House of Commons - Regulatory Reform

Select Committee on Regulatory Reform Fifth Report

2 Introduction

2. On 7 January 2004 the Government laid before Parliament a proposal for the Regulatory Reform (National Health Service Charitable Trust Accounts and Audit) Order 2004 in the form of a draft of an order and an explanatory memorandum from the Department of Health (the Department) and the National Assembly for Wales.[1]

3. The proposed order deals with the accounting arrangements for charitable funds administered by National Health Service bodies, known as National Health Service charitable trusts ("NHS charities").[2] The Department stresses that other charities associated with the National Health Service (for example, Hospital Leagues of Friends) are independent of NHS bodies. They are not affected by these proposals.[3]

4. Before the establishment of the NHS in 1948, charitable funds were often held by hospitals operated by local authorities or voluntary concerns. On the establishment of the NHS, the Secretary of State for Health took on responsibility for administration of the charitable funds. NHS charities are now administered either by the board of the relevant NHS body, acting as a charitable trustee, or by separate Special Trustees or Trustees for NHS Trusts.[4] In England, non-executive NHS board members and trustees are appointed by the Appointments Commission. In Wales, the Minister for Health and Social Services of the Welsh Assembly Government makes non-executive board appointments to health bodies.[5] The trustees of each charity are responsible for the administration of their charity and for ensuring that its assets are properly managed and applied in accordance with charity law.

5. In the explanatory statement the Department indicated that in the financial year 2000/01 there were 451 NHS charities in England and Wales. Of the 431 in England, 413 were administered by the relevant NHS body acting as a charitable trustee and 18 by separate Special Trustees, while the 20 trusts in Wales were all administered by NHS bodies.[6] Annex F of the explanatory statement provides an overall figure of 419 NHS charities. The Department has explained that this reflected the number of charities at the end of the 2001/02 financial year.[7]

6. At the end of the 2002/03 financial year there were 338 NHS charities in England and Wales. The Department has explained that this reduction in numbers follows internal reorganisation within the NHS.[8] The Department has supplied figures for the number of NHS trustees and bodies administering charitable funds at the end of the financial year 2002/03. These are set out in Figure 1.

Figure 1: Number of NHS charities operating in England and Wales at 31 March 2003, by category

Country	Category	Number
England	Corporate Trustees	302
	Trustees for NHS Trusts	11
	Special Trustees	5
	Total	318
Wales	Corporate Trustees	20
	Total	20
Total (England and Wales)		338

Source: Department of Health memorandum (Appendix B)

7. At 31 March 2002, the end of the last financial year for which audited figures are available, the sum of charitable funds held by all NHS charities in England and Wales amounted to £1,682 million.[9] Funds held by individual charities in the financial year 2001/02 ranged from less than £1,000 to over £380 million.[10]

8. The regulatory impact assessment prepared for the proposal gave figures for the numbers of NHS charities in England and Wales at 31 March 2002, broken down by annual income and expenditure band.[11] These bands indicate the different levels of audit scrutiny to which charity accounts are subject under the Charities Act 1993.[12]

9. On the basis of their provisional unaudited accounts for the financial year 2002/03, the Department has provided a similar breakdown of the income and expenditure of the 338 NHS charities which were operating in England and Wales at the end of that financial year. The details are given in Figure 2.

Figure 2: Number of NHS charities operating in England and Wales at 31 March 2003, by total annual income and expenditure band

Country	Total annual income or expenditure	Number of charities
England	Less than £10,000	25
	Between £10,000 and £250,000	125
	Over £250,000	168
	Total	318
Wales	Less than £10,000	4
	Between £10,000 and £250,000	3
	Over £250,000	13
	Total	20

Source: Department of Health memorandum (Appendix B)

Present audit and accounting arrangements

Requirements of the National Health Service Act 1977

10. The present audit and accounting arrangements for most NHS bodies (excluding the proposed NHS Foundation Trusts) are set out in section 98 of the National Health Service Act 1977.[13] NHS bodies—including NHS charities—are required to prepare annual accounts in a form directed by the Secretary of State for Health and approved by the Treasury. The accounts are audited by auditors appointed by the Audit Commission. Following audit, they are submitted to the Secretary of State for Health or the National Assembly for Wales.

11. The Secretary of State for Health or the National Assembly for Wales summarise the accounts of the funds derived from the Exchequer and the funds belonging to the charitable trusts separately, and transmit them to the Comptroller and Auditor General or the Auditor General for Wales for examination. After examination, the accounts for England are presented to Parliament and those for Wales are presented to the National Assembly.[14]

12. The Secretary of State for Health and the National Assembly for Wales have no powers to inquire into the management of NHS charities. Their powers are limited to appointing and removing trustees, determining their terms of office, summarising the accounts of charities for examination and presentation to Parliament and the National Assembly and transferring property held on trust between NHS bodies.[15]

Requirements of the Charities Act 1993

13. In 1996 a separate and additional accounting requirement was placed on NHS charities by the entry into force of Part VI of the Charities Act 1993. NHS charities have always been required to register for charitable status and submit to the jurisdiction of the Charity Commissioners. After 1 March 1996 they were no longer exempt from the requirement in charity law that all permanently endowed charities shall send their accounts to the Charity Commissioners. NHS charities now fall within the normal accounts monitoring programme undertaken by the Charity Commission.

14. The explanatory statement summarises the accounting regime which applies to all charities under charity law. This is as follows:

If a charity's gross income or its total expenditure in any one financial year exceeds £10,000, it must submit accounts to the Charity Commission. But if the gross income or total expenditure do not exceed £250,000, the accounts are permitted to be subject to an examination before submission, rather than to a full audit.
Charities with a gross income or total expenditure of over £250,000 in any one financial year must prepare full accounts for submission to the Charity Commission, and are subject to a full audit.
If a charity's gross income in any financial year is £100,000 or less, the charity may elect to prepare accounts of receipts and payments only, and a statement of assets and liabilities.
If neither a charity's gross income, nor its total expenditure in any financial year, exceeds £10,000, it is exempt from any requirement to have its accounts examined or audited (unless the Charity Commissioners order otherwise), and it is not required to submit its annual accounts to the Charity Commissioners, unless requested to do so.
The Charity Commissioners conduct routine monitoring of 'larger charities', and have powers to institute general inquiries into charities or to carry out inquiries for specific purposes.[16]

15. The Department explains that NHS charity trustees presently seek a dispensation from the Charity Commission to allow the audit undertaken by the Audit Commission for the purposes of section 98 of the 1977 Act (see paragraph 10 above) to satisfy the audit scrutiny requirements for accounts submitted to the Charity Commission.[17]

16. The Department has indicated that changes are proposed to the present structure of charity law, following a Cabinet Office review. The Government proposes that the present audit threshold of £250,000 should be raised to £500,000. In addition, it is proposed that the type of accounts to be prepared, and the level of audit scrutiny, should be determined by an asset threshold as well as the present income threshold.[18] A draft Charities Bill, intended to give effect to these changes and others, was announced in the Queen's Speech.

1 Copies of the proposal are available to Members of Parliament from the Vote Office and to members of the public from the Department. The proposal is also available on the Cabinet Office website: http://www.cabinetoffice.gov.uk/regulation/act/proposals.htm Back

2 Article 3(3) of the draft order, which inserts new section 43A into the Charities Act 1993, defines an NHS charity as follows: "a charitable trust, the trustees of which are (a) a Strategic Health Authority, a Special Health Authority, a Primary Care Trust, a Local Health Board or a National Health Service trust; (b) special trustees appointed under section 29(1) of the National Health Service Reorganisation Act 1973 and section 95(1) of the National Health Service Act1977; (c) trustees for a National Health Service trust appointed under section 11 of the National Health Service and Community Care Act 1990; or (d) trustees for a Primary Care Trust appointed under section 96B of the National Health Service Act 1977". Back

3 Explanatory statement, para 5 Back

4 A number of NHS charities, which were administered by Special Trustees, are now administered by Trustees for NHS Trusts in order to align their boundaries with those of the relevant Trusts. Back

5 Explanatory statement, para 11 Back

6 Ibid. Back

7 Explanatory statement, annex F, and Appendix B, para 8 Back

8 Appendix B, para 8 Back

9 Summarised accounts for NHS funds held on trust for the financial year 2001/02: Explanatory statement, annex B Back

10 Explanatory statement, para 33 Back

11 Explanatory statement, annex F Back

12 See below, para 14 Back