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Charities Commission: the Concept in the light of English Experience

In this 2003 paper, Richard Fries, a former Chief Commissioner of the UK Charities Commission, discusses the concepts, mission and roles of the UK Commission in the light of experience. 

The concept of the Charities Commission is to be the independent regulator of charities.  Both independence and regulation raise questions in relation to the Commission concept.  The fundamental issue is the rationale for regulation.  It is charities which are independent; regulation is therefore apparently incompatible with their independence.  Part of the resolution of this apparent paradox is the need for regulation to be independent, serving the collective public good, and not serving any particular interest, even (especially not) that of the government.

Thus the Commission must be independent of both government and the charitable sector.  It must be constituted for the public interest in charity and its wellbeing - in effect proxy for the accountability of companies to shareholders and government to the electorate.  The Commission must therefore be accountable to the courts, not to government - subject to the law, not to government policy.  (The Commission for England & Wales was originally established [in 1853] to fulfil the functions of the Chancery Court, and remains in part a 'quasi-judicial' body.)

The Commission should therefore be a public body established at arms length from government.  (The Commission for England & Wales is at present a 'non-ministerial government department; but under reforms to be implemented under forthcoming legislation it will become an independent public body.) Appointment of the board of the Commission, even if the responsibility of a minister, must guarantee their independence, e.g. through open recruitment.

The basic 'mission' of the Commission is to maintain public confidence in the integrity of charity and charities.  Charity - the citizen's commitment to the public good - is as important in healthy plural democratic societies in the 21st century as it ever was.  However the fundamental role and responsibility of the Commission is expressed in legislation it must encapsulate the Commission's essential ethos of supporting the wellbeing of charity.  The fundamental justification for the Commission model is that it has this positive rationale - it does not serve the tax or other specific interest.  This model is therefore in principle preferable to the more common (pragmatic rather than principled) model of regulation by the tax authorities.

Important as tax concessions are to charities in the modern world they are subsidiary to the essential notion of charity.  Charitable status is not a trade off between tax relief and serving a government agenda; it is a framework which enables citizens to contribute to the public good on their own initiative.  Maintaining the relevance and credibility of this framework is an essential part of the role of the Commission.  It is a function which needs to be carried out by an independent body, not by the tax authorities with an overriding interest in ensuring that tax relief goes to ends supported by the government of the day.

In respect of charities regulation means:

  • Creating and maintaining a legal and accountability framework which enhances responsible charitable activity;
  • Encouraging and disseminating good practice in governance and financial management;
  • Securing compliance with the legal and accountability framework, and remedying mismanagement and abuse.

The rationale for this regulation of independent charities is that, while voluntary action at large is unconstrained (subject only to the requirements of the law - of heightened concern in the post 9/11 world of fear of terrorism), the very nature of charity makes charities of public and not purely private concern.  Charities are in law independent non profit distributing bodies devoted to the public good.  Charity is a privileged status carrying benefits of legal security, fiscal relief, access to grants and public reputation and donations.  Appropriate accountability is proper in exchange for these privileges, both in respect of the public interest in the integrity of charity, serving the public interest, and because of the damage to public confidence in charity at large which failures, especially of integrity, in individual charities causes.

Charities serve the public interest in a number of ways.  Ultimately they serve their beneficiaries or the public interest in the cause they serve.  Their role in partnership with public (and private) sector organisations of providing services is increasingly important.  But the contribution of charities to public understanding of the issues with which they are concerned is equally important.  The role of charities in contributing to public debate, in advocacy and lobbying and, where appropriate, campaigning and demonstrating on behalf of their beneficiaries and interests is therefore vital - and may bring them into conflict with government.  It is therefore essential that regulation should support this role, both by setting the framework within the law for it and by protecting the advocacy and campaigning right of charities from attack.

The roles of the Commission as regulator of charity as set out above comprise the following:

  • Determining what purposes are charitable, i.e. serve the public interest in the modern world; under the law of charity this is essentially a function to be fulfilled on common law principles; but the Commission needs a modern framework of authority (with a clear review process) to ensure that the flexible 'evolutionary' capacity of the common law is secured.
  • Maintaining a public register (on its website) of bodies meeting the requirements for charitable status; becoming a registered charity gives a body a public reputation and credibility; being on the public register is the basis for transparency, and appropriate oversight by the regulator - it is the 'gateway' to regulation, but should be a right for bodies meeting the legal requirements for charitable status, not subject to administrative discretion.
  • Creating a framework of reporting requirements for registered charities covering activities in pursuance of their charitable purpose and their financial accounts; the creation and submission of annual reports and accounts should be proportional to the scale of and public interest in the charity, with emphasis on 'light touch' regulation of small charities; the aim should be to make the requirements support good management (serving the needs of the charity itself), secure proper transparency to supporters and others interested in its activities and finances, as well as providing the basis for regulatory oversight.
  • Securing compliance with the reporting requirements; the function of the Commission is to secure the right degree of transparency of charities as well as to undertake direct supervision; ensuring that there is comparable proportionate reporting and accounting by charities is in itself important.
  • Providing legal 'services'; an invaluable role of the Commission is to provide a legal service, giving advice on how to meet the requirements of charity law and also to use powers to modernise the legal framework within which individual charities operate, eg their purposes and powers, saving them inconvenience and expense.
  • Encouraging good governance and financial management; most of the Commission's regular engagement with registered charities should be informal, taking the form of advice and guidance derived from the Commission's expertise and experience; It should be available to give guidance to charities which seek its advice, whether on matters of legal compliance, good governance, financial management or other matters within its competence; but the focus of its regulatory effort must be on the charities on which public confidence most rests - the larger ones using most charitable resources, and those active in spheres most exposed or risky.  Active regulation, through enquiries or visits, prompted by general risk factors or specific monitoring issues should be based on this approach.
  • Investigating mismanagement and abuse, and remedying it; much of the Commission's regulatory role is preventative; but it is important that it should have formal powers to take action where prevention has failed.  These need to be separate from the 'advice'/guidance function, eg by an evaluation function to establish whether formal action is necessary.  A threshold for formal intervention is necessary, eg reasonable suspicion of serious mismanagement or abuse; and the Commission's powers should be those needed to put right what has gone wrong (which may involve restitution of charity money misapplied, and the removal of board members responsible).  This is more appropriate than sanctions against the charity as such.
  • Provision of advice and guidance; a key role of the Commission is a general educational one, not only to individual charities, and not only to the charitable world collectively; it is uniquely placed, as a body independent of the charitable sector and of other particular interests, to represent the public interest in charity and to educate the public on the role and contribution of charity in the public interest.

The role of the Commission as 'regulator' is thus very broad - too broad some critics suggest.  In particular its role in both giving advice and guidance on the one hand and in enforcement on the other is sometimes questioned.  It is important that this combination should be properly understood, namely as the natural combination of prevention and enforcement which is characteristic of modern regulation.  The range of advice giving must reflect the Commission's expertise - focussing on law, governance and financial practice.  Its role in providing a framework for transparency is also important.  This may extend to providing a framework within which - proportionately - charities may report on their impact - a matter of legitimate public concern going to the heart of public confidence, but not one into which the Commission should (or is competent to) pass its own judgement.  A strong charitable sector, with 'umbrella' bodies working in partnership with the Commission to give capacity building services to charities is a desirable complement to the Commission.

The composition of the Commission, both at board level and in its staffing, must reflect the breadth of its roles and responsibilities.  In particular a strong representation of people with charitable sector experience, and particularly committed to its ethos and independence, is essential.

Richard Fries
November, 2003

Richard Fries is a former Chief Commissioner of the UK Charities Commission, and is a Visiting Fellow at the London School of Economics and Political Science.