The end of Cheques? - Treasury Contents


Written evidence submitted by the Charity Commission for England and Wales

1.  EXECUTIVE SUMMARY

  1.1  The abolition of cheques should not weaken a charity's system of internal financial controls, provided the trustees opt to use the alternative method of payment and put in place sufficient safeguards over its use.

  1.2  The alternative payment method developed to replace cheques would need to be thoroughly tested by charities and those groups who represent individuals who donate to charity.

  1.3  In order to encourage the take up the alternative payment method it should retain as many as possible of the advantages of cheques—it should be safe, straightforward and cheap for the user.

  1.4  When a decision has been made on what will replace the cheque the Payments Council should run a national campaign, funded by the banks, setting out details of the replacement, how to use it and what users need to do to minimise the risk of fraud.

  1.5  There is still some way to go before the sector's digital inclusion is comprehensive. Some charities already run their banking arrangements online, using software developed by their banking provider. However many charities, particularly smaller charities, are still very reliant on paper systems. For example, to date, only 70% of registered charities use the Charity Commission's online services to file their annual return or to receive our regular newsletters.

2.  INTRODUCTION

  2.1  The Charity Commission for England and Wales is established by law as the regulator and registrar of charities in England and Wales. Our aim is to provide the best possible regulation of these charities in order to increase charities' efficiency and effectiveness and public confidence and trust in them.

3.  THE CHARITY SECTOR

  3.1  There are approximately 160,000 registered charities in England and Wales. The size of charities is very diverse. Figures collated from the register of charities show that the aggregate annual income of the sector is some £52.6 billion, although within this the annual income of individual charities ranges from the few pounds to more than £500 million. Some charities rely on individual donations from members of the public for the bulk of their income; others receive the majority of their income from charitable activities or investments.

  3.2  The Commission collects figures on the annual gross income reported by charities in their annual returns and publishes a summary in the Facts and Figures area on our website. The most recent numbers, as at 31 December 2009, show that three-quarters of registered charities have an annual income of less than £100,000. At the other end of the scale the largest 6% of charities account for almost 90% of the sector's income.

31 December 2009



Annual income Bracket
Number of
charities

%
Annual
Income £bn.

%


£0 to 10,00072,958 45.40.2470.5
£10,001 to £100,00050,430 31.41.7593.4
£100,001 to £500,00016,527 10.33.7567.3
£500,001 to £5,000,0007,658 4.811.50722.2
£5,000,000 plus1,710 1.134.46966.6
Sub-Total149,28393.0 51.738100.0
Not yet known11,232 7.00.0000.0
TOTAL160,515 100.051.738 100.0


Source: Charity Commission website

4.  THE POTENTIAL EFFECT OF THE ABOLITION OF CHEQUES ON THE INTERNAL FINANCIAL CONTROLS OF CHARITIES

  4.1  We publish guidance for charities in a number of areas. Our guidance on internal financial controls looks at various areas of financial activity and provides examples of internal financial controls that are commonly used to reduce the risk of loss. We know, from inquiries to our contact centre, that charities want details of the internal financial controls we recommend trustees of charities to have in place when they are making payments online using debit and credit cards, or via BACS direct credit. We are currently revising our guidance on internal financial controls for charities to provide trustees with advice of the sort of controls they need to put in place to protect these transactions.

  4.2  Our overall advice is that using these payment methods should not weaken the charity's internal financial controls, provided the trustees put in place sufficient safeguards over their use. These will include procedures stemming from the charity's banking arrangements.

  4.3  Banking institutions have developed software for online transactions that allows users, including charities, to provide for more than one person to authorise payments. The software provides control similar to that of more than one signature on a cheque, and ensures that the charity has a proper internal financial control over online payments. This software is available at a cost, which we recommend is worth paying for the internal control it provides. In the run up to the abolition of cheques we would like to see banking institutions further develop, and disseminate information on, this software, making it more cost effective to charities to use.

  4.4  Trustees also need to maintain the security of the charity's online bank accounts via a number of basic precautions over the charity's computers. These include using up to date anti-virus spyware and firewall software on all computers, and controls over passwords and PINs. These measures have cost implications for charities.

  4.5  However a notable number of smaller charities are likely to be paper based. These smaller charities see cheque payments as the cheapest, easiest and safest payment method. The alternative method that the Payments Council and banks develop should not ignore these important features of cheques.

  4.6  This is important because when cheques are abolished charities should not, as an alternative, move to making payments by cash. Our guidance on internal financial controls makes it clear that charities should keep cash transactions to a minimum, as they are inherently more risky, and they also increase the charity's cash handling costs. It would be a backward step in the internal financial control framework for charities if the abolition of cheques saw a corresponding increase in the number, and value, of cash payments made by charities, rather than a move to online or other electronic payment methods.

5.  THE POTENTIAL EFFECT OF THE ABOLITION OF CHEQUES ON THE INCOME OF CHARITIES

  5.1  While many charities encourage donors to give via bank payments or to pay online, they continue to accept money in whichever way a donor prefers to give, including cheques. Those charities that opt to accept donations online will need to ensure that their website is secure enough to protect the data of those making donations. This should generally be part of the system of controls that charities use to protect their website, but will have cost implications for those charities that do not already have a website or do not use it to receive donations.

  5.2  Many potential individual donors may be more comfortable with cheques and may be wary of using a debit/credit card or online method of making a donation. This may make them less inclined to make a donation when cheques are abolished. We would not want those charities that rely on such donations for a notable proportion of their income to suffer a loss of income.

  5.3  To mitigate the risk of a loss of income charities should be prepared to advise donors to use whatever method replaces cheques in order to make donations. We would like to see in the run up to 2018 a national campaign setting out the change and what will replace cheques. This should include specific coverage of the options for individuals who wish to make donations to charity. To minimise the costs to charities the national publicity campaign should be led by the Payments Council and funded by the banks. This campaign should set out the alternative payment methods and also educate individuals and organisations about the risk of fraud and identity theft, and what they should do to minimise the risk.

6.  THE ONLINE PRESENCE OF CHARITIES

  6.1  There is still some way to go before the sector's digital inclusion is comprehensive. The Commission uses email in preference to postal addresses for 114,353 registered charities to send out our biannual newsletter. The range of our online services includes the facility for charities to complete their annual return and update form. In 2009 we received 112,076 forms online.

  6.2  There are 160,000 registered charities. This means that approximately 70% of registered charities have opted to receive or send information online. But this does not imply that these charities would be able to bank online; and conversely the figures show that 30% of registered charities do not use the internet for the basic function of communicating with us.

7.  THE IMPLICATIONS FOR DATA SECURITY AND TRAINING

  7.1  Charities will need to ensure that trustees and staff have sufficient training on how to use the alternative payment method that replaces cheques. Bank transfers and other means of electronic payment require the sharing of bank information between the parties involved. This will require additional training and measures to be taken to safeguard this data and also to train staff to ensure that the charity's bank details are only shared to bona fide counter parties. Charities will have to meet the costs of this training.

February 2010






 
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