Scottish charity law reform: 14 years and counting
It’s been nearly 14 years since the Charities and Trustee Investment (Scotland) Act 2005 received Royal Assent, implementing for the first time comprehensive arrangements for the registration and regulation of Scottish charities.
A comprehensive post-implementation review of the 2005 Act is long overdue and unfortunately, the Scottish Government’s 2019 consultation on charity law reform falls far short of being comprehensive.
In its response to the consultation, the ICAS Charities Panel has called for the review to be extended before parliamentary time is set aside to scrutinise any changes.
The proposals focus on improving transparency and increasing the powers of the Office of the Scottish Charities Regulator (OSCR). However, they do not address some long overdue changes to the Scottish charity accounting regulations.
Publication of trustees’ annual reports and accounts
Proposals would place the online publication of charity trustees’ annual reports and accounts by OSCR on the Scottish Charity Register on a statutory basis.
At present, OSCR publishes or provides links to annual reports and accounts for all Scottish Charitable Incorporated Organisations (SCIOs) and other charities with an annual income of £25,000 or more.
With no statutory requirement to publish annual reports and accounts, OSCR must redact original signatures, prior to publication.
The Charities Panel supports the publication by OSCR of the annual reports and accounts of all Scottish charities as this will make it easier for stakeholders including members of the public to access these.
We also recommend that there should be mechanisms available to exclude sensitive personal and other data from a charity’s trustees’ annual report and accounts.
For example, in the case of signatures, we recommend that OSCR’s filing requirements permit charities to file accounts with printed signatures provided the charity maintains an original signed copy on file.
Register of charity trustees
Proposals for creating an internal database of charity trustees and a public register are mooted.
An internal database to record information on 180,000 plus trustees of Scottish charities would be intended to support OSCR’s regulatory activities and improve engagement with charities. Currently, the law only requires the Charity Register to record the address of a charity’s principal office and the name and address of one of its trustees.
The purpose of the public register would be to increase transparency and accountability to the public. The information published would be limited to the address of a charity’s principal office and the names of its trustees.
It will be necessary, as is currently the case in respect of the Scottish Charity Register, to ensure that sensitive personal and other data is excluded from the public register where there is a need to protect the security of a charity’s premises, beneficiaries, staff or trustees.
Governance arrangements will need to be robust to ensure that personal data is protected and that personal data is only held where there is a clear purpose for doing so. Personal data on former trustees should only be held for a specified period of time.
Increased powers of direction
OSCR’s powers are largely interdictory or preventative, requiring trustees or others not to take particular actions. OSCR can’t direct charity trustees to take specific positive action to remedy non-compliance with charity law or protect charitable assets. The consultation is seeking views on whether OSCR should be given the power to issue positive directions.
The Charities Panel supports specific rather than general powers to issue positive directions as it is vital that the independence of the charity sector is maintained.
The power to issue positive directions should ensure that their use is proportionate and distinct from the powers of the Court of Session. Positive directions should only be used by OSCR following the conduct of reasonable inquiries. OSCR should also have the ability to amend or repeal a positive direction where new information comes to light or circumstances change.
New powers in relation to third parties
Proposals are set out on the introduction of new measures to maintain trust in the charity sector and to protect charitable assets in circumstances where someone has been disqualified as a trustee or where a non-charitable entity holds charitable assets.
Possible new powers for OSCR include, the power to:
- Publish, in a public register, the names of former trustees who have been disqualified from holding office following an inquiry by OSCR.
- Make inquiries into former trustees of a body which is no longer a charity, a charity which has ceased to exist and individuals who were in management and control of a body which is no longer controlled by a charity.
- Power to give the required notice of a request for information to a body or individual that is misrepresenting themselves as a charity, that is no longer a charity, and to former trustees of a charity which has ceased to exist.
The Charities Panel is generally supportive of these proposals.
Areas for further reform
There are several matters relating to Section 44 on charity accounts and the Charities Accounts (Scotland) Regulations 2006 (the Scottish charity accounting regulations) which require reform including the following:
- Amendments are needed to make it clear that the trustees’ annual report is not part of the statement of account. We believe that the policy intention is that a consistency check between the trustees’ annual report and the accounts is all that is required.
- References to specific editions of Statements of Recommended Practice (SORPs) for charities including specialist charities (i.e. housing and education bodies) in the Scottish charity accounting regulations should be removed to make them ‘edition neutral’. SORPs do not take precedence over UK financial reporting standards and there is no benefit in the way of higher quality accounts for charities bound to a specific edition of a SORP, if amendments have been made to the underlying standards.
- There have been several amendment regulations issued in relation to the Scottish charity accounting regulations and it would be timely to issue consolidated regulations. Amendments include changes to thresholds for accounts preparation and external scrutiny and it would be clearer for charities and their advisers if all the changes made to the regulations since they were published in 2006 were included in one set of updated regulations.
- OSCR has no power to issue directions to independent examiners, i.e. steps an independent examiner must undertake in order to be able to prepare their independent examiner’s report. This power is available to the Charity Commission for England and Wales and the Charity Commission for Northern Ireland and has the potential to improve the quality of independent examinations of Scottish charities.
The Charities Panel also made recommendations about:
- Section 35, where regulations to implement asset transfer schemes have never been issued.
- Section 67 where restrictions on the remuneration of trustees create complexity around the remuneration of insolvency practitioners.
- Section 16 where changes requiring OSCR consent are incompatible with the duties of company directors of charitable companies facing severe financial distress or insolvency.
- Regulations made under section 64 about the winding up, insolvency or dissolution of a SCIO where insolvency practitioners cannot act as trustees in SCIO sequestrations.