Further memorandum from the Higher Education
Funding Council for England (DCH 343)
I wrote on 21 June enclosing a memorandum requesting
two changes to provisions in the draft Bill that would impact
directly on this Council's intended role as a Principal Regulator
of Higher Education Institutions as exempt charities. Since then,
it has come to our attention that the draft Bill appears to create
an anomaly in respect of changes to the duties of auditors.
Currently, by virtue of s46(1) of the Charities
Act 1993, there is no statutory provision for exempt charities
to have their annual accounts audited. If the exempt charity is
registered as a company it will be subject to the audit requirements
of the Companies Act. And, of course, many exempt charities have
an audit requirement in their constitution or have audit imposed
by funders as a grant condition.
Charities that are not companies and are not
exempt are subject to the provisions of the Charities (Accounts
and Reports) Regulations. These require auditors to write to the
Charity Commission about any matter relating to the activities
or affairs of a charity (or connected institution or body) of
which the auditor becomes aware and which might be of interest
to the Commission in relation to ss 8 and 18 (investigation and
enforcement powers) of the 1993 Act.
The draft Bill changes the reporting duties
of auditors, provides protection to auditors against liability
for breach of confidence, and extends (by virtue of the new s69A)
the coverage to include charities that are audited under the terms
of the Companies Act. But this means that the auditors of exempt
charities that are not companies will have neither the reporting
duties nor the protections from liability.
Within the higher education sector there are
institutions that are registered charities (some, but not all,
of which are companies) and whose auditors have the reporting
obligations and protections. Most institutions are, however, exempt
charities. But some of them are registered companies whose auditors
will have the reporting obligations and protection, whereas the
auditors of the rest will not. We believe this to be an unintended
consequence and recommend that the reporting obligations and protection
should apply to the auditors of all charities, regardless of the
charity's constitutional form, or status as registered or exempt.
In our original submission, we suggested that there were several
areas in which the draft Bill was inconsistent in defining the
relationships between the Charity Commission and principal regulators.
The audit provisions discussed above provide another example of
this inconsistency: in our view the auditors of exempt charities
should be required to report to the principal regulator in the
first instance. It would then be for the principal regulator to
inform the Commission if further investigation or enforcement
seemed appropriate.
July 2004
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