Tag Archives: charities

Charity Funding Shortages – The Survey Says……No?

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Over the last week or so, I have come across various instances of people commenting on how hard it is for charities in the current economic climate.

The first was a news article about how charities are turning to investment markets for new sources of funding during hard times, commenting that “with public donations…falling, one in six British charities have said they are concerned they might have to close this year.”

The second instance was a conversation between two men talking about how hard it is for charities to find finding, with them commenting that “it’s really hard for charities, there’s no money out there at present – people can’t afford to donate, government funding and grant funding is being cut to next to nothing, investment returns are low…”

The final instance was during a charity audit course where the presenter, herself a trustee of a charity, was commenting that going concern is a key area at present given how much charities are struggling to find the resources to carry out their activities, at the very time when their services are required more than ever.

I do not know these specific circumstances of the organisations referred to above; the comments may reflect these. However, the comments seem very broad and generalised.

Now we all know that the British love to moan (queues and the weather spring to mind as two frequent complaints). But as the above are the common comments of charity funding, and two of the three specific examples above come from people involved in charities, surely this isn’t just a moan. Charities are finding it tough; there’s very little funding around.

But is that true? Evidence suggests otherwise. Looking at the data published by the Charity Commission for gross income levels recorded by charities for each year since 1999, income has increased every year. In the same period, the number of registered charities has fallen. Therefore, across the same period, average income per charity has actually increased year-on-year.

Income reported by large charities (in excess of £10million per annum) accounts for around half of the total income received by charities (ranging from 43% in 1999 to 57% in 2012). Therefore, one might argue that income for smaller charities is being squeezed – events such as Comic Relief, Sports Relief and Children In Need are massive events that energise the general public at large, and so people carry out events for these charities, perhaps to the detriment of smaller charities.

But again, this argument is not supported by the numbers. In the period 1999 – 2012, the number of large charities has increased year-on-year, as has the average income of these large charities. For ‘smaller’ charities, the number of charities has fluctuated from year to year over this period, whilst average income for such charities has increased every year.

Looking at the split of income, voluntary income has continued to increase. Investment income has continued to increase. Trading income has increased. Income from charitable activities, has fluctuated slightly, but is relatively constant.

So, the numbers do not appear to support the view that there is very little funding around.

Income may be increasing, but I know from my own work with charity clients there are certain types of funding that are being cut or are harder to obtain. Therefore, charities are having to review income streams, be innovative, be efficient. And the statistics above indicate that charities are doing this and doing this well.

Are times hard? Yes they are. But you know what? Perhaps it’s good that they are hard. If it was easy to attract income, there is a risk complacency sets in, income is taken for granted, and services/performance suffers.

Therefore, the age old adage that for every problem there’s an opportunity seems more appropriate than ever. The current climate is allowing charities to strive constantly to review their aims, provide efficient services and ensure the money received is meeting their public benefit objectives. So let’s take the opportunity to build upon the fine work charities are doing, continue to be innovative and forward thinking, and support the sector.

CIOs – worth the wait?

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The reporting requirements for charities can be burdensome, especially if the charity is incorporated as it must adhere to the requirements and reporting standards of both company and charity law. However, operating as an unincorporated charity is not without risk, since such a charity is not a separate legal entity. This leaves trustees with possible liabilities should things go wrong – something which can deter people from becoming trustees. So is it possible to have the best of both worlds? Well now, at long last, there could be an answer. The Charities Act 2006 created a new legal structure, the Charitable Incorporated Organisation (“CIO”) that seeks to combine benefits of both incorporation and being unincorporated.

Having been talked about for years, and despite being initially scheduled for 2009, the launch of the CIO has frequently been delayed. These delays have caused much frustration amongst the charity sector – as noted at the Charity Commission’s public meeting in May 2012 and by Lord Hodgson in his review of the Charities Act 2006 (which was published in July 2012).

In their response to Lord Hodgson’s review, the Office for Civil Society set out their intention to lay the necessary legislation before Parliament with a view to CIOs being available before the end of 2012. And this week, the Charity Commission started to accept the first applications with a view to registration from 2 January 2013.

So what is a CIO? It is a new a new legal structure combining the benefits of both incorporation and being unincorporated. Charitable companies and unincorporated charities will have the option to convert to being a CIO. There are several key features and benefits from being a CIO:

  • Limited liability – members of a CIO will have no or limited liability for debts of the CIO;
  • One law – CIOs will be governed by charity law only and will not also need to comply with company law;
  • One regulator – CIOs will be regulated by the Charity Commission only, with no requirement to also deal with Companies House;
  • One entity – as a separate legal entity, a CIO will be able to enter into contracts and hold property in its own name;
  • One set of reporting requirements – reporting requirements will be those as for charities, without the need to also review company reporting requirements, with the option to prepare receipts and payments accounts available for smaller CIOs.

However, the structure of a CIO will not be appropriate for all organisations. For example, there is no requirement for either the Charity Commission or the CIO itself to maintain a Register of Charges. Therefore, the CIO structure may not be appropriate for any charities looking to borrow, as banks and other funders may be more reluctant to lend.

Another point to consider is that whilst there is a mechanism for incorporated charities to convert to a CIO, existing unincorporated charities must register a new CIO with the Charity Commission, and then transfer its assets and undertakings from the unincorporated charity to the new CIO. This process is very similar to that followed by charities wishing to incorporate, but it may be put off some smaller charities, since the organisation will be operating under a new name and registration number, which will need to be notified to the everyone dealing with the organisation, not least its bankers, funders, suppliers, and HMRC.

So are CIOs worth the wait? Well for new charities looking to register, then undoubtedly it is a structure that should be considered. For existing charities, the administration in registering a new entity or undergoing the transformation process may put some organisations off – I have worked with unincorporated charities who have decided against incorporation due to the administration involved in changing bank accounts, contracts, notifying suppliers, funders, regulatory bodies etc (and in fact, remaining unincorporated may focus trustees’ minds even more on ensuring they are fully compliant and risk aware). However, there are benefits and, in a world where compliance seems to be forever increasing and organisations looking to reduce costs where possible, it is a structure that merits serious consideration.

The Charity Commission expect CIOs to be popular, with applications being phased over several years. Talk amongst sector professionals and advisors suggests the uptake may not be quite so large –at least initially, many perhaps waiting to see the impact of those keen to try the new type of organisation before fully committing themselves. Having waited so long, there will be interest in the sector and many organisations are likely to take this approach, given the benefits. After all, good things come to those who wait.

Are the best things in life still free?

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“The willingness of those who run charities to give their time freely for the benefit of others and not for their own financial reward” is the reason given by the Charity Commission to the question – what makes Charities distinctive? So does the suggestion by Lord Hodgson in his 2012 Review of the Charities Act that “large” Charities (those with income over £1m)  should have the automatic power to pay trustees – do away with this fundamental voluntary principle?

It is a question which has provoked much debate across the third sector. Attending the recent ICAEW Charity and Voluntary Sector Group Annual Conference I heard the question raised once more. So why has this proved such a divisive issue? What is it we fear from paid Trustees?

Paying Trustees is in fact nothing new, indeed as Sam Younger, Chief Executive of the Charity Commission, pointed out at that very conference; many Trustees receive payments, albeit with permission from the Charity Commission. The Commission’s guidance notes CC11 ‘Trustee expenses and payments’ – provides excellent advice on how this may be done, not only for reimbursed expenses but also payment for services provided and even payment for Trusteeship Duties. So if even the Charity regulator does not have a problem with payment for the provision of Trustee duties – who could object? A large body of opinion, if the legion of third sector forums is anything to go by!

Would Trustees still have the interests of the beneficiaries at heart if they were being paid – would they not have greater allegiance to those that pay them? This somewhat cynical view does not necessarily follow. If a CEO of a Charity were to be a paid Trustee, for example, would he or she be any less driven to act for the good of the beneficiaries? I think not. In fact it seems to me to make perfect sense that the person who is trusted to run the charity from an operational and very often from a strategic standpoint is also part of the Board that has the legal responsibility for those decisions.

This would also have the effect of reducing “them and us” situations between a Board and the management, providing for better and more effective buy in on decisions.

A recent poll reported in ‘Third Sector’ found that 67% of the sample was opposed to Lord Hodgson’s proposal. From my reading online this seems an accurate split. But I am shocked at the vehemence of the argument against paying Trustees. Lord Hodgson does not advocate the compulsory payment of all Charity Trustees, in his own estimate; it would affect about 3% of Charities. Even here it is only the power to automatically pay Trustees that is being recommended not the obligation.

In my work at Goodman Jones, I come across many talented and dedicated Trustees who provide valuable voluntary support for their chosen Charity; should they be disadvantaged in comparison to those who work in the Commercial sector, purely because of a historical legacy?

Do we really value something we get for nothing?

The Fine-l Countdown – Are Late Filing Penalties For Charities Imminent?

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Companies House, HMRC, the FSA – all impose fines for the late submission of returns and documents. The Charity Commission do not. But are they about to? And should they?

Whilst attending the recent annual public meeting of the Charity Commission, I was intrigued to hear Sam Younger, chief executive of the Commission, revealing that 35% of charities that filed their accounts late with the Commission had actually completed and signed the accounts within the filing deadlines.

Furthermore, of the late filers who are incorporated charities, 39% had submitted their accounts to Companies House on time. In fact, only 5% of the charities examined had filed their accounts with the Commission before filing with Companies House. It is worth remembering at this point that charities have a longer filing deadline with the Charity Commission – 10 months, as opposed to 9 months with Companies House.

These statistics indicate that charities are more aware of their requirements with Companies House, and perhaps feel under more pressure to ensure these deadlines are met. The Charity Commission research further revealed that 23% of charities examined (with incomes over £250,000) had filed late for all off the previous 5 years.

The obvious conclusion for this is that the late filing penalty regime imposed by Companies House acts as the driving force behind prompt filing.

So is it time to start fining charities for late submission? Trustees have a legal responsibility to meet the requirements to file their charity’s accounts with the Commission and the threat of late filing penalties may be the prompt needed to ensure charities approach governance and their legal responsibilities with more urgency.

The Charity Commission now seem keen to explore the idea of introducing some form of late filing penalty, and in his recent review of the Charities Act 2006, Lord Hodgson suggested that small penalties should be introduced to encourage charities to take their statutory and regulatory requirements more seriously. Lord Hodgson further suggested that such charities be barred from claiming gift aid.

But to me this seems unfair on charities that are reliant upon donations from individuals, and would not provide any discouragement for those charities reliant on other forms of income, on which gift aid cannot be reclaimed. Therefore, a fines’ system similar to that imposed by Companies House would seem fairer – with consideration to smaller fines for smaller charities (such as those with incomes below £250,000), so as to be slightly more proportional to their income levels.

Whilst the issue of fines is being discussed, there do seem to be other options that could be introduced to try to encourage prompt filing.

Aligning the filing deadlines at Companies House and the Charity Commission would be a good starting place, and would help to get trustees and advisors in the mindset of filing within 9 months.

Highlighting the filing options available to charities may also help. The Charity Commission actively encourages online filing. The vast majority of accounts filed at Companies House are still submitted through the post – and usually by an organisation’s accountants and advisors. Perhaps encouraging advisors to be more aware of the filing options (such as the option to file accounts separately, rather than together with the Annual Return which is the common method of submitting accounts to the Charity Commission) and making it easy for them to submit on behalf of the charity, would also help.

But is it wrong to fine charities that file late? With funding scarcer now, or at least more highly sought after, reducing the resources a charity to fund its charitable activities would seem unfair. However, incorporated charities are already subject to the penalties imposed by Companies House and so some charities are already paying fines. So perhaps the unfairness of fines isn’t an issue to consider.

Furthermore, a recent Ipsos Mori poll revealed that 96% of the public believe charities should provide the public with information on how they spend their money. Charities have a duty to demonstrate their public benefit. In addition, maintaining trust is vital in attracting donations. Therefore, it could be argued that charities not fulfilling their reporting requirements and providing the public with the information they want, are not deserving of support.

The negative connotations surrounding fining charities seem to be diminishing. Charities should be aware of their governance requirements – and should want to ensure they are compliant. Public trust and reputation is vital – without it, charities would lack the funding to carry out their important work.