear to be borne out in the sections of the report that deal with the Commission's performance against its strategic objectives, as contrasted with the equivalent sections of its report from 2009-10.

Reading between the lines of the report: Holding charities to account and dealing with wrongdoing and harm

The Commission has been concentrating its efforts on furthering the first two of its strategic objectives for some time, and the report would suggest that this year has been no exception: certainly, it has been using its regulatory powers increasingly often. It made use of its powers to promote compliance with charity law 2,401 times during the year (the figure for the previous year having been 2,034). This type of regulatory action often involves the Commission directing charities – and sometimes third parties – to provide documents, accounts or other statements, with a view to finding out whether some kind of wrongdoing has taken place. Evidence that it has will usually lead to further regulatory engagement, such as a statutory inquiry.

The Commission opened 72 new statutory inquiries during the year, as opposed to the 49 it opened during 2021-22 (and the 15 it opened in 2009-10). One of the reasons for the increase this year has stemmed from the Commission's response to charities linked with individuals who are sanctioned because of their connections with Russia, but the Commission has also opened a significant number of inquiries into charities that have failed to file their accounting information at least twice over the past five years – a practice that the Commission takes as evidence that a charity might not be being properly managed.

The Commission's report refers specifically to two statutory inquiries that it concluded during the year. The first of these was an inquiry into Rhema Church London, in which the trustees were found not to have been fulfilling their duties to protect the charity and its assets, and to have failed to demonstrate effective oversight of senior staff, leading to serious misconduct and/or mismanagement, including misuse of funds and other assets.

Interim managers were appointed to recover funds and redistribute them to other charities with similar purposes, the charity's former pastor was disqualified from acting as a trustee or holding senior management positions within charities for ten years, and the charity was wound up and removed from the register.

The second statutory inquiry referred to in the report involved The Ashley Foundation, which is a charity established to relieve poverty by means including the provision of accommodation. The inquiry uncovered serious financial mismanagement within the charity, including evidence that the charity's funds had been used to benefit the charity's former chief executive and former trustees. Funds had been used to repair and upkeep personal properties belonging to the chief executive and his son, and expenses had been used to fund luxury travel and inappropriate purchases. Again, the inquiry led to disqualifications but on this occasion the charity was allowed to continue, with the Commission working in collaboration with the current trustees to ensure that appropriate controls were put into place to safeguard its assets in the future.

A statutory inquiry is the Commission’s most serious type of regulatory engagement and is used in cases where the Commission is concerned that there has been – or that there may be – mismanagement or misconduct in the affairs of a charity. The opening of an inquiry gives the Commission additional powers over the charity, including the ability to appoint interim managers in the place of the trustees and, in serious cases, to remove trustees or senior managers from office or to direct that the charity should be wound up and its assets transferred elsewhere.

The Commission also used its power to issue charities with an official warning 11 times during 2022-23 (slightly less often than the previous year, when it exercised the power on 12 occasions; the power was not available to the Commission in 2009-10).

One such official warning was issued to Christ Church, Oxford, after it became apparent that the trustees may have failed to manage the charity's resources responsibly. The charity had been involved in a long and costly dispute with its former Dean, who left his role in 2022 following a mediation process. Between August 2018 and late January 2022, the charity spent over £6.6 million on legal and PR fees in various actions relating to the Dean, of which over £5.3 million appeared to have been approved retrospectively.

The Commission also found that these costs had been reported in a way that had the potential to mislead readers of the charity's published accounts. As well as issuing an official warning, the Commission published a press release setting out its findings and the actions that it felt the charity ought to take to rectify the situation. It used the press release as an opportunity to highlight that all trustees are required to demonstrate sound financial stewardship, regardless of the level of resources available to them.

The power to issue official warnings is relatively new, having been introduced by the Charities (Protection and Social Investment) Act 2016, and it enables the Commission to issue a warning whenever it believes that a breach of trust or duty has been committed, or that other misconduct or mismanagement has occurred, in respect of a charity. The Commission uses the power as a signal to trustees that, while there might not yet be grounds for a formal inquiry, the Commission believes that some remedial action on the part of the trustees is likely to be necessary. While it may not use a warning to compel trustees to take any particular action, it will usually set out the steps that it believes should be taken to rectify the situation – and, in practice, inaction on the part of the trustees is likely to lead to further regulatory action, such as a statutory inquiry.

The Commission must give notice of its intention to issue an official warning, and trustees are usually given 28 days within which to make representations as to its content. But the Commission’s powers in this regard are considered by some to be controversial – not least because it has a statutory right to publish any warning it does issue in any way it considers appropriate (in practice, this will usually be on its website). It does have power to vary or withdraw a warning after it has been issued and published, but this does not happen automatically – even in cases where the trustees have taken all of the actions that the Commission expected of them – and the content of a warning will usually remain public for up to a year (and the fact that it was issued for even longer). There is, however, no right of appeal against an official warning: the only course of action for trustees who dispute a warning is to bring a judicial review. This can be a lengthy process and, even if the outcome is successful, any reputational damage that might result from the publication of the warning is likely to have been done.

Giving charities the understanding and tools, they need to succeed

In its 2009-10 report, the Commission stated that it had provided bespoke regulatory advice to charities on 11,774 occasions during the year but, as it has not reported on this information since, the 2022-23 report contains no equivalent figure. Instead, we are given impressive-looking but relatively meaningless figures such as the number of calls answered (68,497) and the number of individual charities supported (31,402) by the Commission's contact centre. We are also told that, while the Commission aims to answer phone calls within two minutes, it only did so in 79% of cases during the year – a drop from 84% the year before.

In practice, the Commission stopped routinely providing bespoke advice some years ago as it simply has not had the resources to do so. Long gone are the days when it was possible to email or telephone a named individual and expect a tailored response – indeed, one of the Commission's stated aims in its 2009-10 report was to decrease the number of tailored advice requests it received by 10%. Instead, the Commission now expects trustees for the most part to rely on the generic advice that it makes available on its website, having spent years actively encouraging users to interact with it primarily by online means. The 2022-23 report refers to some of this advice, including the Commission's five-minute guides which, in themselves, provide no more than a brief overview of the matters they purport to address, although they do at least include links to some of the Commission's more detailed guidance, which is to be welcomed given that the Commission's website is not easily navigable. The Commission has indicated an intention to review much of its core guidance to make it more accessible, although this has led to concerns about the possibility of it being diluted – and becoming less helpful as a result.

The Commission still has a statutory power to issue bespoke advice under section 110 of the Charities Act 2011, but its policy now tends to be only to do so in limited circumstances. Increasingly, those seeking answers are told to take professional advice. And those who are lucky enough to obtain advice often have to wait some time for it: the Commission aims to decide registration, permission and advice requests within 30 working days but, according to its report, it only did so in 85% of cases during the year – which is, at least, an improvement over the year before (80%). However, those who deal regularly with the Commission will know that, in the more difficult or unusual cases, its turnaround times can be considerably longer than six weeks.

Informing public choice

To some extent, informing public choice has always been part of the Commission's role, although in the past it has treated this as being part of its fifth statutory objective – enhancing the accountability of charities to donors, beneficiaries and the general public. Hence, the sections of its 2009-10 report that deal with improving charities' accounting and reporting practices and enhancing the register, for example, are included in a section dedicated to that objective. Then, the focus was very much on the Commission's support of charities, and so the report spoke of it "urging more charities to be accountable by making their information public within the ten-month deadline" and of it running media campaigns to "make charity trustees aware of the importance of making information available".

However, now that the Commission has begun reporting on how it has informed public choice, rather than enhanced accountability, the focus appears to have shifted away from the Commission educating trustees about the information they are required to provide and helping them to report it. Instead, the Commission appears more focused on making sure that donors are given the information that the donors themselves believe they need. Consequently, the 2022-23 report stresses the importance of charities "providing people with the information they require to make informed decisions about which charities to support".

The justification for this shift in focus appears to be that individuals are more likely to make donations to charities if they are better informed as to how their money will be spent. There is, of course, some truth to this but the push to provide ever more detail places an additional burden on charity trustees, the vast majority of whom are volunteers without necessarily having the luxury of executive staff to support them.

Each year, charities with an annual income of over £10,000 are required to submit an annual return, which the Commission uses to collect data about the sector. Those familiar with the annual return form will know that the number of questions it asks has tended to grow from year to year, despite much of the information requested being available in the trustees' annual report and accounts that are published in full on the Commission's website. Of course, the Commission does not have the time to scrutinise the report and accounts of every charity every year, so it uses the annual return as a means of gathering edited highlights (and in some cases lowlights) in a form that it can analyse for trends across the sector.

The Commission's regulatory activity will often be guided by the information that the annual return reveals, and so it uses the annual return responses as a means of determining what its focus should be over the coming year. Thankfully, it appears that the Commission may have realised that the annual return has become rather an onerous task: the 2022-23 report indicates that, in response to a consultation, the Commission will be reducing the number of questions set during the 2023 annual return process and rewording some of its planned questions to make them clearer.

The "informing public choice" section of the report also indicates that the Commission has "continued to deliver improvements" to the register of charities by "building [its] understanding of how the public are using it. The report does not state what these improvements were but it is to be hoped that, rather than concentrating on providing additional detail, the Commission is focusing on presenting relevant information in a more user-friendly manner. In our view, the register search function is in particular need of an overhaul, currently being far less intuitive than it was before the Commission's website was redesigned to match the other gov.uk websites.

Keeping charity relevant for today's world

This section of the 2022-23 report states that the Commission's strategy commits it "to lead thinking about how charities can thrive in a changing and ever-more challenging world". The Commission is, it says, "shaping the agenda, speaking confidently and authoritatively across government, in Parliament and more widely on charity matters as the expert regulator informed by (its) experience and data". To evidence the Commission's progress against the last of its strategic objectives, the report points out that the Commission has been reviewing its guidance to reflect the changes to charity law brought about by the Charities Act 2022, releasing funds from charities that have become inactive or ineffective, and working on its engagement with the sector in Wales. However, it is not clear just how much of this could be said to be "keeping charity relevant for today's world".

In fact, it is not entirely clear what "keeping charity relevant for today's world" means at all, or even if the Commission should be doing it. A clue to the meaning can be found in the rather nebulous mission statement that the Commission adopted when it set its strategic objectives in 2018: "to ensure charity can thrive and inspire trust so that people can improve lives and strengthen society".

The use of the word "charity" (as opposed to "charities") in both the mission statement and this fifth statutory objective is concerning, as it suggests that the Commission sees itself as being in a position to regulate not just charities as entities but also what charity is as a concept. That is not the case. Whether or not an entity is a charity is determined by charity law and, if it is, the Commission must register it as such and regulate it accordingly, assuming that it meets the appropriate conditions for registration. It is not the Commission's role to determine what "charity" is or should be: that is a matter for Parliament. It is to be hoped that the Commission is not devoting a significant portion of its limited resources to this type of work, or it risks moving into areas of activity that fall outside its statutory remit.

Final thoughts

It is not possible to determine from the 2022-23 report precisely how much of the Commission's resources are spent on the various aspects of its work but it is clear that the focus is very much more on misconduct and mismanagement within charities than was previously the case.

In many ways, this is reassuring: it has to be right that, when its budget is limited, the Commission concentrates its efforts on identifying and dealing with wrongdoing in connection with charity assets. It must also be appropriate for the Commission to take steps to increase public trust and confidence in charities, provided that it does so in a way that does not place too much of a burden on trustees, because the sector could not survive without the support of the general public.

But the Commission is there to regulate all registered charities – not just those that are underperforming in some way – and a reading of its latest annual report suggests that, these days, much less support is available for charities that are doing, or at least trying to do, the right thing. This certainly appears to be the experience of charities that are struggling to obtain the advice or consent they need – at least in a timely fashion.

It remains to be seen what strategic objectives the Commission will set itself for the next five years, but it seems likely that its focus on enforcement work will continue for the foreseeable future unless there is a significant change to the way in which – and the extent to which – it is funded. Until this happens, the Commission would do well to focus on its statutory functions and, indeed, its statutory objectives, rather than setting itself more far-reaching goals.