Memorandum from the Institute of Chartered
Secretaries and Administrators (DCH 289)
The Institute of Chartered Secretaries and Administrators
(ICSA) is the professional body qualifying and supporting company
secretaries and corporate administrators in all sectors of the
economy. Members are educated in a range of topics including finance,
HR, company law, administration and governance, which enable them
to add value to any organisation. The Institute has some 10% of
UK members as being directly employed in the Not for Profit sector
with many more involved on a voluntary basis in capacities such
as Trustees and School Governors.
In formulating the Institute's response to the
Draft Charities Bill, members covering the large multi-million
pound charities to small, local organisations were approached
for their views given the depth of their knowledge of the sector
and of complying with relevant legislation.
GENERAL COMMENTS
Overall, the ICSA is broadly supportive of the
Draft Charities Bill, though there are some aspects of the drafting
that need to be reconsidered and clarified before presented to
Parliament. We are particularly pleased to see the increase in
charitable purposes combined with the public benefit test, especially
as due consideration has been given to ensuring that flexibility
is built into the legislation in order that charitable purposes
may evolve with society, and that the importance of case law has
been retained.
ICSA would urge that further consideration be
given to co-ordinating developments in charity law in England
and Wales, with those in Scotland and Northern Ireland in order
to further promote the public's better understanding of charities
and reduce inconsistencies for those charities operating on a
UK-wide basis.
In addition the Institute recommends, given
limited Parliamentary time, that a consolidation Act should be
introduced in order to bring all relevant charity legislation
together under one Act.
To aid the committee's consideration of the
Institute's submission, points are raised in order that they appear
in the Bill.
PART 1—MEANING
OF "CHARITY"
AND "CHARITABLE
PURPOSE"
— The dual approach of maintaining
fluidity and flexibility in the evolution of what constitutes
a charity and charitable purposes is to be commended by keeping
the wealth of experience generated by case law and by not establishing
a fixed definition of charity in legislation.
— The 12 heads of charity are a welcome
development, along with the removal of presumed public benefit
that was prevalent under previous legislation. The Institute is
however concerned that the legislation does not explicitly lay
down measures that enables the Charity Commission to undertake
a rolling review of a charity's public benefit, as opposed to
it being proven at the point of registration. As previously argued
in the Institute's response to Private Action, Public Benefit,
by only subjecting those charities applying for registration to
the public benefit test you inadvertently introduce two-tiers
to registered charities, with only a minority subject to the higher
standards of a public benefit test.
Whilst an extensive programme to evaluate the
public benefit of every registered charity will require greater
resources for the Charity Commission, the system would therefore
be equitable. Such a programme would also focus the minds of charity
trustees to ensure that their charity continues to meet its stated
objectives and does not apply donated funds to areas outside of
its remit.
— It is the Institute's opinion that
the measures outlined in this part of the Bill will go a significant
way to maintain the high levels of public trust and confidence
the sector enjoys.
PART 2—REGULATION
OF CHARITIES
Chapter 1—The Charity Commission
— Whilst the Institute has previously
endorsed the proposal to have the Charity Commission's objectives
set out plainly, yet in a manner that maintains their relevance
over the passage of time, there are concerns with regard to the
third regulatory objective set out in the Bill: The social and
economic objective.
Whilst charities should be able to measure their
impact in a number of ways and demonstrate to stakeholders their
success and failures, the Institute does not deem it appropriate
that economic impact should be an overriding objective. Perhaps
the committee would consider replacing this objective with one
that supports and advances the "public benefit" principle
of charities?
— The Institute would also welcome
inserted into the Bill, an additional requirement for the Commission
to introduce and maintain mechanisms in order to facilitate the
rolling programme of public benefit reviews for all registered
charities, within realistic financial constraints.
— In all matters relating to the regulation
of charities, ICSA would expect that the Charity Commission be
encouraged to act proportionately and fairly given the wide range
and size of charities.
— The Institute endorses the requirement
for the Charity Commission to have due regard for accepted best
practice in good governance for its own affairs and hopes that
this is sufficient to encourage the Commission to adopt those
measures that are practical and applicable.
— ICSA is also encouraged to see that
the Commission will continue to act as both advisor and regulator
to the sector, though we would anticipate the Commission to make
it clear to charity trustees when they are offering guidance and
when they are instructing charities to abide by regulatory procedures.
Chapter 2—The Charity Appeals Tribunal
— ICSA welcomes the establishment of
the Charitable Appeals Tribunal (CAT), though we would like to
see its remit widened to envelop all activities undertaken by
the Commission including "non-decisions".
Chapter 3—Registration of Charities
— With regard to the powers for the
Charity Commission to be the main regulator for those exempt charities
where a main regulator does not currently exist, the ICSA welcomes
the principle of promoting accountability and transparency for
all charities. To this aim, the Institute would appreciate an
indicative timeframe for introducing these proposals.
— Greater clarification would also
be appreciated with regard to the balance of power between the
roles of the Charity Commission and other main regulators. It
may be viewed that the powers outlined in the draft Bill provide
the Commission with a dominant position over other regulators,
such as the Housing Corporation. If this is indeed the scenario,
considerable thought needs to be given to synchronising approaches
to certain aspects of regulation. For example, the Housing Corporation's
approach to board member remuneration is different in some regards,
to that taken by the Commission, and would need to be resolved
swiftly in order to limit confusion within the not-for-profit
sector and the wider public.
— By requiring all charities above
the proposed £5,000 to register with the Charity Commission,
any confusion or undue complexity can be resolved and furthermore
transparency, and accountability promoted by a Commission acting
fairly and equitably.
— ICSA also welcomes the continued
option for charities under the £5,000 registration threshold
to register voluntarily.
Chapter 4—Application of Property Cy-Pre"s
— ICSA welcomes the approach taken
in the draft Bill aimed at simplifying the present situation.
Chapter 5—Assistance and Supervision of
Charities by Court and Commission
— The Institute believes these clauses
to be appropriate and sensible.
Chapter 6—Audit or Examination of Accounts
— These proposals appear to be sensible
and workable.
Chapter 7—Charitable Companies
— ICSA is in accordance with the intention
for charity audit levels to complement those outlined in company
law. Such consistency can only improve the understanding of these
issues and thereby increase transparency and accountability.
Chapter 8—Charitable Incorporated Organisations
— Whilst the draft Bill appears to
make sensible proposals for those charities wishing to incorporate
as a CIO, there does not appear to be any mechanisms enabling
a CIO and one or more charities constituted in a different corporate
vehicle, eg a company limited by guarantee or IPS, to merge into
a new CIO. If the Institute is correct in its reading of the draft
Bill, then we would urge further consideration be given to this
aspect.
Furthermore, there seems to be no mechanism
whereby a charity incorporated by Royal Charter, or even Act of
Parliament can easily convert into a CIO, should they wish to
do so.
— As with charitable companies limited
by guarantee, the CIO should state on its official letterhead
etc, that it is a CIO and therefore provides limited liability
to its members. There may also be advantages to requiring all
CIOs to employ a company secretary in order to ensure that regulatory
and compliance functions are fulfilled in an appropriate manner,
and further provide the trustees with impartial guidance on issues
pertaining to governance, compliance and regulation, thereby strengthening
the board in undertaking its many responsibilities.
Chapter 9—Charity Trustees etc
— ICSA is in support of the draft Bill's
proposals to maintain the present situation with regard to trustee
remuneration, but would welcome further guidance provided to those
charities paying trustees for a service on the various concerns
regarding conflicts of interest and how to manage them.
— ICSA also supports the new power
of the Charity Commission to relieve trustees from liability arising
out of a breach of trust, where the trustee has acted honestly
and reasonably.
Chapter 10—Powers of Unincorporated Charities
— The Institute is in accordance with
the proposed legislation.
Chapter 11—Powers to Spend Capital and Mergers
— It is noted that there will be no
requirement for charities to inform the Commission as to when
a merger has occurred, thereby making the merger register completely
voluntary. In order to ensure that the register is as accurate
as possible the committee may wish to consider recommending that
a form of words are inserted into the Bill that places more onus
on charities to inform the commission when a merger has occurred.
PART 3
— The Institute is concerned that the
proposals to formalise standard approaches to the licensing of
charitable collections by local authorities will lead to increased
costs for local authorities, and may indeed be ineffective unless
there is an undertaking by local authorities to "police"
the procedures. Furthermore, guidance should be made available
to all local authorities informing them of suitable practice and
considerations to be taken into account when processing an application.
The powers, as they stand in the draft Bill, are far too loose
and are easily open to misuse.
— Whilst ICSA is pleased to note the
measures included in the draft Bill provide for charities to appeal
against decisions made by the local authority refusing a certificate
of fitness, however the use of the Magistrate's Courts may prove
to be prohibitively expensive and burdensome for small charities.
A quicker, and cheaper alternative should therefore be considered.
— In respect of the powers reserved
by the Secretary of State to establish government backed regulation
of fundraising activities, in the light of the failure of self
regulation, the ICSA would welcome the drafting of the criteria
that would be used in order to decide that the sector has failed
to successfully self-regulate its fundraising activities.
July 2004
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