The committee’s report, published today, says it is clear that the trust had been set up as a tax-avoidance scheme and that the commission missed several "red flags" that should have raised suspicions.
The trust’s sole trustee is Mountstar PTC, an entity based in the British Virgin Islands whose directors are already well known to HMRC as being involved in tax avoidance, the report says.
Margaret Hodge, chair of the PAC, said the committee did not believe the Cup Trust had ever met the legal criteria to qualify as a registered charity and that its purpose was to avoid tax. She said: "The trust’s true purpose might have been easily detected by the commission had it carried out more checks before registration, including with HMRC."
The commission registered the Cup Trust in 2009. It raised £176m in private donations over two years, but gave only £55,000 to charitable causes and claimed £46m in Gift Aid. The commission investigated the trust in 2010 after concerns were raised about its fundraising and governance arrangements, but the investigation closed in March 2012 after the commission concluded it was legally structured as a charity.
The report says it is unacceptable that the commission failed to put a stop to "this abuse of charitable status". It says the committee was also left with serious doubts about whether the commission had targeted its resources at the highest-risk cases.
The commission is further criticised for failing to use the powers at its disposal.
Hodge said: "The commission’s approach to regulation and enforcement lacks rigour. It has carried out few enforcement visits, rarely mounts prosecutions and removes very few trustees."
The report says that the National Audit Office and the committee had found "severe shortcomings" in the commission’s performance on several previous occasions and calls for it to make more extensive use of its statutory powers.
It says the commission should publish all the evidence that led it to register the Cup Trust in the first place, and urgently review its conclusion that the trust meets the legal definition of a charity.
Hodge added that the committee now planned to carry out a further inquiry into the commission. "It appears that the commission has simply failed to seriously consider and implement our previous recommendations," she said. "We will now undertake yet another thorough investigation of the Charity Commission and whether it is fit for purpose."
A National Audit Office review, planned for the autumn, will also examine the Charity Commission’s effectiveness as a regulator of registered charities.
Responding to the report, a spokeswoman for the commission said that since the committee took evidence in March, the commission had opened a statutory inquiry into the trust and used its powers to appoint an interim manager to take control of it.
"We regularly share information with HMRC and run joint operations where there are shared concerns about abuse of charity," she said. "Together we are discussing better ways to share information and work together to tackle abuse of charity – such as a joint application portal for registration.
"As our written submissions to the committee show, we are targeting our resources at the areas of highest risk, with a particular emphasis on tackling fraud, terrorist abuse and risks to vulnerable beneficiaries.
"We have strengthened our board with new members with considerable experience of regulation in such areas. We welcome the NAO’s review of the commission and look forward to its recommendations and to responding to the committee in detail."