Further memorandum from the Charity Finance
Directors' Group (CFDG) (DCH 129)
1. INTRODUCTION
1.1 The Charity Finance Directors' Group
was set up in 1987 and is the only charity specialising in the
management and accountability of charities from the finance perspective.
CFDG has nearly 1,000 members who are responsible for the finances
of charities with a wide variety of income levels. Over 60% of
the top 500 charities are members of the CFDG. Between them our
members manage some £10 billion in charity income per year.
CFDG is working to promote and raise public confidence in good
management within charities.
1.2 CFDG welcomes the draft charities bill.
Like most of the sector, we have been campaigning for the implementation
of the Home Office's recommendations resulting from the Private
Action, Public Benefit report. We are pleased that the Government
have recognised the huge importance of charities, and the need
for regulatory reform. We hope that the draft bill will be included
in the Queens Speech. The resulting changes from a Charities Act
will increase public confidence in charities.
1.3 CFDG submitted an earlier written submission
on trading, audit threshold and group accounts, which is attached
as an annex. We supported the proposals contained in Private Action,
Public Benefit "to amend charity law to allow charities to
undertake all trading within the charity, without the need for
a trading company", and would like to see a statutory recognition
of group accounting.
1.4 We were somewhat disappointed by the
lack of detail in many of the clauses in the bill. Many of the
provisions have been left to secondary legislation and this makes
it difficult for CFDG members to comment on the bill as a whole.
We must emphasise the need for the government to fully consult
the sector on any secondary legislation.
2. KEY POINTS
2.1 Sponsorship and Trading: CFDG
were very disappointed that the draft bill did not include amendments
to allow charities to undertake trading, without the need for
a separate trading company. In our response to Private Action,
Public Benefit CFDG supported the proposals on the grounds that
it would reduce the financial and administrative burden and in
reality it should be of no higher risk than is currently the situation.
If the joint committee is not willing to allow this clause, then
we urge the Government to revise rules on sources of income such
as sponsorship. We do not believe that this area of "trading"
impacts on any competition issues nor does it face any of the
risk issues discussed below in annex 1. We therefore request that
the Government allow funds from sponsorship, which are effectively
donations, to be received directly by the charity.
2.2 Group Accounts: If the provisions
for audit thresholds contained in the bill are to have any consistency
then there must also be a statutory provision for group accounts
included in the draft bill. The Charities Act 1993 is based on
the premise that charities produce entity or individual accounts.
This is out of date and the new Act would be flawed if it failed
to address this issue. (see annex 1)
2.3 Fundraising: The lack of detail
and definitions in the various provisions on public collections
need to be addressed. Clear central guidance is needed and definitions
should be statutory in nature.
2.4 Other issues: CFDG welcomes the
raising of the audit threshold to £500,000 of gross income
of a charity, and the relaxation of the rules allowing the spending
of endowments.
3. CONSIDERATION
OF THE
DRAFT CLAUSES
The Charity Commission [Chapter 1]
3.1 CFDG are generally supportive of sections
4 and 5 of the bill relating to the Charity Commission, however
we have a couple of concerns about some of the proposals and the
debate currently surrounding them.
3.2 The new 1A (3) states that the Charity
Commission will exercise its powers on behalf of the crown. CFDG
seek further clarification regarding the lines of accountability
for the Charity Commission and reassurance that this does not
represent a risk of greater political interference.
3.3 CFDG are aware of the concerns and debates
surrounding the Charity Commission and its role as an advisor
and regulator. We sympathise with the concerns of other bodies
that section 20 of the bill extends the Commission's power to
give advice and guidance and that the regulatory and advice giving
roles of the Commission can sometimes become confused, however
if these roles were to be split then we would be concerned about
who would be the appropriate body to take on the advisory role.
3.4 CFDG shares NCVO's concerns about the
proposed regulatory objective 3 for the Charity Commission. This
seems to be an awkward attempt to define public benefit and we
are concerned that charities will find it hard to measure their
social and economic impact. We are also concerned that this represents
an increase in the Commission's powers. We propose that public
benefit should not be defined in law. The Commission should be
mandated to act "fairly" rather than follow defined
legislation.
3.5 It is important that the Commission
has sufficient funding to be able to carry out its updated responsibilities.
Charity Appeal Tribunal [Chapter 2]
3.6 CFDG particularly welcomes the introduction
of an independent tribunal to hear against the Commission's legal
decisions. However we note that not all legally binding decisions
made by the Charity Commission will be subject to the appeal system.
The Charities Act 1993 gives the Commission the power to investigate
the accounts of a charity. Charities will only have a very limited
right to appeal against such decisions. CFDG proposes that all
Charity Commission decisions, including those on accounts, should
be subject to the appeal tribunal.
Charitable Incorporated Organisations [Chapter
3 and Schedule 6]
3.7 CFDG welcomes the CIO in principle,
which could potentially be used as a vehicle to streamline regulation
and clarify areas of ambiguity. However there is a marked lack
of detail in the draft bill. It is very difficult to comment on
the CIO without the following examples of detail:
— Rules relating to insolvency, winding
up and dissolution.
— Charges for converting to a CIO.
— It is not clear whether the CIO will
be a limited liability company.
We propose that the provisions for secondary
legislation for the CIO should be put out to full consultation.
3.8 There is a risk that the CIO might actually
increase the diversity of legal forms in charities rather than
make them uniform. A regulatory impact assessment on how many
charities are likely to become CIO's does not seem possible without
the details of the legislation.
Audit Threshold [Chapter 6]
3.9 CFDG supports the raising of the audit
threshold to £500,000. We also very much welcome the provision
to allow the threshold to be changed by secondary legislation.
3.10 We are apprehensive about the discrepancy
between charitable companies and unincorporated charities (that
are subject to the 1993 Charities Act) in relation to their external
review requirements. The 1993 Act contains the following words
"Nothing in this section applies to a charity which is a
company" in sections 41, 42, and 43. We propose that this
should be removed and there should be a single set of requirements
based on those contained in the Charities Act.
3.11 If the new audit threshold is to have
real consistency and meaning then the bill should make statutory
provision for group accounts (see annex on group accounts). At
present charities can potentially avoid qualifying for an audit
by submitting individual accounts from one section of the charity.
Trusteeship [Chapter 9]
3.12 CFDG strongly supports section 29 of
the bill, which grants the Charity Commission power to relieve
auditors' and trustees' liability for breach of trust or duty.
Our members feel that unlimited liability of trustees' is one
of the key factors against recruiting and retaining trustees.
3.13 CFDG welcomes section 27, which allows
trustees' to be paid for providing services to a charity over
and above their duties as a trustee. However conditions A to D
in clause 73A should be the subject of audit whenever trustees'
are remunerated for providing services to a charity. We are aware
that the issue of whether trustees should be paid has aroused
considerable interest. CFDG does not support the payment of trustees
for trustee services and we are pleased that the bill does not
include provisions for this. We are very satisfied with the current
trustee model, however we are aware that there is debate in the
sector and that the model is not suitable for all charities. We
ask the joint committee to consider whether the European trustee
model or the corporate model might be more appropriate for some
charities. Furthermore, small changes to the Charity Commission
guidance CC11 would allow easy adoption of the corporate governance
model.
Regulation of Fundraising [Part 3]
3.14 CFDG supports the self-regulation of
fundraising. We also support clause 36, which gives the Secretary
of State reserve power to regulate fundraising. However, we would
like to see the objective criteria set out for when these powers
can be invoked, and the process by which representations should
be made to the Secretary of State to intervene. Full consultation
with the sector should take place before the criteria is set out.
3.15 CFDG would like to see the good practice
code referred to in subsections (4) and (5) of section 64A set
out. CFDG supports a single unified code of good practice in line
with Institute of Fundraising and PFRA recommendations.
3.16 Whilst CFDG are strongly in support
of the self-regulation of fundraising, we are keen to ensure that
the relevant regulatory body has some powers of sanction.
Public Collections
3.17 CFDG generally supports these proposals.
At present the proposals lack detail in many areas. We are keen
to see definition and clarification in the following areas:
— There is no definition of a "fitness"
test for the required certificate of fitness.
— There is no definition for "capacity"
and "saturation".
— The maximum licence period is five
years but Local Authorities have the power to grant a licence
for a shorter period. Clear central guidance is required to state
the conditions for a license being granted for less than five
years, otherwise there will be inconsistencies in the implementation
of the scheme.
The details of any secondary legislation should
be subject to full consultation with the sector.
3.18 The loss of the schedule 5 exemption
is a retrograde step for many of our large nationally operating
member charities. CFDG is not opposed to this amendment, but we
do seek further guidance for our members.
3.19 We are concerned about the definition
of public place and its extension to cover places such as supermarkets
and station forecourts. This could have a disproportionate effect
on small charities.
3.20 We are concerned about the increased
amounts of administration that will be created by the requirement
to notify for the collection of goods. We support the Institute
of Fundraising's submission recommending that charities notify
their intention to collect over a six month period in a specific
area, rather than specify precise dates.
3.21 CFDG strongly supports the relaxation
of the rules requiring an audit certificate. This provision will
lead to a welcomed reduction in bureaucracy.
3.22 We are concerned about the effect of
the unified system for public collections on Local Authorities.
The requirement to issue certificates of fitness, permits to collect
and to maintain a diary of collecting activity will bring enormous
pressure on such bodies. We urge the Government to consider this
extra bureaucratic burden and support Local Authorities if, and
when the bill becomes law.
Mergers [Chapter 11]
3.23 CFDG supports the measures to enable
charities to merge contained in clause 34. However, whilst we
welcome the ongoing guidance and consultations in progress through
the Charity Commission in the area of collaborative working, we
would like to state that charities still face considerable difficulties
when trying to obtain advice on mergers.
Power to spend capital
3.24 CFDG welcomes the relaxation of the
rules allowing the spending of endowments. However, in line with
our response to Private Action, Public Benefit, we would like
to see the de minimis limit for conversion set at £25,000.
3.25 We very much welcome the provision
to allow the threshold to be changed by secondary legislation.
Cy Pres [Chapter4]
3.26 Giving the Commission powers equivalent
to the court in section 14 is a welcome saving in time and costs.
However, the element of reasonableness in 14(4) of the 1993 Act
does not apply to the proposed new 14A and we are concerned about
the financial and administrative implications of the new 14A(5).
We can see that there could be disputes over what constitutes
the property to be returned, or its value, under the definition
in 14(10) which may be avoided by amending to read "property
in question (or a sum equal to its value at the time of the gift)"
where appropriate. We expect the regulations to be widely consulted
upon.
3.27 We again doubt the ability of charities
to demonstrate their social and economic impact. (14B(3)(c))
June 2004
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