DCH 57 Calcutt Matthews, Chartered Accountants,
Registerd Auditors
M E M O R A N D U M
To: The
Joint Committee on the Draft Charities Bill - By e-mail: scrutiny@parliment.uk
CC:
Francine Graham - Scrutiny Unit,
Committee Office, House of Commons, 7 Millbank, London SW1 3JA
From: Nick
Hume, Charities Director - Calcutt Matthews, Chartered Accountants
Subject: Amendment
to Section 43, Sub-Section 2, Removal of the requirement to expenditure
of a Charity as a criterion for whether a charity should be audited
Date: 14th
June 2004
Dear Sirs
We welcome the Bill in particularly
the CIO legislation. This should resolve the unwelcome overlap
with Companies House and occasional lack of understanding from
the Corporation Tax Department of the Inland Revenue.
We do however object to the deletion
of the amendment to sub section 2 proposed. The introduction
of the 1993 Act of a test for the need for audit on the basis
of income and expenditure was initially questioned. We now however,
feel that assessment is more valid when using expenditure than
it is income. Whilst the directors of a commercial organisation
are motivated by profit and therefore increasing the top line,
turnover and by definition income, charity trustees are motivated
by expenditure and what they can do with the funds of a charity,
converse to a commercial organisation. It seems therefore more
appropriate if one or the other of the income or expenditure references
is to be dropped in testing the need for an audit that we recommend
that income be dropped. However, we maintain that the definition
should be based on all of income, expenditure and the new assets
definition as they have relevance to different types of circumstance.
It would be quite bizarre in our opinion
if a charity with an income of £450,000 and assets of £2.7
million undertake specific expenditure exceeding £500,000
in a particular year and the trustees receive no credibility check
from an audit as to whether funds had been expended in accordance
with charitable purposes. Given that charity's need to explain
their reserves we would never envisage a ridiculous situation
where income would be below the threshold but expenditure exceed
for instance £2 million, however, it is quite conceivable
that a charity may spend a sum that the public assumes has been
applied for charitable purposes but actually as a result of no
audit being carried out, been paid to officers or other parties
and is reported as direct charitable expenditure. For instance,
consider a fictional charity with the objective to care for orphaned
children in Romania. If there were to be a further humanitarian
crisis in Romania then the charity may seek to apply all of its
income for that year and significant reserves just so as to help
with the crisis. Insufficient internal controls may be imposed
in order to ensure that relief got to Romania in good time. This
is exactly the kind of situation where if a charity was not subject
to an audit because income was below £500,000 but expenditure
was significantly above, that a scandal could result.
We would therefore suggest that the
joint committee reconsiders the need to insert a test by expenditure
in considering the need for a statutory audit.
Our Firm
Calcutt Matthews is a small charity
specialist firm, which acts for 3 Charities from the top 250 in
the U.K and a number of other smaller charities.
N M Hume FCA
Signed on behalf of Calcutt Matthews,
Charities Unit
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