Analysis: Regulator gets tough on late filers

The Charity Commission has been taking a harder position in recent weeks on charities that persistently file their accounts late. Andy Hillier looks at the sanctions at its disposal

The late filing of accounts by charities is a perennial cause of frustration for the Charity Commission, and barely a year goes by without the issue of serious warnings to defaulters or even threats of sanctions, such as fines or the withdrawal of Gift Aid.

The firmest action to date came five years ago, when the commission introduced a red border around the entries in its online register for charities with overdue accounts. Since then, the proportion of charities filing on time has risen from 75 per cent to 85 per cent in 2012/13. Meanwhile, Companies House, which has the power to fine, achieves 99 per cent compliance.

This year's late filing campaign, which comes in the context of the commission's general drive to be a tougher, more effective regulator, seems particularly determined. At the end of last month, it launched a class inquiry into 12 named charities with incomes of more than £500,000 that had failed to submit their accounts for two or more years in the past five years. It is also exploring with the government whether to introduce fines.

So why does late filing matter so much? William Shawcross, chair of the commission, argued last month that late accounts were "often a warning sign that a charity is going astray". The commission also argues that it's a matter of public trust, pointing out that ignorance of how charities spend their money is one of the chief reasons the public gives for not trusting charities.

Cracking down on late filing may also be a way of showing that the regulator is responding to criticism Peter Gothamover regulatory failure in recent cases such the Cup Trust and the Dove Trust. Peter Gotham (right), a partner and head of charities at the accountancy firm MHA MacIntyre Hudson, views the latest call for fines as possibly an attempt by the commission to be seen as "responsive to its political masters" after calls for fines by the Hodgson review and the Public Administration Select Committee, which later found favour with the government.

But what about the existing sanction of prosecution, given that failure to file on time is a criminal offence under the Charities Act 2011? The problem is that the commission does not have the power to prosecute, and proceedings cannot be issued without the consent of the Director of Public Prosecutions, who would have to be persuaded they were in the public interest. In the past 10 years no trustees have been prosecuted or received a fine for late filing, the commission says.

When asked about evidence that late filing is a sign of charities going astray, the commission cites its recent inquiry report on Astonbrook Housing Association, which was used for a multi-million-pound fraud and had failed to file accounts on time. But the commission concedes that it was not the late filing of accounts that led it to scrutinise the association, but complaints by what was then known as the Border and Immigration Agency and Birmingham City Council.

The Dove Trust, which controls the suspended fundraising website CharityGiving and is currently being run by an interim manager installed by the commission as part of a statutory inquiry, also failed to file its accounts on time. But this was noticed and acted upon not by the commission, but by a charity that had not received the funds due to it and complained to the commission.

Gotham agrees that late filing can be a sign of wider issues, but says it's not necessarily the clearest of indicators. "You can have the effective charity that is inefficiently managed or has a temporary problem and always runs over the deadline," he says. "Then you have the Dove Trusts, where there are charity funds at risk. In that case it's the ones that have the charity funds at risk that the commission should be doing something about."

Sector supports fines

The sector seems broadly supportive of the introduction of fines for late filing. A survey by the Charity Finance Group last year found that its members would not object to fines, although three main concerns were raised. First, there might be complex reasons why accounts are not submitted on time, especially when smaller charities are not able to access or pay for support from auditors. Second, there is the question whether fines would actually drive up compliance and whether there might be a more effective measure, such as running joint communications campaigns with sector bodies and working more closely with late filers. Third, there is the question of who the fines would be paid to and how the funds would be used: this requires careful consideration because there could be a conflict of interest if the proceeds went towards the commission's own general income.

Fines would also require legislation and the time and political will to get it through parliament. But little work seems to have been done on the proposal or costs involved. The commission says: "Calculating how much it would cost to introduce a system of fining late filers is not straightforward and nor is this a calculation that can or should happen early on. First, we have to establish the principles and the mechanisms of the system - only then can we make an accurate cost model."

Under the Companies House fining system, the penalties range from £150 for private companies that submit their accounts less than one month late to £7,500 for public limited companies that supply them more than six months late - and the fines double if accounts are filed late in consecutive years.

Nick Brooks, partner and head of not for profit at the accountancy firm Kingston Smith, says that although he supports the introduction of a similar fining system by the commission, he shares concerns about whether it would lead to improved compliance. "If people have a genuine reason for not filing, then a £100 fine won't make them file quicker," he says. "We really need to find out why people are filing late and address that.

"If a charity hasn't filed for a number of years or has persistently filed late, then the commission should enquire why or ask its auditors."

Brooks suggests that the commission should focus its attention on the largest 3,000 charities by income to ensure that they file their accounts on time and comply with the rules. "It would be interesting to know which of the big charities are filing late and whether it was a one-off or they were always late in filing," he says.

Gotham considers the red border system used by the commission to be more of a deterrent than a small fine. He suggests that one way to ensure more charities file on time would be to mount a publicity campaign, maybe jointly with funder umbrella bodies, that encourages funders and donors not to give to late filers.

"I think it would be a more imaginative way of doing it," he says. "It is important that the commission does not unnecessarily reinforce an impression, already promulgated by some MPs and others, that charities are generally inefficient. Eighty-five per cent of accounts were filed on time in 2012/13, and the proportion of sector funds involved with persistent late filers is tiny."

Withholding Gift Aid

The threat of withholding Gift Aid is opposed by the CFG, which says it "would be a very strong punishment" and would "disproportionately affect small organisations or organisations that are struggling for resources". It also raises the question of whether the measure would be fair, given only a quarter of charities on the commission's register are registered with HMRC to claim Gift Aid.

The government's response to Lord Hodgson's review and the Public Administration Select Committee's report into the Charity Commission also raised concerns, arguing that the withdrawal Gift Aid on a routine basis would be impractical and costly.

- See Editorial


2002: Charity Commission says it is working with the Home Office to develop a system of fines for charities that file their accounts late.

2003: Commission launches Accounts Aren't Optional campaign and says that accountants should advise clients against making legacies to charities that fail to file their accounts on time.

2006: Commission announces 74 per cent of charities filed on time the previous year - the best percentage ever. But 11 of the top 100 charities were among the defaulters.

2008: February Commission chief executive Andrew Hind says raising on-time filing rates without the power to fine charities was like having "one hand tied behind your back".

Dame Suzi Leather2008: October Commission introduces red borders around the pages on its website for charities that are late in filing their accounts. Chair Dame Suzi Leather (right) calls it "a real revolution".

2011: Commission chief executive Sam Younger says that late filing is the "charity equivalent of drunk driving".

2012: Commission announces a consultation on fines for charities that file their accounts late.

2012: Hodgson review of Charities Act 2006 says that government should give serious thought to introducing a system of fines.

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