COMMITTEE FOR SOCIAL DEVELOPMENT

OFFICIAL REPORT

(Hansard)

Charities Bill

24 January 2008

Members present for all or part of the proceedings:
Mr Gregory Campbell (Chairperson)
Mr David Hilditch (Deputy Chairperson)
Mr Mickey Brady
Mr Thomas Burns
Mr Jonathan Craig
Mr Fra McCann
Mrs Claire McGill
Miss Michelle McIlveen
Mr Alban Maginness

Witnesses:
Mr Seamus McAleavey )
Ms Denise McCann ) Northern Ireland Council for Voluntary Action
Ms Paula Reynolds )

The Chairperson (Mr Campbell):
I welcome Mr McAleavey, Ms McCann and Ms Reynolds from the Northern Ireland Council for Voluntary Action (NICVA). They will give evidence on the Charities Bill. The normal format for Committee meetings is that an opening submission is made, which is followed by questions from Committee members.

Mr Seamus McAleavey ( Northern Ireland Council for Voluntary Action):
I thank the Committee for inviting us to give evidence. I am Seamus McAleavey, and I am accompanied by Paula Reynolds, who is the director of NICVA’s member services, and Denise McCann, who is the head of charity advice at NICVA.

We have been working on these issues for some time. A charities Bill, the registration of charities, and the creation of a charity commission for Northern Ireland have been raised often during the past five or eight years, only to recede. We are glad that a Bill will now come to fruition.

As the Committee will know, NICVA represents the interests of voluntary and community groups in Northern Ireland, many of which are charities. Members will also know that there are approximately 4,500 voluntary and community groups in Northern Ireland; they are a diverse range of organisations that include small and multinational organisations, such as Save the Children, Oxfam and Concern Worldwide.

There is no register of voluntary and community organisations in Northern Ireland. NICVA’s database, developed as a result of our research on the state of that sector, perhaps provides the best estimate of the number of voluntary and community organisations in Northern Ireland. We know that, in 2004, income for the sector was approximately £614 million. Money that was donated by the public accounted for 30% of that figure, and Government provided 30% for the purchase of public services. The rest of the money came from various sources, such as earned income and charitable trusts.

The voluntary and community sector is extensive and employs approximately 29,000 people — that is more than 4% of Northern Ireland’s workforce. As I have already said, the issue of charity legislation has been raised often. In March 2004, the Department for Social Development (DSD) set up an advisory panel, of which I was a member. The panel examined the issue again and offered recommendations to the Minister for Social Development, which included creating a charity commission and a charities Bill for Northern Ireland.

In June 2005, the Department consulted on the main proposals for charity law reform in Northern Ireland. The Northern Ireland Council for Voluntary Action worked in partnership with the Department, hosting seminars across Northern Ireland and consulting on the issue. In July and in October 2006, the Department consulted NICVA again — and the sector at large — on the draft legislation.

We fully support the Charities Bill and we are fairly content with everything in it; it is a good piece of work. However, some issues concern us, and I will ask Paula to say something about them.

Ms Paula Reynolds ( Northern Ireland Council for Voluntary Action):
We are concerned about a few important overarching areas in the Bill. There should be clarity in the registration of charities and in the auditing requirements and accounting thresholds. The Bill should contain further information on the duties of the trustees, the auditing and examination requirements of small companies, and on the compulsory consultation on any revision to the public benefit test guidance. Finally, there is the issue of resourcing.

As stated in our submission, the Bill has created confusion around the registration of charities. The draft Charities ( Northern Ireland) Order 2006clearly stated that every charity that is established or that operates in Northern Ireland must be listed in the register of charities. We thought that that was very clear: if a charity is formed in Northern Ireland, it must be listed in the register of charities; or if a charity is formed in another jurisdiction and is regulated there, it must still be listed in the register of charities in Northern Ireland; hence it must go through the public benefit test.

However, clause 16(2) of the Charities Bill states:
“Every institution which is a charity under the law of Northern Ireland must be registered in the register of charities.”

Does that refer only to charities from Northern Ireland or to charities outside Northern Ireland but which operate therein?

Furthermore, clauses 167 and 16 deal with broadly the same issues, but that link is not referred to in the Bill. Clause 167 refers to institutions that are not charities under the law of Northern Ireland; we assume that that clause refers to bodies that have been set up elsewhere but which operate here. However, that has not been clarified. Clauses 167 and 16 relate to charities that must be registered, but there is no reference to that in the Bill.

One may assume that clause 167 relates to charities that have been set up elsewhere but which operate here. However, it seems that under the provisions of clause 167 the charity commission does not have to set up a register of such charities. Therefore charities could operate in Northern Ireland but not be listed on the register of charities because clause 167(6)(a) states that the charity commission “may” be required to keep a register.

There is another issue concerning registration and clarity in English legislation: the thirteenth head of charity or thirteenth other charitable purpose, which relates to the promotion of the efficiency of the armed forces. The charity could have a charitable purpose or status in England and Wales because of that; however, that charitable purpose does not exist in Northern Ireland legislation. Charities could work here, regardless of whether they are registered. More clarity is required in those important areas.

The second area that requires more clarity is accounting thresholds and audit requirements. We have no problem with the Bill’s provisions in that regard, as they will help our charities to work well; it will help them with financial governance. We welcome everything there. However, the wording is confusing, and perhaps a rewrite would help.

More information needs to be added to some areas. It would be of value to charities if the general duties of the trustees were included in the Bill because that causes some confusion and can cause governance issues. The Bill does not require small companies — those under a threshold of £90,000 — to have any external audit. NICVA believes that it should.

Compulsory consultation and the public benefit test are important. The public benefit test is a cornerstone of the legislation, so it is important for the commission to consult on any revision to the test and guidance on it.

Finally, there is an issue about the resourcing of the commission. Those are our issues.

The Chairperson:
Paula, you say that you would like greater clarity in clause 167(6), which states that the commission “may” be required to keep a register. Should the commission have to keep a register? I understand your need for greater clarity, but which do you prefer?

Mr McAleavey:
We prefer the wording of 18(2) in ‘the Proposal for an Order in Council: The Charities ( Northern Ireland) Order 2006’:

“Every charity which is established or operates in Northern Ireland must be registered in the register of charities.”

That is crystal clear. The new wording leaves us in some doubt: some organisations may find themselves on or off the register. At worst, someone in Northern Ireland could decide, for whatever reason, to seek charitable status in England, return here, and perhaps not have to be on the register or abide by the same regulations.

The Chairperson:
I have a question about accounting thresholds. Do you see any difficulties for the smaller organisations that you represent? Bureaucracy might follow the implementation of the Bill.

Ms Denise McCann ( Northern Ireland Council for Voluntary Action):
Throughout the consultation periods, smaller organisations were concerned about the accounting requirements that were to be implemented; the Department listened to those concerns and raised the accounting thresholds. For example, a small charity is classified as one whose gross income is less than £100,000. Such a charity will not have to have a full audit; it can opt to have an “independent examination”. That independent examination can be carried out by someone whom the trustees believe to have the requisite ability. More guidance will have to be issued on that, but the independent examination can be carried out by a retired bank official, for example. The person carrying it out does not have to be an accounting professional, but they do have to have the requisite ability. Small charities were content with that. The charities understand that there has to be some scrutiny of accounts, but the Department did not want it to be onerous or burdensome for them; for that reason, small charities were content with an independent examination.

Mr McAleavey:
The original proposals were for a threshold of £25,000, which we believed to be too low.

The Chairperson:
I was just coming to that. Are you content with a threshold of £100,000? You would not describe charities that have a gross annual income of more than £100,000 as “small charities”.

Mr McAleavey:
Most organisations that have an income of more than £100,000 have audited accounts.

Mr Hilditch:
I thank the witnesses for their presentation. Will the administration of the new legislation be a burden on some charities?

Mr McAleavey:
Everything is a trade-off. There is almost universal support in voluntary and community organisations in Northern Ireland for the Charities Bill and the creation of a commission. The charities know that that will place a burden on them but that it is important in increasing public confidence. The Chairperson and I have spoken on radio programmes about the threat that bogus charities pose, although there is a danger that bona fide charities will be damaged when people hear about such bogus charities.

Charities in Northern Ireland recognise that anything that helps to boost public confidence in them is important. Likewise, the public will have more confidence in charities if their operation is properly and adequately scrutinised; people feel that that is beneficial. Most charitable organisations provide annual reports and accounts, but there is no compulsion on them to place them with a body such as the proposed charity commission. Such an obligation would be beneficial.

Mr Brady:
Thank you for your presentation. Are you happy with the thrust of the proposed arrangements on accounting and registration? You said that the general duties of trustees should be included in the Bill. I know of charities — particularly small charities — that were formed 20-odd years ago, and nobody knows who the trustees are. It is important to acknowledge that details of the trustees tend to get lost as the years go on.

Ms D McCann:
We are calling for the general duties of trustees to be included in the legislation because it is difficult to find them in the Trustee Act ( Northern Ireland) 2001 and other legislation. One relies on bodies such as the Committee for Social Development and relevant professionals to find out the duties of a charity trustee.

The Bill grants the commission the power to act as the custodian of charities when trustees have died or cannot be traced.

Miss McIlveen:
Although the Bill states that at least one member of the commission should be a barrister or a solicitor of seven years’ standing, you would prefer it were two. Why is that?

You also say that you:
“support the broad interpretation of the advancement of religion which will include the belief in more than one god”.

Does that sentiment represent all your members?

Mr McAleavey:
No. Voluntary and community organisations’ views reflect the differences in society.

The Chairperson:
Miss McIlveen is asking whether NICVA is making a theological point or merely taking a broad approach. The thinking in your brief is not shared by many people in Northern Ireland.

Mr McAleavey:
Absolutely. We are using that approach for the purposes of charity law.

Miss McIlveen:
Why should the commission contain more than one legal representative?

Mr McAleavey:
The first few years following the establishment of the commission will be complex and onerous, so it will need people with a variety of skills. We do not usually say that a commission or body should be made up of experts; non-legal people have much to bring to a commission due to their understanding of charities and their roles in Northern Ireland. Eighteen months after the creation of the Scottish commission, a review is being conducted into the success or otherwise of the public benefit test.

The commission will take on a life of its own. Perhaps in the early years it will employ people with legal qualifications or it will have access to good-quality legal advice. It is a difficult and complex area.

Mr Craig:
Paragraph 2.3 of your submission refers to the public benefit requirement. That is probably one of the more controversial aspects, because any charity that falls outside that requirement would not be registered. It also mentions clause 4(4)(b), which says that the commission would not have to consult before revising the guidance if it decides that it is unnecessary to do so. Do you fear that the commission could become self-serving?

Mr McAleavey:
Yes. The public benefit test is a cornerstone of the legislation. However, if the commission wanted to review it at some point, it should do so only after adequate consultation. We would not like the commission or any other body to make changes that could have a huge impact.

Mrs McGill:
Thank you for your presentation. Some of your documents referred to the composition of the commission, and that has already been commented on. I became concerned as soon as I saw that the commission — although no one disputes the need for one — could grow and grow and grow. I am keen to hear your views on that. Some of the research papers from the Department mentioned the commission’s being composed of a chairman, a deputy chairman, three or five members and 16 staff; another document mentioned a chief executive. I am unclear about the commission’s final makeup. What would you consider to be a workable commission?

In a previous meeting, I asked for clarification on the connection between the Department for Social Development and the commission. That is still unclear. You referred to the question of who would make appointments to the commission. How should a workable commission be composed?

Mr McAleavey:
The commission should be a relatively small body. A chief and a deputy chief commissioner and five staff would be more than adequate. The commission will have a particular role in looking after the “commanding heights” of charity regulation. Staffing is the one area where there might be a danger of unchecked growth. To the best of my knowledge, the Charity Commission for England and Wales employs several hundred people. Adequate staffing is necessary because people will expect a certain degree of scrutiny. If thousands of charities in Northern Ireland submit their annual accounts and reports, the commission staff will have to sample and verify some of them. If a member of the public has concerns about an organisation or a charity collection and wishes to check it with the commission, the commission must be able to respond to the person about whether the organisation is bona fide. To the best of my knowledge, the Charity Commission for England and Wales scrutinises only about 5% of all the returns that it gets.

The Chairperson:
Is that the case in Scotland?

Mr McAleavey:
I am not sure; I cannot comment on Scotland. I am speaking from our knowledge of the Charity Commission for England and Wales. Drilling down into the accounts of those organisations is a mammoth task.

Mrs McGill:
Does the Charity Commission examine only 5% of charities’ work?

Mr McAleavey:
My understanding is that the Charity Commission takes a sample of all the annual reports and accounts that it receives in order to examine and verify them. It does not review every charity every year; that would be an enormous task. I am sure that the cost benefit would be a problem.

However, the commission will investigate any concern about a charity. If you or I or any member of the public were to raise an issue, the commission would have all the data that it needs to deal with it. To do that it needs adequate staff. Reasonable scrutiny would have to be carried out in order to answer fairly simple questions from the public.

The Chairperson:
Are a chief commissioner, a deputy commissioner and five staff adequate?

Ms Reynolds:
The Bill’s explanatory notes set out three functions, with four staff in each, and a chief executive. Funnily enough, yesterday we looked at earlier papers that proposed about 30 staff. NICVA suggests that clarity is needed on that issue, because the 2005 documentation and the Charities Bill have set the same costs and resource allocation for the commission, even though the Bill requires the commission to carry out new work. That relates to the point that Mrs McGill made about the possible unrestrained growth of the commission’s functions. In the earlier consultation papers the commission was not required to issue fund-raising certificates and permits, which it is under the Bill. NICVA believes that that will be a labour-intensive, onerous task. We cannot say specifically how many staff the commission needs, although we are happy with its roles and functions.

The Chairperson:
The Committee will certainly take those matters up with the Department in its consideration of the Bill.

Mrs McGill:
What is your understanding of the function of the official custodian for charities in the North of Ireland?

Ms D McCann:
The charity commission could act as official custodian for a charity when its trustees have disappeared, died, or when all of trace of them has been lost. The charity commission could either transfer that charity’s assets to another similar charity through a cy-près scheme or disperse them in a reasonable manner.

Mrs McGill:
Would the official custodian operate outside the charity commission? Will someone else be required to adopt that role?

Ms D McCann:
My understanding is that the charity commission as a corporate body will assume the role of official custodian.

The Chairperson:
Folks, thank you very much for your assistance; you have provided the Committee with considerable food for thought. I am sure that you will follow the Bill’s progress. If any other issues emerge, we shall, of course, seek to discus them with you.