REVIEW OF 2008
The last year has been a busy one for the charity sector. The financial turmoil and the consequential need to plan for uncertain times have occupied Trustees and continue to hold their attention. Trustees have become acutely aware of their responsibility to be financially prudent and to make risk assessments when investing and managing funds. The ‘role’ of risk is discussed later in this newsletter.
Charities are not immune to financial collapse, as the case of One Plus clearly illustrated (OSCR’s Report into the collapse of that charity was published in May 2008). Following the worldwide economic difficulties, the dilemma of where next month’s running costs come from is even more pressing for many charities now than it was.
OSCR had a busy year and published a number of reports and other items. The References in Documents Regulations came into force in April 2008 with little fanfare. Later in the year, interest in OSCR and charity regulation was much greater, as across the country, and in all sectors of the media, headlines were grabbed by OSCR’s Rolling Review Report and its assertion that some private schools had unduly restrictive conditions and consequently failed to satisfy OSCR’s requirements.
What was often overlooked was that six charities ran into difficulties with OSCR because their governing documents still referred to the definition of ‘charitable purposes’ used under the ‘old’ law; while one charity had purposes that no longer met the definition of ‘charitable’ and one charity was subject to ministerial control. This highlights the importance of charities reviewing and updating their governing documents to ensure that they meet current requirements and are fit for purpose.
At their annual conference at the end of 2008, OSCR announced that they have asked the Government to amend the charities legislation in order to deal with some of the issues raised by the Rolling Review and particularly the difficulties caused by charity documents which refer to the ‘old law’.
In light of the Rolling Review, OSCR also published a revised guidance on ‘Meeting the Charity Test’. However, the issues of ‘facilitated access’ and the role of means-testing of beneficiaries remain to be drawn out further. It may be that the private schools directly affected by these considerations are able to engage with OSCR to produce more definitive guidance in this area.
OSCR also monitored (and continues to monitor) levels of compliance by charities. A number of studies and reports were published. The charity sector in Scotland is one of extremes – a small number of very large charities and a large number of small charities. However, levels of compliance are improving as OSCR becomes firmer with charities and more stringent in its requirements.
The Future
The idea of the Scottish Charitable Incorporated Organisation (SCIO) continues to hover in the charity sector. The Government is still consulting on the matter (Balfour + Manson have been involved in the consultation) and the SCIO will not be available before 2010 (that is a very optimistic date). There are a number of complex and significant issues still to be resolved in connection with the SCIO and the detail of how it would be structured and registered. No unincorporated organisation in the charity sector should be ‘holding off’ incorporating as a company in the hope that the SCIO will become available and will provide all the answers.
The Fundraising Regulations are also still awaited, although it is anticipated that they will see the light of day in the not too distant future.
The cross-border charities (registered in England & Wales and also in Scotland) continue to raise issues. OSCR consulted on a proposal for a ‘lighter touch’ monitoring regime for those charities which are dual registered (Balfour + Manson took part in the consultation). It is to be hoped that this proposal becomes a reality.
The charity sector is now very aware of OSCR and has, in the main, acclimatised to the new regime. However, with more regulations still to come and new terms such as ‘disbenefit’ and ‘unduly restrictive’ yet to be fully explained and drawn out, the new landscape for charities is not fully formed.
GIFT AID
Gift Aid is a way for charities to increase the value of donations made to them by UK tax payers. The charity is able to claim back the basic rate tax paid to HM Revenue & Customs by the donor. HMRC has produced a ‘Gift Aid Toolkit’ on CD-ROM to help charities with their Gift Aid schemes. The toolkit offers a beginner’s guide to Gift Aid and provides a step-by-step guide to help charities understand the rules of Gift Aid, keep the correct records, fill in the forms and apply to HM Revenue & Customs for a Gift Aid repayment. For your free CD-ROM, contact HMRC at www.hmrc.gov.uk/charities, email charities@hmrc.gov.uk or telephone 0845 302 0203.
SCAP SCRAPPED
In November 2008 the Scottish Government announced the abolition of the Scottish Charity Appeals Panel (SCAP). SCAP has only been in existence for two years but is being abolished as part of the Government’s wider review of such ‘scrutiny bodies’. The Government does not know what will replace SCAP. A consultation on the future options will take place in due course. Until a replacement body is created, SCAP will continue in its role.
SCAP was created by the Charities and Trustee Investment (Scotland) Act 2005, which also created OSCR. To do away with SCAP, the Act will have to be amended. This would be an ideal opportunity for the Government to also address other matters which would require amendment of the Act.
CHARITY TRUSTEES AND RISK
The recent turmoil in financial markets demonstrated a risk which many Charity Trustees, and indeed individuals, have probably not previously considered – the possibility that the bank which holds their funds may fail. However, this is what has happened for some charities and local authorities, as well as individuals, with the failure of Icelandic banks. UK investors in these have by concession been brought into the Financial Compensation Scheme. However, that scheme only covers to a limited extent individuals and smaller companies, and it certainly appears to be the case that some of the charities concerned will not be covered.
OSCR advises that while it “is aware of the potential long term impact of the global financial crisis on charities … OSCR cannot advise charities on an individual basis”. So what should charities do?
Risk cannot and should not be eliminated entirely. It may be necessary for a charity to take some risk to fulfil its purpose. Risk needs to be recognised, assessed, accepted and managed and the duty to do this falls on the Charity Trustees. If a proper assessment is undertaken and compared to the benefits to be obtained then it is justified.
What areas might a charity need to bear in mind in addition to the banking risk referred to? It is not possible to produce a definitive or exhaustive list because the sector is so wonderfully diverse. The questions Charity Trustees need to be asking themselves are ‘Where could this go wrong?’ and ‘How do we minimise and manage that?’
Here are some areas which we believe Trustees need to consider:
- constitutional structure and registration
- copyright
- data protection
- trading and tax
- property owners liability
- health and safety for employees, volunteers and beneficiaries
- employers obligations to employees
For more information on any of the above please contact Colette Burden, our specialist charities solicitor, colette.burden@balfour-manson.co.uk
