This is the second report from the audit watchdog after the Commission was heavily criticised by both the NAO and the public accounts committee (PAC).

The latest assessment found that the Commission has continued to improve significantly from its baseline position in 2013. It has made improvements through its transformation programme, embedding a culture of continuous improvement and the use of a more risk-based approach.

The Commission has made a significant investment in digital transformation, which aims to make its regulatory activities more effective and efficient and has improved its board-level governance.

The average time to register cases has fallen from a peak in 2016-17. A target of 55 working days to register an application was introduced in April 2015. The NAO says high-risk cases have shown the largest fall in the average time taken to successfully process since 2016-17, from 117 days to 89 in 2017-18 Q1.

However, the NAO says the focus on improving internal structures and processes, although important in moving on from the 2013 position, will need to be complemented by further collaboration and external engagement.

The report flags up concerns around the Commission’s future funding, which has already decreased from £32.4m in 2005-06 to £25.9m by 2016-17 or a real-terms reduction of £11m (34%).

Currently, 100% of the Commission’s funding is from the Treasury. While there are currently no firm proposals for introducing a charging scheme to raise a proportion of income from charities, the Commission has said that it would seek ministerial approval for a consultation setting out options early in 2018.

The Commission’s current thinking is that only the largest 2,000 charities (2% of the total) would have to pay any levy. This could raise between £7m and £8m by either a flat fee or on a sliding scale.

The NAO report states: ‘The Commission has not set out clearly what it needs in the medium- and long-term to be an effective regulator. Future funding requirements are uncertain because of the changing make-up of the sector, higher demand for the Commission’s work and increased risks in the sector.

‘The funding model needs to be responsive to a range of scenarios and highlight the impact of shortfalls in funding levels covering the best case and worst case scenarios.’

The report warns that the Commission needs to become more proactive on this issue, to ensure it can shape its own agenda.

The NAO said: ‘There is not yet an agreed position between the Commission, the sector and government stakeholders as to the required level, and source, of longer-term funding. This exposes the Commission to risks in developing its forward strategy and plans.’

Helen Stephenson, chief executive of the Charity Commission, the successor to Paula Sussex, chief executive since 2014 who decided not seek a second term, said: ‘Great progress was made in transforming our systems, processes, approach and attitude under Paula’s leadership to become a truly digitally focused, modern regulator.

‘I look forward to continuing that progress in line with this report’s positive recommendations in the coming months, including the pressing matter of securing a sustainable funding model for the years ahead.’

NAO Charity Commission progress report is here.

Report by Pat Sweet