Misconduct in the Scottish charity sector: The signal and the noise

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Source: Calvin and Hobbes

Charities are under increasing pressure to be accountable for their conduct. This is an issue for both regulators concerned about supporting a healthy sector, and charities concerned about maintaining public trust. To date there has been little academic research on the nature, extent and determinants of regulatory investigations into alleged and actual charity misconduct; this is partly due to the difficulties in accessing and processing the administrative data necessary to study this phenomenon, as well as the relative infancy of charity regulatory regimes. Examining this topic allows researchers to “peer under the hood” of the sector, shining a light on aspects of charity behaviour that are often overlooked. Research in this area has the potential to develop the evidence base on charity misconduct and accountability, improve regulatory practice through the targeting of resources at serious incidences of misbehaviour, and dispel misperceptions around the conduct of these organisations (by providing context for media reports for example). My colleague, Dr Alasdair Rutherford, and I conducted work modelling charity risk using administrative data from the Office of the Scottish Charity Regulator (OSCR).

charity-439469Drawing upon OSCR’s administrative records for all Scottish charities in the period 2006-2014, we developed models to explain two dimensions of charity misconduct: regulatory inquiries and resulting action. There have been 2,109 regulatory inquiries of 1,566 Scottish charities over the period, with 13 percent of these inquires leading to regulatory action being taken (e.g. suspension of trustees). Members of the public are most likely to raise a concern and thus trigger an inquiry, while the most common concerns relate to general governance and misappropriation of assets. Our results demonstrate that large charities (Income of £10m +), those that carry out activities themselves, and those that do not have parent organisations are more likely to trigger an inquiry; the age of the organisation is, perhaps surprisingly, not associated with this outcome. With regards to regulatory action, it appears that the largest charities are less likely to be subject to regulatory action, as are those with parent organisations. Despite being most likely to raise a concern with OSCR, members of the public are worse at spotting actual misconduct than other stakeholders (e.g. trustees, auditors).

Our results suggest that there are clear patterns in the types of charities subject to complaints about their conduct and, to a lesser extent, in the use of regulatory action by OSCR.  There are two implications of this work that deserve further consideration. First, most concerns regarding misconduct are ill-founded or minor and serious wrongdoing can be difficult to identify: in essence, there is a large degree of “noise” (complaints) obscuring the “signal” (misconduct). Second, the disconnect between the types of charities triggering complaints and those engaging in misconduct presents a significant challenge to regulators in how they promote public confidence and trust in the sector.

What does this mean for the Scottish Charity Regulator? We highly recommend that regulators should publish more detailed, accessible information and guidance on misconduct and other concerns in the sector. The Scottish Charity Regulator already engages in this activity to some extent by publishing some reports and statistics but there are a number of areas that should be improved. First, the regulator should enhance its public profile so that it captures greater numbers of complaints: there is evidence that levels of awareness of charity regulators in the UK are not high and thus there is almost certainly missing data on misconduct (Hogg, 2016; OSCR, 2016). Second, better guidance on what constitutes serious wrongdoing should be developed in order for stakeholders to better identify matters worthy of reporting to the regulator. Third, the reports and figures that are currently published provide little or no narrative on the implications of regulatory monitoring of misconduct, and often fail to place this activity in the wider context of public trust and confidence in the sector. The regulator should clearly communicate the compartmentalised nature of misconduct in the sector, thereby helping to insulate low risk charities from being afflicted by the general reputational damage caused by the minority accused of misconduct. Adopting this recommendation can address a longstanding concern in the provision of performance information about charities: the inaccessibility – both logistically and cognitively – of this information for key stakeholders (Britton, 2008; Connolly, Hyndman & McConville, 2013; Keating & Frumkin, 2003; Philips, 2013).

diarmuid_mcdonnell-200x200If you want to know more about this research then please contact Mr Diarmuid McDonnell or consult the Scottish Network for Third Sector Data website. Diarmuid is a research doctorate within the Faculty of Social Sciences and member of the Faculty’s Social Surveys and Statistics research group. Read more.

The author would like to thank the Economic and Social Research Council (ESRC) and Scottish Charity Regulator for their generous financial support of his collaborative PhD studentship.

References

Britton, R. (2008). Making disclosure regulation work in the nonprofit sector. University of Illinois Law Review, 2008(1), 437-458.

Connolly, C., Hyndman, N., & McConville, D. (2013). Conversion Ratios, Efficiency and Obfuscation: A Study of the Impact of Changed UK Charity Accounting Requirements on External Stakeholders. Voluntas, 24(3), 785-804.

Hogg, E. (2016). What regulation, Who Pays? Public Opinion and Charity Regulation (Research Report). London : Charity Finance Group.

Keating, E. K., & Frumkin, P. (2003). Reengineering Nonprofit Financial Accountability: Toward a More Reliable Foundation for Regulation. Public Administration Review, 63(1), 3-15.

Phillips, S. D. (2013). Shining Light on Charities or Looking in the Wrong Place? Regulation-by-Transparency in Canada. Voluntas, 24(3), 881-905.

Scottish Charity Regulator. (2016). Charities, Public Trust and Regulation 2016 (Research Report). Dundee: Author.