Select Committee on Regulatory Reform Fifth Report


Appendix B

Letter from the Department of Health to the Clerk of the Committee

Proposal for the Regulatory Reform (National Health Service Charitable Trust Accounts and Audit) Order 2004

Thank you for your letter dated 21 January 2004. I have detailed below the Department of Health's response to the questions raised by the Committee. Also included is some additional information for the Committee, which clarifies paragraph 46 of the Explanatory Document.

1. The explanatory statement indicates that the proposed order will place a requirement on NHS charities to assist in the audit or examination of their accounts. It is not immediately apparent that this requirement derives from the proposed order.

Q 1  Please indicate where the requirement on NHS charities to assist the Audit Commission with audits or examinations is to be found, either in the existing legislation or in the proposed order.

The requirement for NHS charities to assist in the audit or examination of their accounts is contained in the Audit Commission Act 1998, which provides access powers for auditors appointed by the Audit Commission. Section 6 of the Act provides for the auditor's right to documentation and information and section 48 provides for the provision of information and documents to the Audit Commission and any person authorised by it.

2. It appears to the Committee that the proposed order may re-enact two of the burdens in existing legislation:—

(a)  New section 43A(5) of the Charities Act 1993 (the 1993 Act), inserted by article 3(3) of the draft order, appears to re-enact the burden in existing section 43(7)(b) which new subsection 43(10) (inserted by article 3(2)) disapplies.

(b)  New section 43B of the 1993 Act, inserted by article 3(3) of the draft order, appears to re-enact the existing provisions of section 98(1) of the National Health Service Act 1977 in respect of the inspection rights of the Comptroller and Auditor General and the Auditor General for Wales, which article 2(3) of the draft order disapplies.

Q 2  Please indicate whether the Department considers that the draft order would re-enact the burdens described in paragraphs 2a) and 2b) above: and, if so, whether it believes that the re-enacted burdens meet the test of proportionality set out in section 1(1)(b) of the 2001 Act.

The Committee is correct that new section 43A(5) of the draft Order does re-enact the burden. It brings NHS charities in line with other charities and provides a legally defined structure. However, the burden of examination is lighter and less onerous than an audit for both NHS charities and the auditors and therefore meets the test of proportionality as set out in section 1(1)(b) of the 2001 Act.

The new section 43B of the 1993 Act maintains the Comptroller and Auditor General's (C&AG)(or the Auditor General for Wales (AGW)) access and inspection rights. The proposal is not for the C&AG and the AGW to routinely examine NHS charities accounts as is required under the present legislation. Therefore this is a significant reduction in the present burden, which is mainly borne by Department of Health (DH) and National Assembly for Wales (NAW), and not the charities themselves. Although these access and inspection provisions will be continued to our knowledge there has only been one such report on NHS charities which involved the charities themselves over the last 25 years. It maintains a protection on behalf of Parliament and secures accountability and we believe it is proportionate.

3. It appears to the Committee that, in terms of the 2001 Act, the proposal would also impose new burdens on the Audit Commission, which are not explicitly identified in the explanatory statement (paragraph 39):—

(a)  New section 43A of the 1993 Act, inserted by article 3(3) of the draft order, requires the Audit Commission to provide an auditor to audit the accounts of NHS charities whose gross income or total expenditure in any financial year exceeds £250,000.

(b)  In the same section, the Audit Commission is required to determine whether the accounts of charities whose income or expenditure does not exceed the £250,000 threshold require either a full audit or an examination, and to appoint an Audit Commission auditor or examiner as appropriate.

Q 3  Please indicate whether the Department considers that the draft order would impose the new burdens described in paragraphs 3a) and 3b) above: and, if so, whether it believes that these new burdens meet the test of proportionality set out in section 1(1)(b) of the 2001 Act.

The draft Order reinstates the current position. Where only an examination is required this is less demanding and onerous on the Audit Commission and also on NHS charities and therefore does meet the test of proportionality as set out in the 2001 Act.

4. The summary of consultation responses (at Annex A of the explanatory statement) indicates that a number of respondents were concerned that guidance on the preparation and submission of accounts, presently available to NHS charities when they prepare accounts for submission under section 98 of the 1977 Act, would no longer be available. In its marginal comments on the consultation responses, the Department has indicated that the accounting guidance issued to NHS charities has been based on the Charity Statement of Recommended Practice (SORP), and that this requirement will continue.

5. The arrangements envisaged have not been set out in full in the body of the explanatory statement. It is therefore difficult to ascertain whether the proposals are likely to result in an increased administrative or financial outlay for NHS charities.

Q 4  Please indicate whether, under the proposals, NHS charities will still be able to receive guidance from the Department of Health on the preparation of their annual accounts; if not, what forms of guidance will be available to NHS charities; and whether the Department considers that NHS charities are likely to incur additional expenditure in the preparation of their accounts if Department of Health guidance is no longer available.

Under the proposals the DH/NAW guidance will not be issued. NHS charities will, however, be able to use current DH or NAW guidance as a baseline. NHS Trustees will have access to Charity Commission guidance and also support from the Charity Commission accounts section in the same way as other charities. If any additional expenditure were to be incurred by NHS charities it would be de minimis and there would be overall savings for NHS charities as is reflected in the consultation responses.

6. The explanatory statement (paragraph 55) indicates that a sample of views was sought on the proposed amendment to the original proposal, which would give the Comptroller and Auditor General the power to examine the accounts of NHS charities submitted to the Charity Commission. The response from the sample indicates that the amendment to the proposal was discussed and approved at a meeting of the Informal Group of Charities Associated with NHS Bodies on 20 November 2002.

Q 5  Please indicate how the "Informal Group of Charities Associated with NHS Bodies" is constituted, and the bodies which are members of the Group; how often the Group meets; and whether, in the Department's opinion, the Group is properly representative of the opinion of NHS charities in England and in Wales.

The 'Informal Group of Charities Associated with NHS bodies' is made up of NHS charities which hold funds valued at £5 million or more. The group has a high level of experience in NHS charity matters and is therefore in our opinion can provide a view reflecting issues affecting all NHS charities. It holds 2-4 meetings per year to which the Department of Health and the Charity Commission are invited. Twenty-two members of the 'Group' provided a response to the original consultation and were included in the 79 responses received. There were 3 new respondees from the members of the 'Group'.

7. The Committee has examined the statements made by the Department in the explanatory statement concerning the appointment of Audit Commission auditors to audit the accounts of NHS charities and the appropriate NHS host body. A number of consultees indicated in their responses that they would like the auditor appointed to the host body to audit the accounts of the NHS charity. Against one response (explanatory statement, annex A, p. 9) the Department has stated that "[Audit Commission] auditors appointed to the host body are automatically appointed to the charity. We do not envisage any change in this process." But against another response requesting joint appointments (annex A, p. 8) the Department has stated that "we have asked the Audit Commission to try to ensure that this is the case."

Q 6  Please clarify, in the light of apparently conflicting observations in the explanatory statement, whether there will be any change to the existing arrangements whereby the same Audit Commission auditors are appointed to scrutinise the accounts both of the host NHS body and of its associated charity.

The apparent conflict reflects the fact that, currently, in each case the Audit Commission appoints the same auditors for the accounts of the host NHS body and its associated charity. This is however a matter for the Audit Commission and there could be circumstances where the Commission would decide this is inappropriate. The Department of Health has thus asked the Audit Commission to ensure that for NHS Trusts and Primary Care Trusts that this arrangement continues whenever possible; however under the proposals final decisions on this will continue to lie with the Audit Commission.

8. The figures for the number of NHS charities in England and Wales in the financial year 2001/02 appeared to differ between the explanatory statement and the accompanying regulatory impact assessment (annex F). It would assist the Committee to have a definitive statement of the number of NHS charities in England and Wales as at the end of the most recent financial year for which figures are available.

Q 7  Please indicate the total number of NHS charities in England and in Wales, and indicate how many fall into each category of trusteeship at the end of the last financial year for which figures are available.

Q 8  Please also indicate how many of those charities had income or expenditure of less than £10,000; how many had income or expenditure between £10,000 and £250,000, and how many had income or expenditure exceeding £250,000, in respect of the last financial year for which figures are available.

The figure of around 450 NHS trustee bodies administering charitable funds (paragraph 3 of the Explanatory Document) reflects the numbers for 2000-01. The 419 shown at Annex F are the number of NHS Trustees at the 31st March 2002. A table reflecting the latest figures, which are for 2002-03, as requested above is attached. The reduction in numbers reflects changes in the structure of the NHS. Please note these numbers remain subject to audit.

9. The explanatory statement (paragraph 20) gives an indication of the extent to which the proposals will extend to the proposed NHS Foundation Trusts. It does not appear to explain what the relationship will be between an NHS Trust and its associated NHS charity once the NHS Trust has been designated a Foundation Trust.

Q 9  Please indicate the extent to which it is envisaged that the proposals will extend to NHS charities associated with NHS trusts, once those trusts are designated as foundation trusts under the Health and Social Care (Community Health and Standards) Act 2003.

For those NHS trusts that become foundation trusts, under the Health and Social Care Act 2003 the arrangements would be as follows:

(a)  where the NHS trust was a corporate trustee, the foundation trust will become the corporate trustee (see paragraph 20 of the Explanatory Document, and the Health and Social Care Act 2003);

(b)  where there was a body of trustees for the NHS trust it will become the body of trustees for the foundation trust; and

(c)  where special trustees were appointed for a named hospital this will continue line with the proposals of the RRO.

The Department would also like to take this opportunity provide the Committee with the some clarification on paragraph 46 of the Explanatory Document, to bring out the effect of proposals in the draft Order and explain why the procedure is considered appropriate. The following amended paragraphs better reflect what the proposal sets out to do. The position is:

The Charities (Accounts and Reports) Regulations 1995 currently apply to NHS charities.  Article 5 and the Schedule to the Order provide for the Regulations to continue to apply to NHS charities, subject to modifications to take account of the fact that the provisions on NHS charities are in a new section 43A.

Article 5 and the Schedule to the Order  were identified as a matter to be dealt with by subordinate provision under section 4(3) of the Regulatory Reform Act 2001. Article 6 of the Order designates article 5 and the Schedule as subordinate provisions.  While further amendments are not considered likely, in the event that any were necessary it is sensible to provide for amendment of these essentially technical provisions in a subordinate provisions order, which would be subject to the negative resolution procedure.

6 February 2004





 
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