DCH 343 Higher Education Funding Council
27 July 2004
Francene Graham
Scrutiny Unit
Committee Office
House of Commons
7 Millbank
London
SW1P 3JA
Dear Ms Graham
Draft Charities Bill
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.
Yours sincerely
Sir Howard Newby
Chief Executive
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