Posts tagged ‘Charity Commission’

The legislation enabling charities to use the “new” Charitable Incorporated Organisation (CIO) structure was laid before Parliament last October and is being slowly implemented during 2013.

The journey

Houses of Parliament, London, EnglandThe concept of a “simple” corporate structure was identified and debated when the Charities Act 1992 was first published and the CIO proposal developed during the late 1990’s.

The Home Office submitted a white paper entitled “Charities and Not-for-Profits: A Modern Legal Framework” in 2003 and the CIO structure finally became law as part of the Charities Act 2006, but it wasn’t until Lord Hodgson published his five year review of the Charities Act 2006 in 2012 and the Charities Act 2011 was issued that Parliament passed the CIO regulations for England & Wales and the Charity Commission could begin registering CIOs.

Still relevant?

The length of time taken to get to the current “implementation phase” has however dampened the initial enthusiasm for this new structure that enables Trustees to manage the activities and assets of the charity as a separate legal entity and benefit from limited liability, in the same way as a corporate entity, but without the need to comply with Company law.  I can see that this may be a reasonable option for a new organisation, but for existing charitable organisations (registered or not) I have yet to be convinced that the benefits outweigh the hassle, and if any form of finance is required, I don’t see it as an option at all.

Luton airport queues noticeSo far…

During January to May 2013 a mere 200 CIO’s have been registered, which I believe is partly due to the rather extended phased implementation, set out to assist the Charity Commission in dealing with the anticipated workload, but more likely the confusion over the tangible benefits of the new structure.

The future…

In 2014, Charitable Companies and Community Interest Companies (CICs) will be able to apply for CIO status, but considering the painful conversion process and the lack of understanding, particularly for those with debt finance, I doubt that the Commission will be dealing with a huge rush.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

Trustees Liability

In the past trustees have been worried that they may be personally liable for mistakes they make which put charitable assets at risk.

The Charities Act 2006 (which is still being implemented in phases) introduces two small but important changes.

Indemnity Insurance

If trustees act prudently, lawfully and in accordance with their governing document, then any liability trustees incur may be met by the charity’s resources.

Charities can take out insuracne to cover such circumstances.

Any breach of trust will result in the trustee being personally responsible fpr making good any loss to the charity.  Since trustees are acting  as a collective governing body, they will usually be jointly and severally responsible.

Personal Liability Insurance

Risk is when an outcome’s probability is known. Uncertainty is when an outcome’s probability is unknown.Trustees are now able to procure trustee indemnity insurance using the charity’s funds, to protect them from personal liability to third parties.  This is still deemed to be a trustee benefit but it is no longer a requirement to gain permission from the Charity Commission provided that the governing document does not prohibit it.

Fair use of charitable resources?

Trustees need to consider the nature or the charity’s activities, the degree of risk to which the trustees are exposed, the number of trustees to be covered and the cost to the charity of paying the premiums when deciding whether insurance is a good use of resources.

Of course, there is nothing stopping trustees from arranging and paying for their own policies.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

One of the key roles of the Charity Commission is to encourage charities to adopt good practice.  They have set out six clear principles to communicate their definition of an effective charity in their guidance booklet CC10.

For a full copy of this guidance click here.  In brief, these ‘hallmarks’ suggest that a charity that is effective and well governed

  • Is clear about its purposes, mission and values
  • Has a strong, clearly identifiable board or trustee body that has the right balance of skills and experience
  • Is fit for purpose i.e. is structured appropriately to deliver efficient services
  • Is continuously learning and developing to maximise the impact of its work
  • Is financially sound and prudent.  It controls the use of valuable resources to maximise its potential
  • Is accountable to the public and its operations are transparent and understandable to all stakeholders.

It is the Trustees’ responsibility to ensure these hallmarks are in place.

In May 2010 the Scottish Charities Regulator reported that Charities with fewer trustees are more likely to fail.  Obviously quality of Trustees is a more important issue than quantity, but effective recruitment and retention of skilled and dedicated Trustees is imperative.

If your organisation needs assistance in developing these key principles or would like an audit of its effectiveness, please get in touch.  I use my own experiences as an accountant and auditor working in the 3rd sector in conjunction with sourcing highly skilled professionals from my business network to create a bespoke solution.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

History and culture has fuelled belief that Trustees can not be paid for their time, expertise or services rendered.  Whilst they should not be paid simply for acting as a Trustee, Chapter 9 of the Charities Act 2006 includes a statutory power that allows trustees and connected persons to be remunerated for goods and services they provide to the charity, subject to specific safeguards being in place to prevent abuse.

The biggest stumbling block is the governing document. 

As many charities were formed prior to the 2006 Act, standard clauses are often included in incorporation documents, constitutions or trust deeds that specifically prohibit trustee remuneration.  Obviously, this needs to be overcome before any further consideration can take place.  Amendments to governing documents are often complicated and time consuming due to their ‘public’ nature and may need to be approved by the Charity Commission.  Read guidance.

Safeguards

Assuming such a clause does not exist, the safeguards specifically mentioned by the 2006 Act are:

  • The trustees must demonstrate that they have consulted Charity Commission guidance and have decided that it would be in the charity’s best interest for the services to be provided by the trustee/connected person.
  • There must be a written agreement between the individual and the charity recording the terms of the arrangement and specifically the amount of remuneration agreed.  The individual being remunerated must not be involved in any decisions or other matters related to this agreement.
  • The amount of remuneration agreed to be paid by the Trustees must be reasonable for the level of service being provided.  In other words, there needs to be evidence that the Trustees are utilising resources in a commercial manner.  This is a key principle of Trusteeship.
  • Only a minority of Trustees can be remunerated in any form.  So if there is a small Board, take care.

A charity trustee should not be in a position where any personal interest may conflict with their role as a trustee.  They should not benefit directly or indirectly from their position whether through payment in money or benefits in kind.

A working example

A small charity has a part time bookkeeper who reports to a practicing accountant on the Board of Trustees. 

In order to qualify for a grant, the charity has been asked to put together a departmental cash flow forecast and some projected profit and loss accounts.  Obviously the person best placed to do this would be the Trustee as they understand the organisation and the requirements of the grant making body and have the relevant competancies, but they do not have the time.  They are in business full-time and offer their experience and personal time as a Trustee, for emotional motives. 

In the past, the Charity would have no choice but to engage an accountant to carry out this task, incurring professional fees, probably at full market rate as well as investing time to properly seek out, appoint and brief the professional.

The 2006 Act, acknowledges that it would make sense to engage the practice that their Trustee is involved with as this would be efficient and fees may well be negotiable.


In my view, this is a positive step towards making the 3rd sector more commercially aware, something I am passionate about.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

When working with charities, the question I get asked the most is “is our TAR detailed enough?” as they naturally do not want to expose all, yet they appreciate that this is a key document that is clearly defined by the SORP 2005 and is crucial in demonstrating compliance with the public benefit tests (see previous blog post ‘Public benefit – your best defence…’)

To answer the question directly the report should:

  • be about 4-6 pages of A4 print, font 11 for a small to medium sized organisation
  • clearly explain how the organisation fulfils it’s objects and adheres to it’s governing document
  • use plain English and refer to the accounts to which it is attached, but not regurgitate the accounting information
  • use the prescribed format set out in the SORP.  i.e. use the 7 key headings.

For those who are not familiar with the SORP 2005, these prescribed headings are:

  1. References and administrative details of the Charity, its Trustees and advisers
  2. Structure, Governance and Management
  3. Objectives and Activities
  4. Achievements and Performance
  5. Financial Review
  6. Plans for future periods
  7. Funds held as a Custodian Trustee (if appropriate)

Model reports are available on the Charity Commission Website  http://www.charity-commission.gov.uk/

Some key points that are often missed

  • In paragraph 2 explain how trustees are recruited and outline the policies for induction/training of trustees.  Mapping the skills of the board and recruiting to fill skills gaps is a sign of great governance.  If your organisation has carried out this exercise, brag!
  • When explaining to the reader your objectives, paragraph 3, focus on the positive impact significant activities have had and explain how they have contributed to the achievement of the stated objectives.  If the organisation is grant making, ensure the policies are explained and if volunteers are utilised, readers need to understand their role and contribution.  If possible, quantify this in terms of hours, locations etcetera
  • bs00876aPerformance, paragraph 4, should identify milestones and KPI’s so that achievements can be benchmarked against objectives.  The public are keen to know the percentage of resources allocated to overheads, they need to understand the ROI i.e. impact per pound of funds raised.  This is obviously difficult to quantify as many of the aims are emotional, not financial, but trustees should not shy away from trying.  I have often seen larger, national charities measure their impact in terms of taxpayers money saved.
  • The financial review needs to look at each fund and state the principle financial policies adopted.  Take time to clearly explain the reserves policy in particular as the Charity Commission will be monitoring this.  Make comment on how the current years performance and the current activities effect reserves.  Also, outline any financial commitments such as borrowing or obligatory grants.

This list is not exhaustive, but I hope I have set out the key points, please call me if you would like to discuss your TAR or would like me to review your draft.  Please note however, that an auditor can not write this report for you so please don’t ask!

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

Please see below a message sent from the Executive Director of Charity Services on 23rd October 2009 about the importance of meeting deadlines despite the current postal disruption.

GH_logo_notag compressedAt George Hay we endeavour to file as much as possible online to the Commission, Companies House and H M Revenue & Customs and have done for many years.  We believe this provides a better quality service to our clients as well as mitigating costs by reducing resources.  www.georgehay.co.uk


Dear Sir

Online Service and Postal Disruption

I am contacting to you as a professional advisor of charities.  In light of the postal strike the Commission is reminding all our key customers of the services that can now be carried out on line and to strongly encourage you to use e-mail when contacting us.

The Commission has conducted research which indicates that approximately one-quarter of all its ‘hard copy’ post emanates from a professional adviser. In the majority of instances this post could have been sent to us by e-mail or through our website. We have to arrange for letters and documents to be scanned and this inevitably increases our administration costs and causes delay.

The Commission has been growing its online services in recent years and there has been an increasing uptake by our customers who value the swift service this can guarantee. The following services are offered online as an alternative to submitting hard copy:

  •  Filing of Annual Returns;
  • Filing of accounts and Trustee Annual Reports;
  • Registering changes to the composition of a trustee body;
  • Applying for registration online. It currently takes an average of 12 days to register a charity over the internet, with the same process via postal applications taking around twice as long on average.
  • Online publications. The online versions of our publications are the most current whereas some hard copy may not have been recently revised.

Using the Commission’s online services speeds processes up for our customers, and even where the enquiry does not relate to an online service we are generally able to act upon an e-mail more quickly than with ‘hard copy’. We can reply to most e-mail enquiries inside 5 days. This means that you can provide a quicker service to your clients.

Finally the Commission also offers template forms for a variety of actions your clients might take. These include amending their governing document; applying for authority to pay trustees; vesting land in the Official Custodian and dissolving a charity. Because the information requested is standardised we can consider applications on these forms more quickly than when they are contained in a letter alone.

The following link will take you to the landing page where these forms are housed: http://www.charity-commission.gov.uk/common/applyforit.asp

If you have documentation to send the Commission, you can attach this to your e-mail and send to the Commission at:   enquiries@charitycommission.gsi.gov.uk

I hope that this information is of help to you

With best wishes,

Yours sincerely  

David Locke

Executive Director of Charity Services

Charity Commission for England and Wales

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

The Charity Commissioners have been quite public about their detailed and sometime rigorous reviews of registered charities’ compliance with their public benefit tests.

The two key principles of this imperative test being:

support tree1. There must be an identifiable benefit (or benefits)

It must be clear what the benefits are, how they relate to the aims of the organisation and they bust be balanced against any detriment or harm.

2. The benefit must be to the public (or section of the public) 

The beneficiaries must be appropriate to the aims.  If a section of the public is the target, the opportunity to benefit must not be unreasonably restricted by geography or ability to afford fees etc.  People in poverty specifically must not be precluded from the opportunity to benefit and any non-public benefit should be incidental.


The implications of losing charitable status are huge.  Not only would the loss affect public confidence and therefore the ability to raise funds, but H M Revenue & Customs have the right to ‘unwind’ tax exemptions claimed in the past six years which could create liabilities that would simply end the organisation’s ability to continue.

If you would like to see some of the Commission’s “Emerging Findings” reports, take a look at their website.  http://www.charity-commission.gov.uk/publicbenefit  You will notice that they seem to be targeting fee charging schools as they are suggesting that offering a few bursaries to good students that can not afford to attend, does not constitute ‘public’ and is not going far enough to remove restrictions, but all charities are susceptible to this review.

Any charity with annual income above £25,000 (effective for accounting periods commencing 1st April 2009) must attach a Trustees’ Report to their financial statements and file these with the Commission with in 10 months of the accounting year end.  For incorporated charities this is in addition to the required Directors report.

This report is in my view, the best defence against a review as it gives the Trustees the chance to explain the activities of the organisation in both financial and non-financial terms as well as stating the aims, objectives and policies of those charged with governance.  It should tell the ‘story’ of the charity for the year giving those who are not trained in business the ability to understand how the charity is performing and the impact it is having on the public.

Much of my time spent working with trustees of charities revolves around this key report, guiding and advising them on structure, essential disclosures and helping them to explain the accounts and performance of their organisation.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.