DCH 138 PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Southwark Towers
32 London Bridge Street
London SE1 9SY
Telephone +44 (0) 20 7583 5000
Facsimile +44 (0) 20 7822 4652
Direct Fax 0207 213 5221
21 June 2004
Draft Charities Bill published May
2004
Submission by PricewaterhouseCoopers
LLP to the Joint Parliamentary Committee
At PricewaterhouseCoopers we are committed
to the charities and not-for-profit sector and welcome the opportunity
to comment on the draft Charities Bill, the objectives of which
we fully support.
Overall, we agree with the majority
of the amendments contained in the draft Bill. Our comments on
the amendments are set out in the attachment to this letter. We
responded in detail to the consultation on the recommendations
proposed in Private Action, Public Benefit. Therefore,
we have restricted our comments below to the areas in which we
have more significant concerns. In addition, we have contributed
to the consideration of the draft Bill through membership of the
Charities Sub-Committee of the Institute of Chartered Accountants
in England & Wales and by engaging with our wide range of
clients and contacts in the sector.
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 £1m 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 & 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.
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