The Charity Commission is very unlikely to detect or successfully investigate tax-avoidance schemes involving charities, according to a former employee of its compliance division.
The commission has been criticised by sector leaders for not taking action against the Cup Trust, which turned over £176m in two years but gave only £55,000 to good causes. Sector leaders have labelled the trust a tax-avoidance mechanism.
David Orbison, a former senior case worker at the Charity Commission, said the regulator would investigate only when a complaint had been made. "But members of the public rarely become involved in tax avoidance or fraud and would have no reason to complain or even know of the existence of such a charity," he said. "The annual returns and accounts are not verified."
Orbison left the commission in 2010 over its treatment of a charity he was investigating and later won his case for constructive unfair dismissal – but lost on three other claims: for detriment and unfair dismissal, indirect discrimination and discrimination due to a disability, relating to a diagnosis of anxiety and depression. The Charity Commission is appealing the one verdict against it.
Orbison said the commission relied on HM Revenue & Customs to inform it of any tax avoidance or fraud involving charities, but that HMRC had been reluctant to provide information. "All of this means the detection rate is very, very low," Orbison said.
Only a "single-figure" number of inquiries were taking place involving tax avoidance or fraud while he was at the commission, he said, and the commission was "hopelessly equipped" to carry out these inquiries.
"The commission has only a handful of accountants who work in compliance, covering many, many cases of all shapes and sizes," Orbison said. "In addition, the commission does not access the electronic records of these organisations but relies on paper documentation only. The commission's approach to investigation is slow and plodding and can take months or years."
He said such operations "simply run rings around the commission". In cases such as the Cup Trust, he said, the commission might have been able to do more than it had, but preferred to "simply document internally" why it should take no action.
Orbison said that if the commission had really been unable to act in the case of the Cup Trust, it should have said publicly that this was the case. "If the Charity Commission’s position is really that it is powerless to deal with such scams, it should have lobbied parliament for additional powers," he said.
The Charity Commission said that it did not want to respond to Orbison’s comments.