Commission reviews charity annual return 2018

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The Charity Commission for England and Wales published the outcome of (and its responses to) its recent Annual return 2018 consultation on 2 January 2018.

Changes apply to charities’ financial years starting on or after 1 January 2018 and are predominantly around how information is to be gathered from charities – namely:

  • Changes to registered details will no longer be included in the annual return. Instead charities will need to use the new Update Charity Details service to update this information throughout the year as part of the registered particulars so that the register remains accurate.
  • The annual return will in future be limited to gathering financial and regulatory information which is relevant to each charity.

The consultation saw 287 responses and the Charity Commission has:

  • maintained four of the proposed question sets,
  • amended four proposed question sets, including making some of the information voluntary for the annual return for 2018
  • decided not to proceed this year with two proposed question sets.

The Commission said it will improve the guidance and definitions of the data required for each of the new questions, which are summarised below including an overview of the Commission’s response to consultation feedback:

Fundraising

Two new questions are to be asked, as follows, with the results being published on the charity’s public register page.

Question A.2

Does the charity work with a professional fundraiser? Yes/No

If the answer to Question A.2 is ‘Yes’ the charity will be asked:

Question A.2.2

Does the charity have a signed contract with the professional fundraiser? Yes/No

What the Commission said: “we will use the term ‘written agreement’ rather than signed contract….and will provide further guidance around technical terms for clarity.”

Income from central and local government

Two new questions are to be asked, as follows, with the results being published on the charity’s public register page.

Question B.1

How many contracts did the charity receive from central or local government?

Question C.1

How many grants did the charity receive from central and local government?

What the Commission said: “reliance on single or primary source public funding is a common factor for charities in financial distress and so this is a risk factor.”=

Gift Aid

Proposed question, which will not be asked:

Question D

During the financial period for this annual return how much Gift Aid did the charity claim?

What the Commission said: “Whilst some of the information we were proposing to ask for is also collected by HMRC, it is not done on the annual cycle required by the Commission, nor is it currently collected or held by HMRC in a format that enables the Commission to easily data match. Obtaining the information directly would simplify our work.”

Charities will, however, be expected to provide their HMRC reference number via the Update Charity Details page - it will not form part of the 2018 annual return.

Income received from outside the UK

The proposed question set required charities to list countries outside of the UK from which it received income in a financial year, going on to specify the source and amount of income from each country selected.

Revisions have been made so that:

a) charities with an income of £25,000 or less will only be asked to report individual payments from individual donors or institutions outside the UK(other than charities, NGOs and NPOs) if those payments are 80% or more of the charity’s gross income for the financial year; and

(b) charities with an income of more than £25,000 will only be asked to give the total value of all of the individual payments from individual donors or institutions outside the UK (other than charities, NGOs and NPOs), which are more than £25,000.

What the Commission said; “It is important that we have a better understanding of the income sources of the charity sector including a more complete picture of the flow of funding into and out of the UK, and the provenance and volume of donations and income from outside the UK.

The information will identify income sourced from government and quasi-government bodies, including information about which charities and how many are reliant on European and/or EU funding, and will enable us to monitor where there may be a loss of European and/or EU funding following Brexit.”

Whilst I can understand the government wanting to get a handle on how much of our third sector’s activity is funded from outside our own economy, the impact on small charities, reliant upon overseas funding, who will be expected to have a reporting system sophisticated enough to extract the relevant information, remains to be seen.

Employees’ salaries

The proposed question set required charities to state whether any employee received a salary in excess of £60,000 and, if so, the numbers of staff in each salary bracket above £60,000 in £10,000 increments. There was also a proposal to ask what the CEO was paid.

As we know, SORP currently requires us to report on some elements of this in a charity’s financial statements. Following robust feedback on this area, the Commission considered and made revisions.

What the Commission said: “We will ask for information about the total employee benefits rather than the salary. Total employee benefits will be explained in the guidance and will include salary, bonuses, pension contributions, private health care and other benefits in kind.

We will ask for the total employee benefits of the highest paid employee rather than the CEO.

The income bands between £60,000 and £150,000 will be £10,000 in line with the SORP but for amounts over £150,000 the bands will be £50,000 up to £500,000. There will be a final band of over £500,000.

The information about the employee benefits of the highest paid employee will not be published but the numbers of staff receiving remuneration in excess of £60,000 will be published in income bands.”

Payments to trustees

Two new questions are to be asked, as follows:

Question G

During the financial period for this annual return, were any of the trustees paid:

a) for being a trustee

b) for providing professional advice e.g. accountancy or legal advice

c) in receipt of other benefits e.g. renting property from the charity below market value?

Question G1

During the financial period for this annual return, were any employees formerly trustees of the charity?

What the Commission said: “The term “benefit” will be defined to include a direct or indirect benefit of any nature. The question will be amended to ask about any services provided to the charity and will not be restricted to any particular services or professional advice….Publishing the information creates greater transparency to inform donors, funders and trustees.”

Expenditure in countries outside England and Wales

Expanding on an existing section of the annual return, further proposed questions asked charities to clarify whether, when money was spent in countries outside of England and Wales, were there transfers outside of the regulated banking system? If so, what money transfer mechanisms were utilised? The questions went on to explore whether appropriate controls around such spend were in place and asked about the trustees’ risk management procedures in this area.

What the Commission said: “We will ask this question set but parts of it will be voluntary for annual return 2018. All parts of the question will be mandatory for subsequent annual returns. We do not intend to publish the information provided on the charity’s public register page.”

Managing charity assets – land and buildings

A proposed question, which will now not be asked:

Question I

Does the charity get rate relief on the premises?

What the Commission said: “Initial research on the use of rate relief indicates that here is some abuse of this relief. However, we accept that the question in its current form does not provide information to enable us to address possible abuse of charitable status. We will continue to explore this issue as it has the potential to create concern about the benefits which charities receive.”

Trading subsidiaries

One new question will be asked, as follows:

Question J

How many trustees are also Directors of the subsidiary?

What the Commission said: “The information obtained through this question will enable the Commission to develop its risk framework to identify charities where there is potential for financial abuse and poor decision making, including unmanaged conflicts of interest.

Whilst information can be obtained in specific cases from Companies House it is not in a form which will enable us to use the data we hold to look at trends and to identify risks affecting the sector. We have decided that the question proposed in the consultation would not work for charities with more than one subsidiary. Because of this, the question will be modified to ask if any of the charity trustees are also directors of any of the charity’s subsidiaries.”

Safeguarding

Two new questions are to be asked, subject to the Commission’s comments below:

Question K

Do any trustees, staff or volunteers work directly with vulnerable beneficiaries? Yes/No

If the answer to Question K is Yes, the charity will be asked

Question K.1

Have DBS checks been carried out on these individuals?

What the Commission said: “We will only ask charities to provide information on DBS checks if they do not provide it to another regulator (other than the Disclosure and Barring Service).”

Whilst some of the changes noted above are voluntary in the short-term, it is clear that charities will be expected to demonstrate even more transparency and accountability in the future. Robust policies, financial controls and the ability to report with ease have never been more important.

How will the smaller organisations in the Sector fare with more complex reporting and record-keeping requirements? Only time will tell.

About Jen Gerrard

Jen Gerrard

Jen is a Fellow of the Association of Chartered Certified Accountants (FCCA) and the founder and managing director of Gerrard Financial Consulting, a specialist accounting firm for the charitable sector. She has over 17 years’ experience working in accounting and finance and has also worked as an accountancy tutor for a leading training provider.

Jen has been a trustee of the Southville Community Development Association (2014 to 2017), Self Injury Self Help (SISH) (2013-2016), the Oswestry Food & Drink Festival and Impact AAS (2007 to 2010). In addition to being a current Trustee of Women’s Aid Federation of England, Jen has been a registered volunteer with Volunteer Bristol for four years and is a Member of the ICAEW Charity & Voluntary Sector Specialist Group.

Jen sits on the South West & Wales Regional Engagement Forum of the Charity Finance Group and makes regular contributions to articles in national publications – most recently AccountingWEB and Charity Finance Focus (produced by the CFG). She is also a regular speaker on charity finance and governance matters.

Her firm is a corporate member of the Charity Finance Group and was shortlisted in two categories for the AccountingWEB Practice Excellence Awards 2016. This is in recognition of the company’s innovative work with charities and NFPs to streamline their finance functions through adoption of new technology.

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