Memorandum from PricewaterhouseCoopers
LLP (DCH 138)
Clauses 1 to 3—That charity be redefined
in law, based on the principle of public benefit and falling under
one of twelve new heads of charity.
We support this change in principle. However,
care needs to be exercised in the implementation.
Our primary concern is that the term "public
benefit" has not been defined in the draft legislation. We
also believe that the nature of, and criteria used in, any system
of on-going checks on the public character of charities should
be defined in legislation. In this regard, we believe that it
is inappropriate to single-out charities that appear to be charging
high fees for services. This may be seen as unfair targeting of
certain sectors (independent schools and private hospitals, for
example); and may also give undue weight to only one aspect of
the public benefit test, as listed in the current Charity Commission
guidance (RR8, "The Public Character of Charities").
Our view is that registered charities should
be able to operate with some certainty that their objects and
activities, once approved, are safeguarded against subsequent
re-interpretation as non-charitable.
Clause 5—The charity regulator should have
clear strategic objectives in statute setting out what result
it exists to achieve as regulator.
We agree that the Charity Commission should
be given clear statutory objectives. However, we are concerned
that the proposed social and economic impact objective is interpreted
by the Commission in a supportive and advisory capacity only.
We do not believe it would be feasible or appropriate for the
Commission to attempt to regulate the social and economic performance
and impact of charities. This is best done by means of charities'
stakeholders having access to appropriate information on which
to make their own judgements.
Clause 7—Previously excepted charities with
gross incomes above £100,000 will be required to register.
Larger exempt charities, without a "main regulator"
should be registered with the Charity Commission.
Clause 10 and Schedule 5—The Charity Commission
should be given a power to investigate exempt organisations on
the request of their "main regulator".
We agree with these amendments, with one exception.
The registration threshold for previously excepted charities and
exempt charities without a "main regulator" should be
the same as for other charities, and not an arbitrarily higher
figure. Whilst we appreciate that the higher threshold is intended
to be transitional, we believe the Bill should commit to the removal
of anomalies in the registration thresholds for different charities
over as short a period as possible.
Clause 22—All charities with an income over
£500,000 or assets over £2.8 million will be required
to have an audit. An independent examination will be required
for all unincorporated charities with income of £10,000 to
£500,000. For incorporated charities an accountant's report
will be required between £90,000 and £250,000.
In addition, independent examiners of charities
in the £250,000 to £500,000 range will be required to
possess a relevant accountancy qualification.
Our main concern is that the thresholds are
too low. In particular, the new asset threshold of £2.8 million
will mean that some relatively small and simple asset-based charities
with income in the £100,000 to £250,000 range will be
required to have an audit where previously they may have had an
independent examination or accountant's report. In many cases,
these will not be charities that raise money from the public and
we do not believe subjecting them to an audit requirement is justified.
Whilst we agree that the thresholds for charities should be lower
than those for commercial companies due to the greater public
interest, we believe that the proposed thresholds could be doubled
without compromising the accountability of the sector.
In any event, we believe that many charities
below the £500,000 threshold will continue to have an audit
either because:
— of requirements in their governing
documents;
— or otherwise imposed by providers
of funds;
— or because the costs of professional
independent examination may not be substantially lower than those
for audit.
We are concerned at the inconsistencies between
the external review requirements for charitable companies and
those applicable to charities that are subject to the Charities
Act 1993. We believe that there should be a single set of requirements
and recommend that the words "Nothing in this section applies
to a charity which is a company" should be removed from sections
41, 42, and 43 of the Charities Act 1993.
Clause 26 and Schedule 6—That a new legal
form designed specifically for charities, the Charitable Incorporated
Organisation (CIO), be introduced, which will only be available
to charitable organisations.
We agree that it would be helpful to eliminate
the administrative burden of dual registration with both the Charity
Commission and Companies House and to reduce confusion as to which
regulations take precedence in certain areas. In addition, the
sector is overpopulated with available legal forms and the only
way in which this will be resolved will be to make existing charitable
organisations convert their existing legal status. In principle,
we do not believe that new structures should be forced upon existing
entities, and are concerned that the draft Bill appears to countenance
this after a period of only five years. However, we see little
alternative if overdue rationalisation is to take place.
In any case, we welcome the fact that the process
for an existing charitable company converting to a CIO is to be
kept as simple as possible.
Clauses 30 to 34—That a package of legal
measures should be introduced that will facilitate mergers and,
more generally, the administrative running of the charity.
Criteria for allowing trustees to spend capital
should be revised.
We welcome all of these changes. In particular,
we see mergers as an area of growing relevance to the sector,
as charities focus on optimising their means of service delivery
in an increasingly competitive marketplace.
Clause 36—The Secretary of State is to be
given a reserve power to introduce statutory regulation, which
he would exercise if he considers self-regulation to have been
ineffective or inadequate.
We agree that the Secretary of State be given
this power. However, we feel that the criteria to be used in judging
whether self-regulation is deemed ineffective should be made public.
In addition, we do not have confidence that
the proposed new voluntary system of self-regulation for fundraising
will work. If membership of the proposed new self-regulatory body
for fundraising is to be voluntary, it is difficult to see how
the self-regulatory process will result in greater levels of adherence
to codes of best practice. A system of compulsory codes of conduct
for charities which raise funds from the public in excess of a
specified threshold would be preferable.
As part of their Annual Return, larger charities
with an income over £1 million should complete an annual
Standard Information Return ("SIR").
Whilst this is not part of the draft Bill because
it does not require primary legislation, we have serious concerns
over the proposed SIR. We fully support the intention to strengthen
the reporting by charities of performance against their objectives.
However, we believe that this is best achieved by driving up the
standard of annual reports and accounts and by enforcing greater
compliance with the Statement of Recommended Practice "Accounting
and Reporting by Charities".
The draft SIR recently published by the Charity
Commission for consultation asks for information which, in many
cases, will already be contained in high quality charity reports
and accounts. Other information, such as the analysis of the costs
of the most significant charitable and fundraising activities,
may be difficult for charities to extrapolate and/or not readily
reconcilable to their audited accounts. We are also concerned
that the SIR is likely to be used to draw comparisons between
charities. Given the diversity of the sector we believe comparisons
made on the basis of the information in the SIR would be at best
misleading, and at worst, meaningless.
Finally, we are extremely concerned that the
SIR is to be self-certified by the Chief Executives and Chairs
of charities. This will mean that there is no independent assurance
as to the accuracy of the information given. Such assurance could
be achieved either through a direct audit requirement, or by way
of a review for consistency, similar to that currently performed
by auditors with regard to Trustees' Reports presented with audited
accounts. Given that the information is to be made publicly available
we consider some form of independent assurance to be vital.
June 2004
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