Fifth Report - COVID-19: Government Support for Charities

We are not convinced that the Department’s decisions about how to allocate funds were sufficiently transparent. The Department asserts that in order to help it work at pace it decided to involve special advisers in preparing its advice to Ministers on which charities should receive funding. We did not receive a satisfactory response to our questioning around how the code of conduct for special advisors was applied in this instance given that part of the role is to reinforce “the political impartiality of the permanent civil service by distinguishing the source of political advice and support”. However, the Department could not adequately explain the role taken by special advisers or the safeguards put in place during what it admits is an unusual form for funding discussions. In particular, the Department is unclear as to why special advisers met with officials after the assessment of bids from other government departments had been completed or how those discussions influenced the advice given to Ministers. The level of influence exerted by special advisers and their involvement at the point of decision making appears to go beyond what we have previously seen as Members of this Committee or in our previous Ministerial roles. Similarly, the Department is unable to adequately explain how four organisations whose bids were initially given the lowest ranking scores succeeded in securing funding as Community Match Challenge partners, meaning the Department matched the amounts fundraised by these organisations. The Department also could not clearly explain why the Zoo Support Fund received funding intended for vulnerable people, particularly when the Department for Environment, Food and Rural Affairs already has a separate Zoo Animals Fund in place and many zoos are 6 COVID-19: Government Support for Charities businesses rather than charities. The Department, however, told us that Ministers took the decision to allocate money to zoos because of concerns about the welfare o

The Department cannot explain the additional benefit it has received from its contract with a professional services firm to perform due diligence on charity applications to The National Lottery Challenge Fund (TNLCF). TNLCF is an organisation that is experienced in distributing funding, which formed part of the justification by the Department in selecting them as a partner. But the Department paid PwC £2 million for specialist support on data collection, analytical support and due diligence, including checks on all award decisions by TNLCF for the CCSF. TNLCF, however, was confident in the processes it already had in place to conduct these checks and award funding. The Department revised the arrangements after a short amount of time because reviewing awards under £10,000 was overly onerous. The Department asserts that the support from PwC was necessary due to the fast paced and pressured environment it was operating in but has no evidence of the added value it received from these additional checks. While the Department has been focussed on distributing money as quickly as possible, its objective has also been to distribute it in the right way and prevent fraud. The Department has to date identified fraud valued at £624,000 in the CCSF and has committed to reclaiming this money. Whilst we welcome this commitment, we know from our other reports on COVID responses such as procuring Personal Protective Equipment and administering bounce back loans that the need to act at speed can reduce transparency and increase the risk of fraud and error. Recommendation: The Department should write to us within three months, setting out: how it judges the value for money of this contract and any lessons learned as to how and when it would apply a similar approach in future; and the fraud position across the package including how much money it has recovered.

The Department cannot demonstrate how its funding decisions have benefited charities and will not be able to do so until it completes is evaluation of the funding at the end of 2021. The Department has a limited understanding of the impacts of the funding on vulnerable groups and communities. Initial evaluation work conducted by TNLCF, which distributed £188 million through the CCSF, found that 75% of charities said that the funds enabled them to reach people that they had not worked with previously. The Department asserts that charities who had either religious or moral objections to accessing funds through the TNLCF, because of its links to gambling, were still able to benefit through other elements of the funding package, such as the Community Match Challenge scheme. However, the Department has no information on where 18% of the funds awarded are being COVID-19: Government Support for Charities 7 used, equivalent to £101 million of taxpayers’ money and 2,882 funding awards. The Department admits that it does not have all the information it would like about the regional distribution of funds, in part because sometimes the geographical location of a charity’s headquarters is not the place where the money is spent. Initial results on the outcomes that are being achieved by the TNLCF appear positive. Four in five of those who have received funding report that it has helped them deliver improvements to mental health, and almost two in three said that it has enabled them to improve social connections. The Department is currently procuring an evaluation to understand the impact of the full funding package, which it expects to be available by the end of 2021. Recommendation: The Department should, within three months, write to us to explain the criteria it will use to assess the impact of the funding. It should, by the end of December 2021, write to us with the outcome of the evaluation, ensuring this exercise represents charities that did not receive funding as well as

The Department cannot yet demonstrate that it fully understands the financial health and resilience of the charity sector or whether further government financial support will be necessary. The funding covers the period up until the end of March 2021 and any unspent funding will be returned to HM Treasury. The Department is unable to guarantee that the funding that has been provided will have met all increased demand across the sector. The Department asserts that fundraising activity has increased over the last year with rapid growth in private philanthropy and fundraising. The Charity Commission, however, reports that financial resilience within the sector is worsening, with more charities experiencing financial difficulties or at risk of insolvency. For example, the number of charities with incomes over £500,000 which have negative or no free reserves has more than tripled over the last year from 9% in April 2020 to 28% in March 2021. In addition, the number of auditor reports relating to matters of material significance within the sector has risen by 25%. Recommendation: The Department should, within three months, set out the triggers that would prompt it to consider further government financial support to the charity sector. 8 COVID-19: Government Support for Charities 1 Transparency over how decisions about how to allocate the funds were made

On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Digital, Culture, Media and Sport (the Department), The National Lottery Community Fund (TNLCF) and The Charity Commission on the government’s £750 million funding to charities during the COVID-19 pandemic.1 We also took written evidence from several charities, membership bodies and organisations representing the charity sector and think-tanks.

We questioned the Department about how it decided which bids from other government departments it would provide funding for. Special advisers were invited to discuss the initial assessments from the Department’s officials before final advice was given to Ministers.15 Correspondence from the Department showed that in the meeting to discuss bids five special advisers were present alongside officials from the Department, HM Treasury and the Prime Minister’s Office.16 The Department told us that advice was often written by officials which special advisers then commented on, as was appropriate. However, in the interests of working at pace it had brought the two processes together, which the Department recognised was an unusual form.17 We asked whether the Department had, or planned to, publish information that would allow Parliament to tell what influence special advisers had or the advice submitted to Ministers.18 The Department emphasised that while special advisers were involved in discussions and that these discussions informed the advice that went to Ministers, the advice provided to Ministers was from officials who had been comfortable with the proposals that had been put forward.19 We noted that special advisers had a very important and useful role to play in government, but that if the distinction between special advisers and civil servants is blurred “there can be a real danger constitutionally, and it can case real questions”.20 We remarked that the level of influence exerted by special advisers and their involvement at the point of decision making appeared to go beyond anything we had previously witnesses as Members of this Committee or in previous Ministerial roles.21 We were concerned that there had been a lot of senior advisers “making very candid and detailed comments on these [Minister’s] briefings”.22

Given our concerns that this was an unusual process, the Department contended that it was not different from the normal process by which advice was offered to Ministers. The Department, however, was unable to offer further examples of when such an arrangement has been used.23 Nor was it able to say whether, or give examples of, the recommendations by officials changed after the meeting with the special advisers, repeating that special advisers may provide information that was helpful, but that it did not consider this the same as “influencing or changing the advice, which I am certain did not happen”.24 When asked in what way the information could be helpful if it did not lead to a change in advice, the Department told us that it was often the case that special advisers had a stronger sense of the issues that were being raised with Members of Parliament than officials, which was “significant and important” but reiterated that “it is not influence, but there will 14 GSC0013 Association of Chief Executives of Voluntary Organisations’ submission, paras 1.5, 2.2 15 C&AG’s Report, para 1.7 16 Q 35; Correspondence from Sarah Healey, Permanent Secretary, 12 April 2021, page 2 17 Qq 18–20, 31–33 18 Qq 45–49 19 Qq 18, 27, 37, 42, 47–49 20 Q 42 21 Qq 23–25 34–37 22 Q 36 23 Q 25 24 Qq 18–19, 25–27, 50 COVID-19: Government Support for Charities 11 obviously be information discussed that is useful”.25 The National Audit Office found that in addition to all four proposals that officials had rated as highest scoring (Green) being selected for funding, nine out of the 13 bids that officials had assessed in the lowest scoring category (Red) were also selected for funding. This included four of the five lowest scoring applications.26

The Department provided £30 million of funding to the Department for Environment, Food and Rural Affairs (DEFRA), with £7 million allocated to the Zoo Support Fund.27 We asked the Department why the allocation to DEFRA to support zoos came from funding designed to support charities helping the vulnerable during the pandemic. We remarked that this seemed at odds with the fact that many zoos operate as businesses rather than charities. The Department explained that the design was the result of officials being “extremely concerned about the welfare of animals in zoos and what was going to happen as a result of zoos being closed during the period.”28 We asked whether this was an appropriate mechanism to support zoos, considering that a fund to support zoos was already in place through DEFRA. The Department stated that “Ministers took a view that they wanted to allocate funds to zoos” but was not able to provide any further detail.29

We also asked about the decision-making process around awards for the Community Match Challenge scheme, where the Department match funded the amounts raised by philanthropic groups, foundations and grant-making organisations. Ministers selected twenty organisations to receive funding, including seven out of the ten highest scoring applications. All four of the proposals that were assessed as having the lowest score by the Department’s officials, however, also went on to receive funding, including three instances where officials were unsure if they were eligible.30 The Department said that after initial bids were scored it presented initial ideas to Ministers about how the funding could be distributed, and there was a “set of discussions with Ministers about their views and preferences” which led to further information being sought from bidders. This subsequently confirmed that those organisations were eligible for funding and resulted in funding being approved for those proposals. The Department asserted that the processes followed were appropriate, with advice being iterated as new information became available.31 It was, however, unable to elaborate further on what new information came to light that led to the lowest scoring applications receiving funding.32

The Department reduced the funding allocation to TNLCF from £310 million to £200 million around one week before it was due to start distributing funding.33 When asked why this was the case, the Department told us that it was due to the fact that Ministers wanted more flexibility in how funding was distributed and were interested in whether more could be done to leverage private donations as part of the funding distribution.34 It clarified that the decision was “absolutely not” because of a lack of trust in TNLCF.35 The funding that was removed from TNLCF was instead later allocated to the new Community Match 25 Q 51 26 C&AG’s Report, para 1.8 27 C&AG’s Report, para 3.8 and figure 9 28 Q56 29 Qq 56–58 30 C&AG’s Report, paras 10, 1.16 31 Q 75 32 Q 77 33 C&AG’s Report, para 14 34 Qq 66–68, 71–72 35 Q 67 12 COVID-19: Government Support for Charities Challenge scheme, the Voluntary and Community Sector Emergencies Partnership, the Youth COVID-19 Support Fund and the Loneliness Fund.36 The Department highlighted that by redirecting money to the Community Match Challenge scheme it was able to leverage additional funding because of its match funding arrangement. TNLFC said the decision did not impact how it went about advertising the available funding or the ability of the funding to support small and medium-sized charities.37 Due diligence on funding awards

The Department paid £2 million in 2020–21 to a professional services firm, PwC, to provide support on grants and operations, including checks on awards made by TNLCF for the Coronavirus Community Support Fund (CCSF).38 We asked why this additional support had been needed and how the Department ensured that it was not duplicating work already being undertaken elsewhere. The Department said that this support was not designed to take over jobs from civil servants and that the majority of the administrative work relating to the funding for charities had been completed by civil servants. The Department explained that Ministers wanted to thoroughly understand the process that was being followed and ask questions about it given the pace at which progress was needed.39 When we asked TNLFC whether it felt that it had the skills necessary to undertake this work itself it said that it was “confident in our processes in terms of making the appropriate awards.”40 We questioned the additional value that the Department received for its £2 million investment of taxpayers’ money. The Department acknowledged that the process “had not been set up in the best possible way to start with” and that ultimately very few bids were subject to detailed review.41 It changed the process after a short amount of time because it decided that reviewing awards under £10,000 was overly onerous.42

We have found in our reports on the government’s response to the COVID-19 pandemic, that the need to act at speed can reduce transparency and increase the risk of fraud and error. In our report examining Government procurement and the supply of Personal Protective Equipment, we found that Government had faced significant challenges in having to work at pace, using emergency procurement procedures in a competitive international market. But its failure to be transparent about decisions, publish contracts in a timely manage or maintain proper records of key decision left if open to accusation of poor value for money, conflicts of interest and preferential treatment of some suppliers. While levels of fraud were low, the costs could run into millions of pounds.43 Similarly, in our report on the Bounce Back Loan Scheme, we concluded that shortcoming in the Scheme’s design had exposed the taxpayer to potentially significant losses and that plans to manage risks from the taxpayer from fraud and borrowers who were unable to replay loans were woefully under-developed. Government had been prepared to accept a higher level of risk to ensure that loans were available to businesses as quickly as possible. The 36 C&AG’s Report, paras 1.11–1.18 37 Qq 70, 74 38 C&AG’s Report, para 1.20 39 Qq 78, 80 40 Q 84 41 Q 85 42 Qq 78, 80, 85–86 43 Public Accounts Committee, COVID-19: Government procurement and the supply of Personal Protective Equipment, Forty Second Report of Session 2019–21, HC 928, 10 February 2021 COVID-19: Government Support for Charities 13 Department for Business, Energy and Industrial Strategy estimated that potential losses from fraud and credit risks were between £15 billion and £26 billion, and could be even higher and the estimate was highly uncertain.44

By February 2021, the Department had identified 76 fraudulent applications, 70 of which had resulted in awards. The Department estimated that up to £614,000 had been distributed to fraudulent applicants and had reported cases equivalent to £400,000 to the police. The remaining £214,000 were still under investigation. The Department estimated that fraud levels could be between 0.5% to 5% across all schemes by the time it has completed all post-award checks, a process it expected to complete in May 2021.45 The Department accepted that its decision to prioritise getting money to charities quickly to meet the extra demand cause by the pandemic increased the potential for fraudulent claims. It stated though that it also had an objective to ensure the money was “distributed in the right way” to try and prevent fraud.46 But it agreed with the Cabinet Office that a “risk mitigation approach” was sensible that allowed it to shift some of its usual upfront checks to post-award instead.47 It said that to-date it had detected fraudulent awards worth £624,000, a £10,000 increase from the value in February 2021, with most of these awards so far in the CCSF, in part as funds were paid out earlier than other schemes and checks on other schemes are ongoing. It explained that the total fraudulent awards were less than 0.5% of the total funds being distributed but there were still many post-award checks to be completed. The Department committed to doing “everything that we can” to recover the money according to the government’s usual approach to clawbacks.48 44 Public Accounts Committee, COVID 19: Bounce Back Loan Scheme, Thirty Third Report of Session 2019–21, HC 687, 16 December 2020 45 C&AG report, paras 1.25–1.26 46 Q87 47 Qq 87–88 48 Qq 88–90 14 COVID-19: Government Support for Charities 2 Understanding the impacts secured from the funding Evaluating the impact of the funding package

The Department has not yet evaluated whether the funding package has met its objectives of supporting vulnerable people and relieving pressure on frontline services during the pandemic. It explained that it was in the process of procuring an evaluation and was aiming to produce a report before the end of 2021. It estimated that this will cost £2 million, with £1.6 million of that being allocated to evaluate the Coronavirus Community Support Fund (CCSF).49

The National Lottery Community Fund (TNLCF) told us that it undertook regular surveys of customers who were accessing its funding. TNLCF explained that 77% of its customers rated their experience between eight and 10 out of 10, with 10 being the highest score; and 75% of respondents noted that as a result of the funding they were able to reach people that they were not working with previously. Additionally, it told us that the survey showed promising results around improved mental health, wellbeing and loneliness, both for recipients but also for volunteers working for the charities. Four out of five (81%) beneficiaries said that their mental health and wellbeing had improved and 86% reported a reduction in isolation and loneliness. Almost two in three said that the CCSF funding had enabled them to improve social connections. TNLCF reported that the funding enabled around 40% of projects to bring back staff who had been furloughed to allow them to continue to deliver services and increase the services on offer. It also told us that one of the great strengths of CCSF was that it brought together national lottery funding with funding direct from government. As a result, those organisations which had a religious or moral objection to receiving funds generated through the proceeds of gambling were still able to access funding. It explained that it planned to undertake a full evaluation to establish the impact of the fund more generally which would report in summer 2021.50

The National Audit Office found that the information available on the geographical distribution of funding was at times inconsistent or missing, making it difficult to determine the geographical spread of funding awarded. At 19 February 2021, the Department held no information on where funds were being used for 18% of awards. This accounted for £101 million of taxpayer’s money and 2,882 funding awards. To the extent that information is available, analysis showed that London had received the most funding (£47 million) and the North East the least (£14 million).51 The Department told us that it wanted the funding to be demand led “rather than a predetermined equal regional distribution”.52 It explained that for some funds, such as TNLCF, it offered indicative regional allocations, but that it did not make these formal because it did not think it would be appropriate. Additionally, it told us that while it asked all those receiving grants to tell it about the location of beneficiaries, it said that “sometimes that does not give us all the information 49 Qq 93, 99; C&AG’s Report, figure 4 50 Qq 54–55, 93 51 C&AG’s Report, para 3.2, figure 10 52 Q 52 COVID-19: Government Support for Charities 15 we would like about regional distribution” because a charity’s headquarters might be located in a different place to where the funds are actually spent. It committed to using its upcoming evaluation to determine the regional distribution of funding.53 The financial health of the charity sector going forwards

The Department told us that its intention was that the overall funding provided would be of “significant assistance [to the sector] even if it wasn’t able to cover every gap” and that it understood that “charities would have to make difficult decisions” as a result of the pandemic.54 It said that in designing the package it worked closely with voluntary sector umbrella bodies to get a sense of the health of the overall sector. Once the package was designed, however, it explained that its focus was on distributing the funding at pace. It intended to award and disburse funding until 31 March 2021. After this, any funds remaining would be returned to HM Treasury. We asked whether any money had been unspent and so returned to HM Treasury. The Department said it was too early to give a final figure but that it anticipated it being a very low percentage of the overall value of the fund.55

The Department recognised that charities had lost traditional sources of income during the pandemic, such as fundraising through large events like the London Marathon and the closure of charity shops. However, it also suggested that moving fundraising online may have increased overall funding levels. In addition, the Department highlighted that charities could access other government support throughout the pandemic, such as the furlough scheme.56 It explained that introducing match funding on the Community Match Challenge scheme sought to encourage the continuation of an “explosion in private philanthropy and fundraising” that it believed had been witnessed up to that point.57 Written evidence we received about charities’ income levels was more mixed; the Charity Commission told us that in the first half of 2020 individual donations increased by £800 million. We also received written evidence from the Association of Chief Executives of Voluntary Organisations (ACEVO), which told us that charities might have lost as much as £4.3 billion between March and May 2020. Pro Bono Economics ran a survey which suggested as much as £6.7 billion had been lost in income.58 The Department told us that it will not know whether the funding it distributed has met the increased demand caused by the pandemic until the evaluation is conducted.59

We asked about the impact of the pandemic on the financial health of the sector as a whole. The Charity Commission told us that a range of indicators suggest that charities’ finances were worsening. It explained that the number of auditor reports on matters of material significance, that highlight a number of charities are either experiencing financial difficulties or are at risk of insolvency, had risen by about 25%. It similarly explained that the number of charities with income over £500,000 which have negative or no free reserves 53 Q 52 54 Q5 55 Qq 1, 5; C&AG’s Report para 3.1, 3.4 56 Qq 4–5 57 Q 72 58 GSC0013 Association of Chief Executives of Voluntary Organisations’ submission; GSC0006 Pro Bono Economics, page 2 59 Q 92 16 COVID-19: Government Support for Charities had more than tripled over the last year from 9% in April 2020 to 28% in March 2021.60 In written evidence, the Charity Commission also highlighted that it had received nearly 3,000 Serious Incident Reports since the start of the pandemic. Of those that directly related to the pandemic, the most common reason for the report was a concern about long-term financial sustainability. It noted that so far, it had not seen significant numbers of charities removed from the official register as a result of financial issues, but that there may be delays in the process.61 60 Q 94; for the definition of charity reserves see: www.gov.uk/government/publications/charities-and-reserves- cc19/charities-and-reserves 61 Q 94; GSC0023 The Charity Commission submission, page 2 COVID-19: Government Support for Charities 17