DCH 49 LITTLEJOHN FRAZER
CHARTERED ACCOUNTANTS
Ms F Graham OUR
REF: SAM/ CJB
YOUR
REF:
Scrutiny Unit
Committee Office
House of Commons
7 Milibank
LONDON
SW1P 3JA
14 June
2004
Dear Ms Graham
Draft Charities Bill -
May 2004
We write in order to make representations
on the question of exempt charity schools to the Joint Committee
which is considering the draft Charities Bill. Under Schedule
2 of the Charities Act 1993, grant maintained schools, as established
under the Education Reform Act 1988, were listed as exempt charities.
As exempt charities, they were not required to comply with Sections
41-45 of the Charities Act 1993 referring to accounts, reports
and returns. The obligations of the 'Trustees' (ie the Board of
Governors) were set out in Section 46, being to maintain books
of account and prepare periodic statements of account for periods
of not more than 15 months, and a balance sheet as at the end
of each period. Until 1997, grant maintained schools were regulated
by the Funding Agency for Schools, which additionally required
the schools to prepare annual accounts in a prescribed format
showing a true and fair view and to have these audited in accordance
with Auditing Standards.
With the demise of grant maintained
status, grant maintained schools were required, under the School
Standards and Framework Act 1998, to opt for foundation/voluntary/foundation
special, or community/community special school status. Those opting
for foundation, voluntary or foundation special school status
remained as exempt charities regulated, via Ofsted in the main,
by the Department for Education and Skills (DfES). Effective oversight
of the schools reverted to Local Education Authorities.
During the period within which grant
maintained schools were operational, we acted as auditors to between
35 and 40 schools in the south east of England. With the passage
of the School Standards and Framework Act, many of our school
clients decided to dispense with the annual audit exercise as
this was no longer a requirement of either their Local Education
Authority or, in its regulatory capacity, the DES. Those schools
that have retained us as auditors have done so at the request
of their Governing Bodies, and continue to prepare accounts showing
a true and fair view but in the format previously required by
the Funding Agency for Schools (ie they do not comply in full
with the Statement of Recommended Practice, Accounting and Reporting
by Charities -
the Charities' SORP). We currently
act for nine schools in this capacity, roughly one quarter of
our previous group.
The proposal in the draft Bill is that
all exempt charity schools under the Schools Standards and Framework
Act (a total of 8,300 according to Annex A of Chapter 4 of the
explanatory notes to the draft Bill) would be required to register
with the Charity Commission and to adhere, inter alia, to the
sections of the Charities Act that relate to accounts and audit
requirements. No doubt the Commission would oblige the Schools
to comply in full with the requirements of the Charities' SORP
and to prepare accounts in the required format.
We believe that the requirement for
exempt charity schools to register would result in the following:
- Additional cost to the schools
- audit
fees would be incurred by the schools and would need to be funded
from the individual schools budgets or from the LEA central education
budgets, reducing amounts that would otherwise be available to
individual schools, assuming no "new money" from central
government. We believe that these costs could be in the order
of at the very least £2,500 per annum per school, some £20
million overall.
- Differences in reporting -
the Consistent Financial Reporting
(CFR) Returns to LEAs are not in themselves sufficient for the
purposes of producing 'true and fair' financial statements in
accordance with the Charities Act. A separate exercise to prepare
these financial statements would need to be undertaken and the
income and expenditure account and balance sheet reformatted.
- Charities' SORP requirements -
voluntary and foundation schools
do not capitalise their fixed assets, which is a significant departure
from the SORP but is consistent with LEA practice for all schools.
The cost of requiring these schools to change their accounting
policy in order to capitalise fixed assets would be considerable
and inconsistent with reporting requirements to LEAs. There are
other potential areas of difficulty, for example employee remuneration
bands, which would require the effective disclosure of the headteacher's
salary. The move towards such a disclosure was resisted very strongly
by headteachers when proposed by the Funding Agency for Schools
some years ago and was never introduced in the financial statements
of grant maintained schools.
If it is beneficial to impose more
rigorous accounting and audit requirements on state schools, it
does not appear to us to make sense to do this for some but not
for all such schools. The funding and control of foundation and
voluntary aided schools is fundamentally the same as for community
schools (notwithstanding the Governors' contribution towards costs
in voluntary aided schools). It does not seem logical for a significant
proportion of the total state school population to be regulated
in some respects by the Charity Commission (auditing and reporting)
and in others (principally educational) by Local Education Authorities
and the DfES.
We do hope that further consideration
is given to this proposal and, in particular, that individual
schools, as well as the DIES, are consulted. Whilst we have acted
and continue to act for a number of schools at the request of
individual Governing Bodies, that is a matter of
Governors' choice. We do not feel that
the case has been made for imposing additional regulation and
cost on all foundation and voluntary aided schools, if it is not
similarly to be applied to all state schools.
Yours faithfully
Littlejohn Frazer
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