So far, so good, but watchdog is still a work in progress

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THE Office of the Scottish Charity Regulator (OSCR) was born out of a storm in 2003 after a series of scandals in the charity sector rocked public confidence and undermined Scotland's benevolence.

The two most high-profile involved Moonbeams and Breast Cancer Research (Scotland), both Scottish cancer charities. In May 2003, it came to light that only 1.5 million of 15 million of donations made to Breast Cancer Research (Scotland), was paid to charitable causes. It was reported that the director and sole shareholder of the charity's fund-raising company received 8 million in commission, 60 per cent of the total money raised. Five months later, Moonbeams was found to have received only 70,000 from an income of almost 3 million. Five Moonbeams directors were subsequently suspended from the charity, and its affairs and assets frozen.

Prior to the OSCR's creation, Scotland's charities simply registered with the then Inland Revenue in order to qualify for tax breaks. An organisation that did not qualify for tax breaks with the Inland Revenue could still operate as a charity without registering. Investigations were carried by the Scottish Charities Office, a branch of the Crown Office, but little other regulation existed. Many criticised Scotland's charity laws as being lax and encouraging abuse of Scottish generosity.

The OSCR was introduced as an independent watchdog. It has powers to monitor and investigate Scottish charities and its stated vision is to increase public confidence in charities through effective regulation and to increase transparency and public accountability.

Now, after nearly five years in the job, the questions arise: how well is the OSCR doing, and is public confidence in Scotland's charity sector returning?

The OSCR has undoubtedly worked hard to fulfil its regulatory role. It welcomes dialogue with charities and provides useful and coherent guidance for the charity sector and the public. In July, it published the results of a survey – "Public and Charity Perspective". The positive findings showed that not only was the organisation well regarded by the charity sector, but that public opinion was also favourable. However, the survey also showed both financial irregularity and accounts-keeping ranked highly among issues of public concern.

The evidence shows public confidence is growing but there are still issues that need to be addressed. Although additional Moonbeams-style scandals have largely been avoided, the collapse of One Plus: One Parent Families in January 2007 did little to reassure the public. Many people questioned how one of Scotland's largest charities, with a turnover of 11 million in 2005, could have been allowed to fail. The OSCR acted quickly and launched its own inquiry to ensure lessons would be learned and a repeat could be avoided. The inquiry showed that, rather than a systemic failure within the charity or the OSCR, the collapse of One Plus was caused by multiple factors including its organisation and response to funding issues.

If the OSCR continues to effectively regulate, we can expect to see a continuing rise in public confidence and there is evidence it will do so.

In its 2008 annual report, it recommended that "as a matter of public confidence", legislation be amended to force organisations to state clearly whether they were charities when collecting goods or money door-to-door. This is clear recognition of the ongoing problem with bogus charity door collectors.

The OSCR has also flexed its muscles, perhaps for the first time, with its recent decision that four of Scotland's leading independent schools do not provide sufficient public benefit to keep their charitable status. Whichever side you take in this debate, the decision sent out one clear signal: the OSCR will regulate and is not afraid to make what some perceive as controversial decisions.

The OSCR should be aware, however, that many regard the organisation as a work in progress. Its high-profile decisions will attract discussion and debate, particularly where these overlap into politics.

&#149 Caroline Wallace is a senior solicitor in the charities group of McGrigors.