The South Bank show: The great Tate art scandal

It has been hailed as a model for state-funded culture. But the gallery was yesterday portrayed as a cosy club all too willing to spend money on the work of its own trustees. Louise Jury reports

For the millions of visitors who file through the spectacular Turbine Hall of the Tate Modern, the Tate is the symbol of the success of state-funded art galleries. Its four galleries have been seen as a model of their kind, with the group's management matching an annual grant of nearly £34m from government with rigorous fund-raising to produce an exhibition programme that is the envy of the world.

But yesterday the gallery was left reeling after a nine-month investigation by the Charity Commission delivered a hard-hitting reprimand on the way it purchased some of its art.

An inquiry launched after complaints that the Tate had bought works of art from artists including the Turner Prize-winning Chris Ofili, while they were serving as its trustees, confirmed a potential conflict of interests. And the commission tore into the gallery's policies and practices, calling them "inadequate", with the clear aim of making the art world sit up and take notice.

The Tate, it concluded, had purchased art from serving trustees across the past 50 years, when it had no legal right to do so.

Under charity law, anything which might create a benefit for a trustee requires the Charity Commission's permission. That means that in more than a dozen cases where art was purchased from artist trustees including John Piper, Howard Hodgkin and Patrick Heron, the purchases should have been referred for approval. They were not.

Andrew Hind, the Charity Commission's chief executive, said it had identified "important gaps" in the Tate's policies and practices. "We also found serious shortcomings in the processes for managing conflicts of interest and inadequate recording of decision-making," he said.

"In any charity we would be concerned that such basic matters were neglected, but in a charity of the size and stature of the Tate, we are very disappointed."

The row which escalated into an investigation began when critics asked questions about the purchase of Ofili's The Upper Room, a series of 13 panels for which the gallery - it is now known - paid £600,000.

Papers obtained under the Freedom of Information Act detailed exchanges between Sir Nicholas Serota, the Tate's director, and Victoria Miro, Ofili's dealer, in which she said the artist was getting married and was unlikely to want to wait long to be paid. The exchange provided helpful ammunition to critics led by the Stuckists, a group of artists who dislike the Tate's supposed emphasis on conceptual art and campaign actively against the gallery and its director.

At first, the Tate merely sought to defend the purchase as "an exceptional work, marking a major development in Ofili's career".

An assessment carried out for the trustees had demonstrated the price was, in fact, favourable compared with other sales on the international art market. Bolstered by the figures, the gallery mounted a robust defence. Few at that point would have predicted when this furore broke that the Charity Commission would discover quite so much to condemn.

The Commission established that the Tate routinely relied on its own expert curators to establish the value of works it was purchasing and did not seek external valuations. On many occasions, the artist trustee did not even leave the room when the acquisition of their work was discussed - although Ofili did.

The quality of the record- keeping was so poor that the gallery was unable to demonstrate how or whether, for example, potential acquisitions accorded with acquisitions policy. In other words, did the potential purchases fill gaps in the collection or further the overall strategy of collecting outstanding examples of British art? It was not even clear at which meeting the final decision to buy the Ofili was taken, the commission ruled.

In a stern letter to Sir Nicholas, Kenneth Dibble, the executive director of the commission's legal and charity services, expressed "major concern" that the Tate "was not aware that it did not have the power to purchase paintings from trustees" and that the "most basic procedures for dealing with conflicts of interest were not observed".

Although the gallery claimed it would buy work from serving trustees "in special circumstances," nowhere was it laid down what those circumstances were.

Mr Dibble further stated: "When considering acquiring works from serving trustees, the trustee duty of care and the responsibility to act in an open and transparent way demands that the Tate obtain independent valuation as a matter of choice."

Sir Nicholas, a director accustomed to praise not brickbats, could only accept the criticisms yesterday and make clear the gallery was tightening up procedures. Not only would acquisitions by serving artist trustees be referred to the Charity Commission in future, but so would gifts and pledges.

The gallery's ethics committee is being expanded and - in a radical departure from its previous practice - the cost of acquisitions made by the Tate and the value of works given to the gallery will be disclosed in its annual report.

He admitted this could cost the gallery dearly. Artists and their dealers often offered more favourable terms to the gallery than the norm, but might be loath to do so if the details were to be public knowledge. But changes in public life in the past 10 years, such as the introduction of the Nolan rules on conduct, made more openness necessary.

"The deals we achieve in the public interest will, perhaps, be less successful, but maybe it's in a greater public interest that this information should be made available more widely," he said.

What seems astonishing was that it was not only the Tate that failed to recognise it was breaking charity law. The Charity Commission itself had no direct powers of monitoring because it is an "exempt charity" - a legal loophole the commission is currently seeking to close in Parliament.

But the Tate was in regular contact with the Department for Culture, Media and Sport and every year its accounts were scrutinised by the National Audit Office. (Another senior gallery source said: "I can assure you that being inspected by the NAO does not feel like a light touch.")

Even highly qualified businessmen on the board such as Howard Davies, the former chairman of the Financial Services Authority, and Paul Myners, the chairman of Marks&Spencer and the Guardian Media Group, had not clocked the danger.

In fact, the risks had been run for years, from 1955 when the Tate was established as an institution separate from the National Gallery, under whose ambit it previously fell.

From the 1960s to the 1980s, there were regular purchases of art from the three artist trustees which it was legally required to have on its board. They included work by major names such as Sir Roland Penrose and Sir Anthony Caro. Only in the late 1980s did Nicholas Serota, newly arrived as director, and his then chairman, Dennis Stevenson, decide that the practice of purchasing works by serving trustees should be limited only to "special circumstances".

Yet since that decision was made, purchases from serving trustees included works from Michael Craig-Martin and Peter Doig. Two more, from Gillian Wearing and Bill Woodrow, were agreed before they became trustees but were confirmed while they were serving.

Given the inevitable fall-out from the commission's report, whether any artists will want to follow the current set of artist trustees - Fiona Rae, Julian Opie and Anish Kapoor - in giving up their time for committee meetings in future remains to be seen.

Sir Nicholas remains convinced of the benefit of advice from those at the cutting edge of new trends. Another senior gallery executive warned: "It is not straightforward finding artists who want to put in the time and effort to be trustees. If they're going to damage the possibility of their work being acquired they're really going to think about the implications."

But it is certainly clear that other institutions with artists as trustees, such as the Baltic in Newcastle-Gateshead, the Imperial War Museum and the National Portrait Gallery in London, may need to examine their own procedures. Some galleries are expected to follow the Tate's lead in disclosing the value of acquisitions. By way of consolation, the Charity Commission clearly accepted - in the end - that the purchases were in the interests of the Tate and should stand "despite the flaws in the process".

Sir Nicholas stressed that he hoped the review had shown Ofili had done nothing wrong. "Chris Ofili came in for a certain amount of opprobrium last autumn and the review established without any doubt that he behaved totally properly in this matter," Sir Nicholas said. "He could undoubtedly have sold the work elsewhere for a much higher price."

But none of it will cut any ice with the Stuckists, who claimed yesterday that the Charity Commission had proved what they had been saying about the Tate for years. "It is unaccountable and displays a contemptuous arrogance to the public which funds it. It is run by and for a self-serving elite,'' according to its leader, Charles Thomson.

"It must be a rude shock for Sir Nicholas Serota to be reminded he is a public employee spending public money, and not a Charles Saatchi spending his own personal fortune ... The Tate chairman, Paul Myners, has said, 'a lack of openness ... is a form of soft corruption'. On this basis, the Tate is corrupt," he added.

Few would go that far. But there can be no doubt that yesterday was a bad day for one of Europe's most important galleries.