'Risk averse' culture at Charity Commission
The head of the Charity Commission has admitted it cannot fully police all 160,000 organisations on its register.
But Sam Younger, chief executive of the charity regulator, defended it against accusations that it allowed wrong-doing to go unchecked.
The commission has faced criticism over a charity that was allegedly used for tax avoidance.
The National Audit Office (NAO) has been asked to investigate if the commission can regulate efficiently.
In the last four years, the commission has investigated 402 charities, but has suspended only one trustee.
A whistle-blower from the commission has told the BBC he believes millions of pounds were put at risk because of a "risk averse" culture.
"It's wrong if people are getting away with avoiding their tax obligations because they know they won't be policed," said Margaret Hodge, chairwoman of the Public Accounts Committee (PAC).
Mr Younger said the commission did a good job with limited resources, but added: "I think it would be ludicrous for me to claim, given the necessarily limited resources, that you can minutely monitor the finances of 160,000 charities - you have to do it on a risk basis.
"We don't say anything about how well a charity operates, so if you're wanting to give to a charity you need to find ways of ensuring yourself, beyond the regulator, that this is a good charity."
The commission has been under increasing scrutiny regarding a charity called the Cup Trust that was allegedly used for tax avoidance.
The trust's sole trustee was a company called Mountstar - based in the British Virgin Islands and its London address was that of a firm already known to UK authorities as being involved in tax avoidance. The Cup Trust has tried to claim gift aid of £46m.
Although the Charity Commission began to investigate the trust in March 2010, it has still not published a report. The commission explained it had been unable to de-register the trust, because it was legally structured as a charity.
In April, it appointed an interim manager to run the charity. However, the Cup Trust has appealed to the charity tribunal against the commission's move and also its decision to launch a statutory inquiry.
The trust is also set to challenge HMRC's decision to withhold the £46m gift aid. Its accounts show it disagrees with HMRC and the matter is likely to be decided in court.
The Cup Trust declined to comment on the case.
In a report published last month the PAC said the Charity Commission did not carry out sufficient checks on the Cup Trust charity. It criticised the regulator for registering the charity, and for allowing it to continue to be registered after the allegations emerged.
A whistle-blower who worked as a senior case officer in the commission's compliance department has told BBC Radio 4's File on 4 programme he saw a "risk averse" culture in the commission.
David Orbison said on one occasion he told colleagues he felt another charity should be challenged over alleged tax avoidance and conflicts of interest. But he was told senior management would have no appetite for such an inquiry.
The charity had lent millions to companies associated with its trustees, and was suspected of being used to help avoid tax.
"If a trustee is fraudulent or up to no good, they can run rings round the investigator because the commission is so risk averse," he said. "The only measurement of how effective the compliance department was, was how quickly they dealt with a case, rather than the outcome."
'Lost its way'
Mr Orbison has sent evidence to the PAC about his concerns. Mrs Hodge told the BBC that the committee would pursue them when the commission comes before it again this autumn.
"I'm grateful to the whistle-blower for coming forward to us and we will be having sessions in the autumn where this will be a very interesting instance that I will raise.
"The commission has never been seen to actively use its pretty extensive powers to root out wrong practice. That's why we've asked for a root-and-branch review to see whether it's fit for purpose," she said.
Her committee has asked the National Audit Office to examine whether the commission is using its resources and its powers effectively.
The commission has faced cuts which have meant the loss of a quarter of its staff since the 2010 general election.
But Fiona Mactaggart, a former charities minister and a member of the PAC, told the BBC she did not think this was its biggest problem.
"I think that it's lost its way," she said. "I don't think it's clear enough about its fundamental responsibility which is as a regulator and making sure the very substantial benefits of charitable status cannot be abused for tax planning. It has a responsibility to retain public trust in charities."
But Bernard Jenkin, chairman of the Public Administration Select Committee, said he did not believe the commission should be expected to act as a policeman for charities.
"The Charity Commission is a tiny organisation with a relatively minute budget," he said. "Everyone should be aware that when they give money to a registered charity it is no guarantee that that money is going to be put to good purposes."
The commission's Sam Younger pointed out that it provides a great deal of guidance to trustees, the vast majority of whom are trying to do a good job.
"The record of public trust in charities is pretty high, we need to do everything we can within the limits of the resources we have to make sure that trust is sustained," he said.
"Our resources are by and large being put where they can be most useful."