Charities Act 2006 review

Comments from ACCA to the Office for Civil Society of HM Treasury, 16 April 2012.

General comments

ACCA is pleased to respond to the call for evidence for the Charities Act 2006 Review, by the Office for Civil Society of HM Treasury.

ACCA is a professional accountancy body which operates on a global basis. We currently have 147,000 qualified members and 435,000 students training for the ACCA qualification. In the UK we have 64,000 members and 79,000 students.

ACCA itself is not a charity, but many of our members are trustees of charities, work for charities or work in professional practice with charities as clients. This consultation was considered by ACCA’s Charities Panel which is a group of our members from the sector. I am writing to give you their views. 

This letter contains responses to four of the specific calls for evidence that were published.

Reporting and accounting challenges for charities

Question 1: Do you think that the current thresholds at which charities have to send their accounts and Annual Reports to the Charity Commission are set at the right level? Should smaller charities have to comply, so that their information can be made available to the public as well?  Or should the threshold be raised, so relaxing the requirement for other charities?

We consider that these are set at about the right level currently and would not therefore suggest any changes in the thresholds for now. For all charities of whatever size the key objective should be transparency about the money received from the public for the benefit of others. Ideally that would be for their annual accounts to be in the public domain via the Charity Commission (CC) or available via the charity’s own website. 

In our view there are considerable advantages to having the accounts of maximising the accounts available via the CC:

  • It forms a central registry instead of via the individual charities
  • There is added credibility given to the accounts

We accept that there is a balance to be struck in terms of costs and effort for very small charities and also for the CC in handling and registering more accounts. The current thresholds seem to strike that balance fairly.

Question 2: If you are a charity, do you think the regulatory burdens around accounts and reports (preparation, scrutiny, and/or submission) are too onerous?  Could the burdens be lightened without putting at risk public confidence in the sector?

ACCA is not a charity but our response represents the views of our members who work for many charities. The requirements for accounting and reporting are not onerous burdens. Transparency in this regard is of the greatest importance for the public’s confidence to continue to donate and the benefits of transparency are likely to comfortably exceed the costs.

There may be scope for the threshold for accruals accounting to be raised to an annual income of £500,000 to align with the audit threshold. However for this to happen, the CC would need to be given the authority to specify the content of receipts and payments accounts. We regard as anomalous the current situation where the CC must register such accounts but cannot as a regulator specify their content.

Question 3: Do charity accounts and Annual Reports provide the information the public and other stakeholders need about a charity? How could the presentation of information be improved?  Do you have any other comments on the preparation of charity accounts and reports?

On the whole we consider that the accounts and annual reports do provide much useful information and go most of the way in achieving the transparency objective that is so important for the on-going health of the sector.

In many cases the distinction between restricted and unrestricted funds can be very significant and in our experience is not always given sufficient prominence in the accounts of charities.

Question 4: Is it useful for charity information including accounts and Annual Reports to be available through the Commission’s website?  Have you ever tried to find these documents through the Commission?  Did the information meet your needs?  Is there other information that should be available on the Commission’s website?

Yes. See our response to Q1 above.

In terms of presentation and access to the financial information on the CC’s website, it may be useful for charities to be capable of being sorted by their field of operation – for example by heritage, animal welfare, medical research etc. Accessing information based on the charity’s registration number is not very well done on the CC website.

Question 5: Are the scrutiny requirements for charity accounts proportionate and set at the right levels?  Do you have any comments on the requirements for independent examination or audit of accounts, or the various financial thresholds at which different requirements apply?

We are concerned that there may be a significant gap between the public’s perception of the degree of scrutiny by the CC and the actual level of scrutiny by them given the resource constraints that they have been forced to operate within. We would like to see the resources and scrutiny increased.

In our view the independent examination needs to be reconsidered. The “qualified” examination (above an income threshold of £250,000) risks falling between two stools – not being the more widely recognised audit benchmark and not being the mostly cost-free and clearly “amateur” examination below that level. We recognise there is a balance to be struck here between the value of some form of scrutiny, the perceptions of the level of assurance given and the costs involved. There is also a case for aligning the thresholds as much as possible to reduce regulatory complexity. As noted in our answer to Q2 above the threshold for audit and for accruals accounts is a possible case in point. 

There is some concern that registered auditors who are not experienced in dealing with charities are not carrying out a very satisfactory audit.

Question 6: Did you know that a charity must provide its accounts and (unless it is unregistered) its Annual Report to any member of the public who asks for it? Have you ever asked a charity for these documents, or looked for them on a charity’s website? If you are a charity, do you make them available on your website, if you have one?  


Question 7: Are there other ways to make the information contained in charities accounts and Annual Reports available to the public? For example, should charities publish them on their own website, if they have one?

Yes the accounts should be published on a charity’s website.

Question 8: What sanctions should there be for charities that fail to submit accounts and Annual Reports to the Commission within ten months of the end of their financial year?  Is “naming and shaming” enough?  What other sanctions would be appropriate, for example fines, suspension of registered charity status, or suspension of access to charity tax exemptions and reliefs?

We see no reason why charities (who accept money from the public and who enjoy tax reliefs) should be treated more leniently than private companies who do not. So we would support a system of late filing penalties to be levied by the CC and retained by them together with the ultimate possibility of suspension, in the same way that Companies House does.

Question 9: Do you have any other comments on the accounting and reporting requirements that apply to charities?


The Charity Commission

Question 1: 

(a) Should the Charity Commission remain as a non-Ministerial Government Department?  

(b) If you think there is another structure/status that would be more appropriate, please give details and reasons why it would be better.

We are not aware of any reason why the CC should need to change its status, unless this would allow it to generate and retain more income to expand its activities. It is important that the CC remain an independent regulator.

Question 2: Is the Charity Commission an independent, fair, open and proportionate regulator?  Is it an effective regulator?  Please explain your reasoning, backed up with examples or case studies where possible.

Yes, within the bounds of effectiveness imposed by the resource constraints placed upon it. 

Question 3: What changes, if any, should be made to the Charity Commission’s objectives, functions and duties?  Please explain your reasons for any change. 

We do not think that any changes are needed, other than those noted below for example in response to Q6.

Question 4: Do you think the Charity Commission is properly discharging the objectives, functions and duties as set out in this call for evidence?  If not, please give reasons and practical examples. 

Yes, within the bounds of effectiveness imposed by the resource constraints placed upon it. There is a public perception that the CC closely monitors the ongoing activities of charities and their trustees. We expect that there is a significant gap between those perceptions and the reality of the CC’s supervision, constrained as it is in terms of resources.

Question 5: Do you think that the Charity Commission should be a regulator (a rule enforcer) or a “friend” (an adviser) or both?  Can these roles be combined?  Which role is most important?

We consider that both roles can be combined.  Ultimately the CC most important role is to maintain the public’s confidence in the charity sector, whether this is by regulation or by providing best practice and guidance to the sector on how to better comply with regulations and public expectations. In general this is in any case the most efficient and effective approach to regulation, rather than simply to investigate and correct defects in performance after the event. 

The role of advising and supporting charities can be principally directed to smaller charities. There will be more scope for the CC increasingly to do this in via generic guidance on its website and moving away from specific one-to-one guidance provided to individual charities.

Question 6: Should the Charity Commission charge for its registration and regulatory services to charities in the same way as most other regulators do?  If not, why not? If so, on what basis

(a) just a one-off registration fee; or

(b) a registration fee and additional fees for services provided by the Commission e.g. grant of a scheme or authorisation to pay a trustee.

(c) an annual fee linked to incomes, assets or value of tax breaks received; or

(d) other?

Yes the CC should levy fees to help pay for the greater supervision of the sector which should help close the gap between perception and reality noted under Q4 above. There should be a one-off initial registration fee and a smaller recurrent annual fee. There should also be a system of late filing penalties to ensure that the information for the public benefit is better kept up to date.

Question 7: Do you think that it is practical for the Charity Commission to regulate all aspects of over 180,000 charities?  If not, where should it focus its regulation?

In our view there may be scope for focussing the CC’s regulatory activity.

A key element in protecting the reputation of the sector is in rigorous system for registering charities in the first place. To help focus this role the number of charities that are registered should be controlled by 

  • reviewing the registration threshold and seeing whether it might be safely raised
  • applying fees as noted above
  • looking at the number of excepted charities that need to registered with the CC (see Q8 below).

Investigations into potential mistakes by charities need to be concentrated on cases where large amounts of charitable funds may be at risk, but there will need to be other criteria applied to reflect other sensitivities.

The CC are routinely involved in the approval of certain transactions. While we see this as essential in cases involving the payment of trustees, we see less need for this in cases of disposals of land. 

Question 8: Do you think there would be better quality regulation if the Charity Commission could authorise specialist sub-regulators (subject to the Charity Commission or Cabinet Office continuing to be satisfied with their competence) to regulate groups of charities?

There is scope for umbrella bodies to regulate groups of charities on behalf of the CC. This will be especially appropriate where these are smaller charities tending to be pursuing similar objectives but in different locations. Some of the charities that are currently excepted such as churches, Scouts and Guides may well be cases in point, as might be medical charities that are structured on a federal, local basis.

Question 9:  If you answered yes to Question 8, do you think sub-regulators should be able to issue a Charity Number?

No, registration should be the responsibility of the CC albeit that very standard forms and procedures might be possible to make the process more efficient. The umbrella bodies or sub-regulators could take over the on-going supervision and monitoring of the group of charities.

Question 10: Do you have any other comments or suggestions about the Charity Commission? (Please explain your reasoning and give practical examples where possible)

As others will have done, we responded on some of these issues at greater length to a consultation by the CC in January 2011 on its priorities in the light of the reduction in its resources.

The role of trustees

Question 1 (charity trustees only): What issues did you consider in deciding whether to take on the role of charity trustee (e.g. time commitment, level of responsibility etc)? 

Not applicable

Question 2 (for charities only): Have you experienced difficulty in recruiting trustees? If so, what were the difficulties you encountered?   

We are aware that there are difficulties for many charities in attracting a sufficient number and range of trustees. We are aware of difficulties particularly in relation to trustees

  • From younger age groups
  • Representing beneficiaries or customers
  • With financial skills and experience 

Question 3: Are you aware of any barriers (actual or perceived) that discourage people from becoming charity trustees and, if so, what are they?

There are significant barriers discouraging people to volunteer to be trustees including the following

  • the perceived risks of personal liability generally and in relation to pension obligations in particular. 
  • some confusion around the right approach to advertising for trustee vacancies (we consider that in general this is not done sufficiently at present).
  • for possible trustees the potential time commitment, especially were the charity to run into difficulties (for example in relation to employees, finance, maladministration or fraud)
  • issues for the charity in ensuring that trustees appointed meet the “fit and proper person” requirement for the CC. 

Question 4: How do you think becoming a charity trustee could be made more attractive to a wide range of people (for example more flexibility, providing more support and information, covering expenses such as child care, or limited remuneration (subject to safeguards) etc)?

Information and guidance from an authoritative source in dealing with as many of the issues noted above in response to Q3 above, including:

  • Explaining the protection for trustees who act in good faith
  • Advertising and checking on potential trustees as part of the expected system of appointment

Employers should be encouraged to have clear policies for providing time off work for employees to act as trustees of charities.

We recognise that professional bodies in accountancy (such as ourselves) and others such as the Law Society and Institute of Chartered Surveyors should be fostering schemes to encourage members, but also students, to become trustees. Such schemes could highlight not only the benefit in serving the community, but also for members and students themselves in developing and broadening experience (particularly for students) and for members meeting their continuing professional development obligations. Getting students of these professions to become trustees may help to lower the average age of trustees by attracting younger people than at present.

Question 5: Do you think that the changes made by the Charities Act 2006 - see numbered paragraphs 1 – 3 on page 2 - give sufficient comfort to charity trustees?  If not, what more should be done?

See our answer to Q4 above.

Question 6: Has the new power to pay a trustee for non-trustee services been useful to you?  Please give details.  

Not applicable.

Question 7: Do you think that changing the law to allow all charities to pay their trustees for their services as a trustee/Chair of Trustees would:

(a)  help fill chair/trustee vacancies?

(b) encourage recruitment and retention of a more diverse range of candidates?

(c) have an effect on public trust and confidence in charities?  Please give details. 

We remain very much opposed in principle to the payment to trustees. The risks of undermining the reputation of the sector that it would raise in our view significantly outweighs any advantage that would be gained in terms of attracting numbers and quality of trustees. We certainly see no case in distinguishing chairs from other trustees in this regard.

Question 8: Do you have any other comments about the role of trustees?


The effectiveness of organisational forms available to charities 

Question 1: Did the Charities Act 2006 consider the different legal forms that charities might use sufficiently? What are your views on the advantages and disadvantages of the forms that are already available?

We consider that the law provides sufficient forms for charities to operate efficiently and effectively. The CIO is one of those and its establishment should be proceeded with as soon as possible.

Question 2: Is an organisation you are involved with considering becoming a charitable incorporated organisation? If so has the delay in introducing this form caused any difficulties? If so, what were they?

Not applicable.

Question 3: Will the charitable incorporated organisation have any advantages or disadvantages that are not referred to in the call for evidence?

One of the disadvantages of the CIO that we consider should be remedied is that for even small charities accrual accounts will be required. In our view smaller CIOs (as a form of incorporation restricted to charities) should be able to produce simpler financial statements in the form of cash receipts and payments, as opposed to accrual accounts, on the same basis as unincorporated charities.

Question 4: Does the lack of a Register of Charges discourage you from using the charitable incorporated organisation as the form for a new charity? Please explain why?


Question 5: Do you have any suggestions about how we could reduce the regulatory burden on statutory corporations or Royal Charter charities that wish to make changes to their governance arrangements?