Tag Archives: charity governance

The New Charity Governance Code

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Good governance is key for your charity. It helps to provide a strong foundation as you works to achieve your aims and help your beneficiaries. It supports compliance with applicable laws and regulations, and promotes attitudes and a culture throughout the organisation that can help to unite everyone and everything as you fulfil your objectives.

Good governance can also send a strong message to funders, regulators, and other stakeholders. It allows you to demonstrate that you are well-run organisation, helping to increase trust and confidence. It may also help to attract funding for expanding current projects or for running new projects.

On 14 July 2017, the new Charity Governance Code was published. The Code has been developed by a steering group of sector umbrella bodies, with the help and input of over 200 charities, individuals, and related organisations through public consultations.

It is not a legal requirement and it has not been designed to be used as a regulatory framework. It should be used alongside other guidance, in particular the Charity Commission’s formal guidance.

The Code has been developed with the aim of being a support tool that charities, their trustees and key management, can use to aid improvement in governance matters.

The Code is formed of seven different sections:
• Organisational purpose – guiding the Trustees and management on understanding your charity’s aims and objectives
• Leadership – helping promote the organisation’s culture, values and ethos
• Integrity – maintaining your charity’s reputation, and managing conflicts of interest
• Decision making, risk, and control – guidance on delegation of day-to-day management and risk management process
• Board effectiveness – promoting board behaviours and skills, and effective monitoring of board performance
• Diversity – encouraging openness and inclusivity
• Openness and accountability – building public trust and confidence

There are two versions of the Code – one for larger charities (generally those with annual income of around £1million and above), and one for smaller charities (those organisations with annual income below £1million).

Adopting the Code will help to promote good governance within your organisation, and to demonstrate to stakeholders that you are an effective organisation.

If you have any questions about how your organisation can use the Code, please do get in touch.

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.

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.