COMMITTEE FOR SOCIAL DEVELOPMENT
OFFICIAL REPORT
(Hansard)
Charities Bill
6 March 2008
Members present for all or part of the proceedings:
Mr Mickey Brady
Mr Thomas Burns
Ms Anna Lo
Mr Fra McCann
Mrs Claire McGill
Miss Michelle McIlveen
Witnesses:
Mr Kieran Doyle ) Department for Social Development
Mr Roy McGivern )
The Acting Chairperson (Mr Brady):
I welcome you on behalf of the Committee. This Bill has 186 clauses and nine substantial schedules. We dealt with many of the clauses, such as those dealing with cy-près, last week. They were technical clauses that had not caused any witnesses to raise concern, either in written submissions or oral evidence.
To enable members to focus on areas of concern, the Committee could deal with clauses en bloc by asking the departmental officials to explain their overall effect. I will ask members if they have any concerns within any particular group of clauses before proceeding to deal with them en bloc. How do members feel about that approach, as opposed to dealing with each clause individually? If any member is not content to do that, we will proceed on a clause-by-clause basis. If members are content to deal with some clauses en bloc, committee staff will circulate a handling plan for clauses 53 to 129. Members already have a table summarising the consultation responses. If members are happy with that, we can start.
Mr F McCann:
The small Churches whose representatives have come here — will what they said be taken on board?
Mr Roy McGivern (Department for Social Development):
We will deal with clauses 165 and 166 next Thursday. The evidence sessions today have been extremely helpful in informing our view on how we proceed with those two clauses.
The Acting Chairperson:
Are members content to handle clauses en bloc, or do we need to go through them individually?
The Principal Clerk of Bills:
Last week, when the Committee was working through the section on cy-près, it was dealing with highly technical clauses. The Department dealt with each clause individually and, by the time members got to the interesting bits, everyone was suffering from a bit of brain fade.
Where it is clear that no issues have been raised on fairly technical clauses, I suggest that you deal with them in blocks of four, five or 10, rather than trawling through every single clause. The Department will explain the overall effect of those clauses, and the Chair will ask members if they have any issues with any individual clause. Sign them off en bloc, rather than dealing with all 186 clauses individually.
Thus, when you reach the interesting bits, such as accounting and accounts procedures, about which you have many concerns, you will be able to focus on those, rather than spending a lot of time on the uninteresting clauses that did not give rise to any issues.
The Acting Chairperson:
Are members content to proceed in that way?
Ms Lo:
Yes, I am happy to.
The Acting Chairperson:
Is there consensus on that?
The Principal Clerk of Bills:
If members feel more comfortable going through each clause separately, that is fine. I am just suggesting another way to do things.
Mr McGivern:
Some of the clauses have attracted a lot of comments, and we recommend clause-by-clause scrutiny for those, particularly on charity accounts and reporting.
The Principal Clerk of Bills:
We know that.
The Acting Chairperson:
Members have a table that identifies those clauses.
Miss McIlveen:
My only concern is that we could be criticised if we did not do clause-by-clause scrutiny. Other than that, I do not have a problem.
The Principal Clerk of Bills:
There will be an explanation of what the overall effect of three, four or five clauses will be. Having had the Bill for a long time, members will have gone through it, so they will be not open to criticism. Grouping clauses for consideration is what is done in the Chamber.
Ms Lo:
When similar clauses are grouped, they make more sense.
Mr Kieran Doyle (Department for Social Development):
If there is a situation where three or four clauses relate to one area, but are secondary to the provisions of the main clause, we will provide an overview of the purpose of the cluster of clauses — if the Committee is content with that.
The Acting Chairperson:
So we can blame you if someone complains?
Mr Doyle:
Yes, you can.
We would also like to address the comments that the Committee has received in its consultation when we give an overview of the groups of clauses. We will address the comments that have been made by various organisations, to assist the Committee.
The Acting Chairperson:
Again, are members of the Committee content to do that?
The Principal Clerk of Bills:
Members should choose what they are most comfortable with.
Mr F McCann:
We will start to lose members soon. Does Michelle have any particular clauses that could be put back to next week?
Ms McIlveen:
As long everything is defined and explained, I am happy.
Mr Doyle:
If there are three or four clauses that relate to the same category, we intend to explain what the category generally covers. We will also address the comments that have been received on those areas, which may be what the Committee wants.
The Acting Chairperson:
Are Members content with that?
Members indicated assent.
Mr McGivern:
Clauses 53-57 in Part 6 of the Bill, which deal with the application of property cy-près and assistance and supervision of charities by court and commission, were left over from last week’s meeting. In the consultation, no issues were raised on those clauses. Clause 53 relates to the power of the Commission to enter premises, clauses 54-56 deal with legal proceedings, where they are necessary, and clause 57 deals with property held on behalf of English, Welsh and Scottish charities and how it can be transferred in certain circumstances.
The Acting Chairperson:
Are members content with clauses 53-57?
Members indicated assent.
Mr McGivern:
Clauses 58-60 deal with charity land, restrictions on dispositions of land, and what are termed “charity rentcharges”. Clauses 58 and 59 detail the process to be followed when a charity wishes to dispose of land — a function that is currently discharged by the Department. Those clauses simply provide for the transfer of that function from the Department to the proposed new charity commission. The Northern Ireland Co-Ownership Housing Association has raised some concerns about clause 58, but the restriction will not apply to the regulation of co-ownership housing schemes. There is an exemption for such schemes under clause 58(10)(a). I hope that that addresses the point raised by that group.
The Department sees no benefit in enhancing the provisions of article 39 of the Education ( Northern Ireland) Order 1996, as suggested by the Catholic bishops. The issue would apply only in exceptional circumstances, and the purpose could still be served by application of the cy-pres scheme.
Clause 60 relates to a minor exemption for charities concerning “rentcharges” on the sale of property. Those are actually obsolete payments that are tied to land; no charities are creating new “rentcharges” today, but there are still some old arrangements in place. Clause 60 simply provides a way of disposing of those where it is necessary.
The Acting Chairperson:
I think that the concern in relation to clause 58 and co-ownership schemes has been sufficiently dealt with. Are members content with clauses 58-60?
Members indicated assent.
Mr McGivern:
Clauses 61-63 deal with restrictions on mortgaging. The Department currently receives applications from charities and trustees who want to obtain a mortgage on their property, and again this function will transfer to the new charity commission. The clauses outline circumstances in which trustees may obtain a mortgage on charity land, providing that they obtain proper advice before doing so. The Northern Ireland Co-Ownership Housing Association has again raised a concern regarding that matter. However, clause 61(9) states that the provision does not apply to a mortgage for which “general or special authority” is given in accordance with clause 58(10)(a). That excludes mortgages under legally established schemes, such as house sales by way of equity-sharing lease under the Housing ( Northern Ireland) Order 2003. So, we are able to satisfy the concern of the co-ownership lobby.
The Acting Chairperson:
Is there, therefore, no requirement for amendments?
Mr McGivern:
Not that we envisage; I think that the point has been addressed.
The Acting Chair:
Are members content with clauses 61-63?
Members indicated assent.
Mr McGivern:
Part 8 deals with charity accounts, reports and returns. It is the Department’s view that this is one of the most important parts of the Bill, as it concerns public assurance in charitable giving. The Department has sought to adopt a consistent approach to accounting and reporting requirements, taking into account thresholds across the rest of the UK and in Ireland. All registered charities will be required to submit annual financial statements and reports to the charity commission, and those will be available for public inspection. An important point to note is that the nature and level of that financial reporting will be proportionate to the income levels of the organisation.
The approach that is being proposed was subject to public consultation by the Department, and, following concerns from the charitable sector, the minimum accounting threshold was increased from £25,000 to £100,000 in the Bill, in line with England, Wales and Scotland. We concede that this is a complex area, and it is recognised that there will be a need for the new charity commission for Northern Ireland to issue detailed advice and guidance on the audit and reporting requirements.
Clause 64 is a general provision requiring charities to observe their duty to keep accounting records. Clause 65 deals with the annual statement of accounts, and empowers the Department to prescribe the form and content of such accounts. Clauses 66 and 67 deal with the annual audit or examination of charity accounts and the supplementary provisions relating to audits. Those clauses specify in detail the audit requirements to be placed on a charity in accordance with its income, which deals with the proportionality issue.
It may be helpful to explain the three distinct bands that will be in operation under the Bill. Where a charity has an income of less than £100,000 a year, the commission will require an annual statement of accounts examined by an independent examiner — that is, any independent person who the trustees believe has the relevant experience and ability to carry out a competent examination of the accounts. That could be a bank manager or a retired accountant, for example.
For charities with an income between £100,000 and £500,000, which is the second band, the commission will require an annual statement of accounts examined by a qualified independent examiner, and that will be a member of a specified professional body. The third band is for charities with an income over £500,000, and that will require a statement of accounts audited by a qualified auditor. That summarises what the three bands will be.
The issue of assets was raised during the consultation. Initially, in the Order that went before Westminster, assets were tied into reporting, as well as income. Indeed, assets of over £2·8 million would have triggered the need for a fully audited account, as in GB, even if the charity’s income was below a certain level. There are examples in Northern Ireland of asset-rich but income-poor charities, and some of the Churches especially had an issue with that as a criterion, so we have now separated assets from the reporting requirements. Charities will still have to report their assets to the commission, but it will not trigger any additional audit requirements, and that is a sensible concession to make.
The issue of charity legacies was also raised during some of the recent evidence sessions, specifically the concern that they might trigger a higher accounting threshold. At this stage, the Department’s view is that it would not be appropriate to disregard certain types of income when considering audit thresholds. We do not feel the need to have an amendment to exclude legacies from income calculations.
The Chairperson:
Is there any particular reason for that?
Mr McGivern:
We believe that there should be a level playing field for all charities. We did not feel that there is a valid need to exclude regular bequests or legacies from a charity’s overall income.
Mr F McCann:
Using the example of Churches again, because they tend to fall into this category, will charities that get bequests be adversely affected if they declare them?
Mr McGivern:
I do not believe that there will be a particularly adverse effect. Certainly, there is a culture in Northern Ireland of giving legacies to individual charities. However, there is also an issue of accountability. The public want assurances that moneys left to charities are being used in a proper manner. We believe that excluding elements of income would not, in some circumstances, give proper public assurance.
Mrs McGill:
Will you tell me a bit more about the qualifications required for the different kinds of auditor — for want of a better word — who will examine charities’ accounts according to the different bands? Is it the case that the third band requires an auditor with some considerable qualifications?
Mr McGivern:
There are three distinct bands. The first band is for charities with an income below £100,000; they will an independent examiner who does not need to have any professional qualifications, but who should be a competent person whom the trustees regard as such.
Mrs McGill:
Can you give me an example of who that might be?
Mr McGivern:
It could be a retired bank manager, an accountant — someone the charity is familiar with — perhaps someone who has previously volunteered for them. It will be someone whom the trustees, who know their own business, feel is competent to examine the charity’s accounts, but not a professionally qualified person, because that might impose a financial burden. If a charity had to bring in an auditor to do its accounts, there would be a cost attached to that.
The second band requires a qualified independent examiner, and the Bill is quite specific about the qualifications that that person should have. The examiner must be a member of either the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Institute of Chartered Accountants in Ireland; the Association of Chartered Certified Accountants; the Association of Authorised Public Accountants; the Institute of Chartered Secretaries and Administrators; the Chartered Institute of Public Finance and Accountancy; or the Association of Charity Independent Examiners. A member of any one of those various professional bodies would be qualified to carry out the examination under the second band.
The third band requires a full independent audit. That requires a qualified auditor, who is eligible for appointment as an auditor, as defined by Part III of the Companies ( Northern Ireland) Order 1990, or who:
“is a member of a body for the time being specified in regulations under clause 67, and is … eligible for appointment as auditor of the charity.”
That is quite specific — it must be a qualified auditor as laid out in the regulations. That is for income over £500,000, which is the top band.
The Acting Chairperson:
A number of organisations have asked for the wording of clause 66 to be made clearer. The Department says that this is a complex area, and that it might be difficult to make it any clearer. Has any attempt been made by the Department to make that wording clearer?
Mr Doyle:
In that area — as in England, Wales and Scotland — detailed advice and guidance will be provided by the charity commission. The Department for Social Development has drafted a simple table regarding the bands for its own use. Perhaps that type of guidance will be issued by the commission once it is in a position to provide guidance on the auditing, accounting and reporting procedures. I imagine that some simple form of guidance to assist and support charities in meeting their regulatory requirements concerning reporting will be produced.
The Acting Chairperson:
I have worked in voluntary organisations for a long time. There are some people who have expertise and would be able to understand the terminology of the Bill reasonably well. However, there are also people on management committees who simply would not have the expertise or knowledge required to interpret that terminology. It would be helpful if the charity commission could provide a guide to clarify the terminology for people who do not have that kind of expertise.
Mr McGivern:
That is a valid point. It needs to be made easier to understand. It is very difficult to do that in legislation, as you will appreciate, but we will ensure that detailed guidance is issued to charitable organisations.
The Acting Chairperson:
Many charities use people who give of their time voluntarily. That time could be better spent than in trying to interpret what could be considered to be legalistic jargon.
Mr McGivern:
Absolutely.
The Acting Chairperson:
There is also a question about charities that are also small companies, and the anomaly between the charity legislation and company law.
Mr McGivern:
There have been some issues raised about clause 66(10), in relation to charities that are also companies. Those are not subject to charity legislation; they are regulated by company law. The Companies Act 2006 is being enacted over a period of time, with amendments being made in order to dovetail company and charity legislation in England and Wales.
The Department is monitoring that situation. Clause 181 of this Bill provides a power to make amendments reflecting changes to company law. Any draft Order containing such amendments would be put before the Assembly and this Committee. We appreciate that there will be a need, at some stage, to make those amendments.
Ms Lo:
Is the Companies Act 2006 similar to the Charities Bill in its accounting?
Mr Doyle:
The 2006 Act covers the whole of the UK. Parts of the Bill amend company law. Although charitable companies are regulated by charity law, there are instances where there is a crossover between company law and charity law — where a company is a charity. Different commencement Orders are being introduced, and as they come into force the Charities Bill will have to be amended to keep charity law in line with company law.
Ms Lo:
A lot of voluntary organisations are companies limited by guarantee with charitable status. Obviously, many of them will change to register as charities. Will they still want to remain as a company limited by guarantee? They probably will.
Mr Doyle:
If they wish; I will talk about that later as we go through the clauses. A new legal entity will be introduced, to be known as a charitable incorporated organisation. Charities can convert from a charitable company to a charitable incorporated organisation. They will have the same status as a company, but the charity commission will be the lead regulator. That will do away with the dual burden of regulation by Companies Registry and the charity commission.
Mrs McGill:
Is the Co-Ownership Housing Association purely a charity?
Mr Doyle:
In England and Wales, some housing associations are charities and some are money-making concerns. It would depend on the nature of the co-ownership organisation itself, whether it is a not-for-profit organisation or a for-profit organisation. That would fall under the charity legislation.
Mrs Gill:
Is the Co-Ownership Association here a charity?
Ms Lo:
I think so.
Mr Doyle:
I am not 100% sure. However, if it is not a profit-making organisation or a for-profit organisation, and it has applied to Revenue and Customs for charitable status for tax purposes, then it is, in effect, a charity and comes under charities legislation.
The Acting Chairperson:
Are members content with clauses 64-67?
Members indicated assent.
Mr McGivern:
Clause 68 reflects the duty of auditors to report matters of material significance to the commission — as one would expect. Clauses 69 and 70 deal with annual reports and their public inspection. Those clauses set out requirements on charities to prepare annual reports and specify the arrangements for public inspection of those reports. That is an important issue in respect of public confidence in charitable activities. Many charities already meet that requirement, particularly those that access statutory funding.
The Acting Chairperson:
Are members content with clauses 68-70?
Members indicated assent.
Mr McGivern:
Clause 71 deals with annual returns by charities. The charity commission will be expected to issue advice and guidance on the nature and format of those returns. Every effort will be made to ensure that that does not put a further unnecessary burden on charitable organisations. We have had discussions with the UK and Ireland Charity Regulators’ Forum to ensure that we have some kind of standard format to collect the information from charities.
The Acting Chairperson:
One of the concerns raised is the duplication of regulation. Can you explain that?
Mr Doyle:
It is envisaged that the charity commission, once established, will work with other regulators to ensure that there is a minimum of dual regulation for charities to meet their regulatory requirements.
Mrs McGill:
In clause 71 it says that charities shall make annual returns:
“containing such information, as may be prescribed by regulations made by the Department.”
The regulations are not, therefore, made by the charity commission but by the Department for Social Development?
Mr McGivern:
The charity commission will not have the power to make regulations.
Mrs McGill:
Therefore, the Department for Social Development will still be the overarching authority — is that the case?
Mr McGivern:
The charity commission for Northern Ireland will be a non-departmental public body; it will be the charity authority for Northern Ireland. However, the Department has an oversight and accountability role. If further legislation is required, it will be sponsored by the Department, not the charity commission. The Department would, of course, work closely with the commission to ensure that any such legislation was a requirement for the commission as well as for the Department.
The Acting Chairperson:
The Committee would obviously be given the opportunity to scrutinise any legislation.
Mr McGivern:
Any legislation sponsored by the Department would go through the same route — through the Committee and through the Assembly.
The Acting Chairperson:
The Committee would, therefore, have an input.
Mr McGivern:
Yes.
Mr Doyle:
There is a similar situation in England and Wales with the Charity Commission there. However, the Office of the Third Sector drafts its regulations and Orders. In Scotland, the Office of the Scottish Charity Regulator cannot make legislation. That is done for it by the Scottish Assembly.
Mrs McGill:
You mentioned the charity commission and the charity authority.
Mr McGivern:
The charity commission will be the charity authority.
Mrs McGill:
Regarding financial requirements, however, it will still be the Department that sets down those regulations?
Mr McGivern:
We have to make the regulations, lay the regulations, and draft the legislation. Clearly, we will have to consult closely with the charity commission about the contents of that legislation, but the charity commission in itself will not be able to draft legislation.
Mrs McGill:
And will that require legislation? It says:
“as may be prescribed by regulations made by the Department”
— is that legislation?
Mr McGivern:
That is the intention at this stage. Once the commission is established, it may require legislation to prescribe the nature of returns by charities. That is the position in the rest of the UK.
Acting Chairperson:
The Committee is about to lose its quorum. If Members are agreed, the Committee will adjourn until next week and continue where we have left off. Some people are leaving. I hope that it is nothing to do with my being in the Chair and not a personal reflection on my ability.
Mr McGivern:
Just one point: we can work with the Committee Clerk to look at the schedule of clauses for next week. Clauses 165 and 166 were to be included. Perhaps that can be discussed during the course of the next week.
The Acting Chairperson:
Thank you.