CHARITIES BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

This Explanatory and Financial Memorandum has been prepared by the Department for Social Development in order to assist the reader of the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.

The Memorandum needs to be read in conjunction with the Bill. It does not, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause or schedule does not seem to require an explanation or comment, none is given.

BACKGROUND AND POLICY OBJECTIVES

This Bill provides a definition of “charity” and “charitable purpose”, establishes the Charity Commission for Northern Ireland (CCNI) and the Charity Tribunal for Northern Ireland, creates a register of charities, provides for a new form of charitable body (a charitable incorporated organisation) and deals with the regulation of charities, their assets and public charitable collections.

In March 2004 the Department for Social Development established an Advisory Panel to consider the advantages and disadvantages relating to various options including the retention of the present Northern Ireland system and a move to a system of wider supervision. The Advisory Panel recommended that a system similar to that proposed for England and Wales should be adopted for Northern Ireland, with three significant differences. First, the introduction of a rigorous public benefit test to determine whether technically a charitable purpose actually produces a benefit to the public. Second, all charities operating in Northern Ireland should be registered (there should be no exemption of certain types of charity as in other jurisdictions). Finally, it was intended to apply different financial thresholdsin terms of the accounting procedures and audit requirements placed on charities operating in Northern Ireland.

CONSULTATION

DSD carried out a public consultation from 11 February to 3 June 2005 on the principles underlying the charity regulation proposals. A total of 106 responses were received from a wide range of bodies and individuals, with the majority being broadly favourable. A full public consultation on the draft legislation itself took place from 17 July to 13 October 2006. Two changes were made to the draft legislation relating to audit levels and public collections and again responses were broadly favourable.

OPTIONS CONSIDERED

The current framework for the regulation of charities in Northern Ireland does not provide for any form of local registration and only makes limited provisions for enforcement generally. The objective is to introduce an integrated system of registration and regulation (including control of charitable, philanthropic or benevolent fund-raising) as well as supervision and support of registered charities. The aim of these proposed changes will be to provide a structure and process through which charities can demonstrate their contribution to society, the public can be assured regarding how charities are spending any donations and government can assist in the better governance of the charity sector.

The Department concluded that the need for a regulatory structure to provide reassurance to the public about how charities manage their affairs, undertake collections and dispose of donations rules out maintaining the status quo as a viable option. The possibility of extending the remit of the Charity Commission for England and Wales had certain advantages; however, it would not have delivered the objectives set out by the Advisory Panel in relation to the adoption of a more rigorous public benefit test and the need to apply different procedures in relation to registration and financial controls. It was determined, therefore, that the establishment of an independent Commission that would be able to respond to the needs of the local charity sector presented the best solution for Northern Ireland.

OVERVIEW

The Bill has 186 clauses and 9 Schedules and is divided into 14 Parts. A commentary on the provisions follows. Comments are not given where the wording is self-explanatory.

COMMENTARY ON CLAUSES

PART 1: INTRODUCTORY

• Part 1 comprises clauses 1 to 5 and deals with the definition of “charity” and “charitable purpose”. Clause 3, which sets out the public benefit test in relation to charitable purpose, specifies that no particular purpose is to be presumed to be for the public benefit. When determining whether a body provides public benefit, regard must be had to how any benefit gained by members of the institutions and disbenefit incurred by the public compares with the benefit gained by the public.

PART 2: THE CHARITY COMMISSION FOR NORTHERN IRELAND

• Part 2 comprises clauses 6 to 11 (and Schedule 1) and provides for the establishment of a body corporate to be known as the Charity Commission for Northern Ireland. Clauses 7 to 10 deal with the Commission’s objectives, functions, general duties and incidental powers. Clause 11 provides for an “official custodian” for charities in Northern Ireland made by the commission or Attorney - General

PART 3: THE CHARITY TRIBUNAL FOR NORTHERN IRELAND

• Part 3 comprises clauses 12 to 15 (and Schedules 2, 3 and 4) and covers the creation of a Tribunal to hear appeals against some types of decision made by the Commission.

PART 4: REGISTRATION OF CHARITIES AND CHARITABLE NAMES

• Part 4 comprises clauses 16 to 21 requires the Commission to keep a register of charities. The Bill does not provide for any exemptions from the requirement to register.

PART 5: INFORMATION POWERS

• Part 5 comprises clauses 22 to 25 and empowers the Commission to institute inquiries into any aspect of the work of a particular charity or class of charities. The Commission will able to call for the disclosure of documents and to disclose information in pursuit of its functions.

PART 6: APPLICATION OF PROPERTY CY-PRÈS AND ASSISTANCE AND SUPERVISION OF CHARITIES BY COURT AND COMMISSION

• Part 6 comprises clauses 26 to 57 and covers the powers of the Commission and the Court to make schemes for the protection of charities. Clauses 41 and 42 deal with the circumstances in which property can be vested in the official custodian while clauses 43 and 44 enable the Commission or Court to establish “common investment funds” and “common deposit funds”.

PART 7: CHARITY LAND

• Part 7 comprises clauses 58 to 63 (and Schedule 5) and allows charities to dispose of charity property in most circumstances. Charities must seek an order of the Court, or of the Commission, before disposing of charity property in certain circumstances, for example, where the disposal is to a connected party.

PART 8: CHARITY ACCOUNTS, REPORTS AND RETURNS

• Part 8 comprises clauses 64 to 73 (and Schedule 6) and deals with the duty of charities to keep accounting records, issue statements of accounts and arrange for their accounts to be audited. Clause 65 empowers the Department for Social Development to prescribe the form and contents of such accounts for a charity with an annual income in excess of £100,000. Clauses 66 and 67 further specify the auditing requirements to be placed on a charity in accordance with its income. Clauses 69 and 70 set out the requirement on charities to prepare annual reports and specify the arrangements for public inspection of such reports.

PART 9: CHARITY TRUSTEES

• Part 9 comprises two Chapters covering clauses 74 to 95. Chapter 1 deals with the incorporation of charity trustees and in particular, clause 74 empowers the Commission to issue a certificate of incorporation establishing the trustees of a charity (not the charity itself) as a body corporate. Chapter 2 sets out a number of other provisions relating to charity trustees, including provisions concerning persons disqualified for being trustees and remuneration, etc.

PART 10: CHARITABLE COMPANIES

• Part 10, which comprises clauses 96 to 104, makes provision with respect to charitable companies including rules covering amendments to their objects and the audit and examination of their accounts.

PART 11: CHARITABLE INCORPORATED ORGANISATIONS

• Part 11 comprises clauses 105 to 121 (and Schedule 7) and provides for the constitution of Charitable Incorporated Organisations, a new legal entity for charities. Its purpose is to avoid the need for charities that wish to benefit from incorporation to register as companies and be liable to dual regulation.

PART 12: POWERS OF UNINCORPORATED CHARITIES

• Part 12 comprises clauses 122 to 129 and deals with the rules under which unincorporated charities may transfer their property to other charities, replace their current charitable purposes with new ones or modify their constitutional powers or procedures.

PART 13: FUNDING OF CHARITABLE INSTITUTIONS

• Part 13 comprises four Chapters covering clauses 130 to 160. Chapter 4 provides definitions for “charitable institution” and “collector”. Chapter 1 deals with the regulation of public charitable collections – both street collections (described as “collections in a public place”) and those conducted door-to-door. Clauses 136 to 141 cover the need for individuals or organisations that wish to promote collections to obtain a public collections certificate and empowers the Commission to either issue or refuse such a certificate. Clauses 142 to 148 deal with the requirement on promoters to obtain a permit for most publiccollections and empower the Commission to issue such permits. Chapter 2 provides for the detailed regulation and control of fund raising and Chapter 3 empowers the Department to give financial assistance to bodies whose activities directly or indirectly benefit the whole or any part of Northern Ireland.

PART 14: MISCELLANEOUS AND SUPPLEMENTARY

• Part 14 comprises clauses 161 to 186 (and Schedules 8 and 9). It contains provisions relating to the merger of charities, the application of the Bill in relation to designated religious charities, and institutions which are not charities under the law of Northern Ireland, and deals with a number of technical matters relating to the Commission.

FINANCIAL EFFECTS OF THE BILL

• 9. It is expected that the additional costs arising from the proposals set out in this Bill will arise mainly from the administration of the new Charity Commission and costs related to the operation of the Appeals Tribunal. It is estimated that the overall additional cost will be circa £800,000 per annum plus start-up costs of circa £300,000. Department of Finance and Personnel approval has been sought and obtained. DSD has secured this within its budget.

HUMAN RIGHTS ISSUES

• 10. The provisions of the Bill are compatible with the Convention on Human Rights.

EQUALITY IMPACT ASSESSMENT

• 11. A screening exercise has been undertaken on the proposals in accordance with section 75 of the Northern Ireland Act 1998. These proposals were developed with the objective of increasing cooperation with and credibility of the charity sector. The public consultation on these policy proposals did not identify any issues selectively affecting any section 75 groups. It is not considered necessary, therefore, to prepare a full Equality Impact Assessment.

SUMMARY OF THE REGULATORY IMPACT ASSESSMENT

• 12. The measures included in the Charities Bill are designed to strengthen the vibrant and diverse voluntary sector, giving it a legal and regulatory framework that will be empowering and facilitate long-term growth. Overall the impact on small business is expected to be minimal. The views of Business in the Community NI and the Federation of Small Businesses were sought as part of the consultation process. Neither organisation commented. While the Bill will impact on the charitable and voluntary sector, the changes envisaged will improve the processes for delivering the various objectives of the sector and it is considered that the benefits justify the cost.

LEGISLATIVE COMPETENCE

• 13. The Minister for Social Development has made the following statement under section 9 of the Northern Ireland Act 1998:

“In my view the Charities Bill would be within the legislative competence of the Northern Ireland Assembly.”

SECRETARY OF STATE CONSENT

• 14. A statement is required under section 10(3) (b) of the Northern Ireland Act 1998, on Secretary of State consent:

"The Secretary of State has consented under section 10(3) (b) of the Northern Ireland Act 1998 to the Assembly considering this Bill."