Only half a per cent of sector fraud is reported to Charity Commission, says National Audit Office report

£6m of fraud was reported to the commission in 2010/11, it says

National Audit Office
National Audit Office

Only about 0.5 per cent of all estimated fraud in the voluntary sector is reported to the Charity Commission, according to a report on the regulation of charities by the National Audit Office.

Regulating Charities: A Landscape Review, compiled for the House of Commons Public Administration Select Committee "to inform future inquiries", says that £6m of fraud was reported to the commission in 2010/11, compared with an estimate from the National Fraud Authority that fraud in the sector cost £1.1bn in the same period.

The report says the commission’s attempts to classify its investigative work were based on what it could afford to spend, rather than whether it was being effective.

"The indicators for the commission’s investigative work are largely input-based and do not give an overall measure of the impact of this work," it says. "Although the impact of individual cases is recorded, the wider impact of investigation and enforcement work, for example, and any deterrence effect, is not calculated.

"For example, the commission has committed to a minimum of 20 compliance visits annually to charities that are identified as risky. However, there is no measure of whether 20 is the right number, or whether there is any outcome from these visits. The number reflects the commission’s assessment of what it can afford to spend on investigations, considering its resources."

The report indentified other potential weaknesses in the regulation of the sector, including the fact that many groups were not regulated by the commission or anyone else, including 920 housing associations, 243 further education corporations, at least 1,000 exempt charities and 180,000 excepted charities.

The report says: "Issues that the committee might like to inquire into further are how far HM Revenue & Customs' role in recognising charitable status creates potential confusion or gaps in the regulatory regime; whether the commission should regulate areas that it currently does not cover, such as fundraising, to avoid confusion, and to minimise the overall costs of regulating the charity sector; and whether regulation extends widely enough, given the large numbers of unregistered charities, which make up more than half of the charity sector by income."

The report also questioned whether the commission was able to provide enough support to small charities, whether the existence of organisations such as social enterprises and mutuals confused the public and created reputational risk for charities, and whether the independence of the sector was being compromised by a government move towards contract funding.

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