Sarah Atkinson speech, Westminster Policy Forum, 26 January
Charity Commission’s Director of Policy and Communications, Sarah Atkinson, speaks at Westminster Policy Forum on the future of charity law and regulation.
Charity regulation and the impact of legislation
Thank you. It is nice to see so many friendly faces here.
I would like to take a moment to set out the context into which my remarks fit. Charities represent selfless service to others. The care, of volunteers and donors, particularly for the most vulnerable, is a tradition of which we are rightly proud. If public outrage has been strong of late, it is because charity is held in such high esteem.
And rightly so.
We’ve heard today about the 165,000 charities, a £65 billion sector and the one million trustees. All of this is testament to the significance attached to those values I mentioned early.
If there is a silver lining to the recent turmoil in the charity sector, it must surely be that the vital role of trustees has been brought front and centre. From ministers to the chairman of the select committee, the importance of trusteeship has been brought front and centre. This welcome conversation on governance is an opportunity for us all to highlight the benefits of being a trustee, as well as the responsibilities entailed.
Our role at the Charity Commission is to uphold public trust in confidence in this sector by holding trustees to account and increasing transparency. With precise and nimble regulation comes greater public confidence and with that follows the donations and contracts so essential to the good work of charities.
Now these sessions are more useful when in discussion so I will keep my monologue brief, but there are two important issues I would like to touch on – financial resilience and reserves. I will also briefly update on a few matters currently before the Commission.
Over the next few years a key challenge for charities delivering public services will be cuts, particularly to local authority budgets.
As we have seen in recent, high-profile cases, even organisations in receipt of government largesse, financial circumstances can change very quickly, and very sharply.
Charities, particularly those with responsibility for vulnerable people, must ensure they have contingency plans in place. From a reduction in capacity to out-right closure, trustees should ensure that, in the event they are no longer able to provide care to an individual in their charge, a process is established whereby that individual can be transferred, for example to another charity or local authority.
We should aim for a situation where no vulnerable beneficiary turns up in the morning to be confronted by an unexpectedly locked door.
Now, tomorrow will see an update on Commission guidance regarding what we expect from trustees in managing reserves. We will be expanding on trustee duties set out in our publication – the poetically named CC3 – The Essential Trustee. We will set out in more detail what good practice on reserves looks like.
In essence, this will mean that trustees should develop a reserves policy with 4 key themes in mind. These are: having a policy, publishing this policy, larger charities publishing a risk assessment, and implementing and monitoring the reserves policy.
So what will this look like?
Having developed a policy that should:
a. Fully justify and clearly explain keeping or not keeping reserves. For let us not forget that for some charities operate a model which is unsuited to large reserves.
b. Identify and plan for the maintenance of essential services for beneficiaries.
c. Reflect the risks of unplanned closure associated with the charity’s business model, spending commitments, potential liabilities and financial forecasts.
d. Help to address the risks of unplanned closure on their beneficiaries, staff and volunteers.
This policy should be published and trustees should ensure it is tailored to the charity’s circumstances – it should not be just a standard form of wording. It should explain to funders, beneficiaries, the public and the commission exactly what reserves are kept (or not kept) for and when they are to be used
Larger charities will be required to publish their assessment of the risks that the charity faces and how to manage them in their annual report
Trustees should make sure that their reserves policy is put in place and operated
Trustees should regularly monitor and review the effectiveness of the policy in the light of the changing funding and financial climate and other risks
Now with these points in mind, I will offer an answer to a frequently asked question:
What level or range of reserves is required?
The short answer is this:
There is no single level or even a range of reserves that is right for all charities. Any target set by trustees for the level of reserves to be held should reflect the particular circumstances of the individual charity.
To do this, trustees need to know why the charity should hold reserves and, having identified those needs, the trustees should consider how much should be held to meet them.
This answer demonstrates how import it is that trustees engage with the Commission’s guidance I have outlined above. As a sector we draw strength in our diversity, however, diversity means each set of trustees will have to decide if their reserves policy matches their charity. The Commission stands ready to offer guidance as trustees grabble with these issues with increasing scrutiny.
And let me be clear, the Commission is not attempting to fetter the discretion of trustees. The reserves policy is a matter for trustees. All we expect is that trustees have asked themselves the question and sought satisfactory answers.
Now before I wrap-up, I want to briefly touch on a couple of items already mentioned today that have been part of life at the Commission in recent months.
What the Bill will mean
The Charities (Protection and Social Investment) Bill has now passed through both Houses and, subject to the Lords giving final ascent, we expect it to become law soon.
Work has already begun on implementation but proper time is being allowed to educate trustees before certain provisions come into force.
Firstly, there are the new disqualification measures. These come in two parts.
The first of these is the extension of the automatic disqualification provisions, and the issue of waivers in particular, which caused a late flurry of Parliamentary interest and I would like to spend a few moments setting out what the position is. This should not be putting off people from becoming trustees.
People with an unspent conviction for a criminal offence involving dishonesty or deception are already automatically disqualified from acting as a charity trustee until their conviction is spent or they obtain a waiver from disqualification from the Charity Commission.
This is being extended (following successful 3rd reading in the Commons on Tuesday) after concern that the existing criteria for automatic disqualification from acting as a charity trustee were too narrow. For example, now included will be conviction for serious terrorism or money-laundering offences.
Whilst we welcome these additional powers, we are working with the sector, particularly rehabilitation charities, to ensure that those seeking to ‘give something back’ are not wrongly excluded.
The Commission will also have a new discretionary power to disqualify individuals. This power would enable the Commission to, under certain circumstances, disqualify individuals from trusteeship where it is clear that they are unfit to hold such a position and present a risk to charity.
The power is a three stage process, where each limb must be met, and also provides a number of specific statutory safeguards. As with all our powers, it must be exercised in accordance with the Commission’s statutory functions, duties and objectives. Further, the Commission must also act proportionately, consistently and target only cases in which action is necessary, as set out in the Charities Act 2011.
This power is appealable to the Charity Tribunal. If the decision is appealed the Tribunal would consider the case entirely afresh on the basis of all the evidence before it – it would not simply review the Charity Commission’s original decision.
The Commission published an initial discussion paper when the Bill was in the House of Lords which sets out clearly how and under what circumstances we might use this power.
I know that there have been some concerns about what is meant by ‘unfitness’ or ‘desirable in the public interest’. Both of these issues are explored further.
The Commission’s assessment of unfitness, based on our regulatory experience, is that that unfitness is likely to be a result of a failure in one or more of the following broad categories:
- honesty and integrity
None of these three are entirely new concepts. Examples of the behaviour that might meet these criteria and further explanation is laid out.
The paper also looks at and explains in detail what is meant by ‘desirable in the public interest’ and the basis of our decision making.
We have been quite clear in our initial paper and provided a lot of early thinking. I would encourage those interested and with further questions to read this paper.
This is an important new power so we will of course take time to make sure our approach is right and will be consulting more fully on this when the Bill passes.
Secondly, there is the warnings power.
The Bill will allow the Charity Commission to issue official warnings to any charity or charity trustee when the Commission considers there had been a breach of trust or duty or other misconduct or mismanagement. The Explanatory Notes state that a breach of duty would include “non-compliance with a Commission order or direction”. The Commission may also publish these works.
This new power will enable the Charity Commission to take a more proportionate approach to low-level misconduct and mismanagement. The Commission already can and does engage with charities when this happens, but we find that up to 30% of charities contacted fail to respond adequately to our guidance.
This is good news for charities. The Commission will be able to focus on high-risk cases and free resources for our enabling work. And of course, safeguards are in place.
I would like to stress, however, that we are aware that these are new powers and we will be under scrutiny. We welcome this and look forward to working with the sector to implement this legislation.
Accounts and transparency
Finally, I would like to turn to accounts and transparency.
Commission research found last year that 32 percent of accounts submitted were not of ‘adequate quality’ in the 12 months up to 31 March 2013 – based on a random sample. This actually represented an improvement from the previous year analysed, where nearly half (46 percent) were inadequate.
We have seen how transparency is essential for trust and confidence, and can help trustees foresee upcoming problems in their own charities finances. Some of you will have seen we have been consulting on the accounts filing and presentation process and I look forward to ongoing engagement with the sector on this.
I shall leave it there and look forward to your questions.
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