The recent Law Commission report Technical Issues in Charity Law demonstrates how complex the world of charities is. It addresses a number of finance topics, such as how to use restricted funds for other purposes; selling, letting and mortgaging land; greater flexibility around the use of endowment funds; payments to trustees and non-beneficiaries; and mergers and insolvencies. The liberal smattering of mediaeval French and Latin is a further reminder that we operate in an antiquated system of regulations; and the fact that the full report runs to 465 pages further demonstrates the complexity and range of issues faced by all sorts of charities, from higher education institutions to royal charter bodies. Those in this latter group will be greatly relieved to know that, all being well, the Privy Council will no longer be charging them for printing supplemental charters on vellum – and that particularly seismic change does not need new legislation.
Auditors and accounts
The Charity Commission has reviewed all the accounts it received last year that included some sort of modified audit report, which this means that in some way or another the auditors were not happy with the accounts. Of the 197 identified, three were described as so severe that the accounts could not be described as accurate at all. Other problems that trustees should avoid in the accounts included not following the Statement of Recommended Practice and not keeping proper accounting records. Issues with the Sorp mainly related to how things were valued: stock, investments, property and grant commitments. It is sometimes tempting for trustees to see the accounting requirements for charities as minor inconveniences that can be treated with a certain amount of disdain. This is a reminder that trustees are responsible for reporting their results within a statutory framework, and that there are consequences of treating those requirements too lightly.
The Charity Commission’s report coincides with a new paper from the Institute of Business Ethics, which stresses that the responsibility for accurately preparing a company’s accounts lies with directors or the trustees, not the auditors. This will be a shock to the many trustees who assume that the accounts are something the auditors or examiners are responsible for. That is never the case, and trustees need to understand, and own, their own financial reports. Anthony Hilton of the London Evening Standard asserts that managements want to put a favourable gloss on results because they want to be seen in a good light. In the commercial world this might be to boost their pay and promotion prospects. The motivation at charities might be less venal, but is still misplaced.
As part of the recent legacy campaign Remember A Charity Week, Co-op Legal Services announced that only 4 per cent of the population in England and Wales make wills that include a legacy for charity. It compares this with the huge number of people who depend on charities at some stage in their lives. To make the point clearer, it says that legacies have paid for two out of three guide dogs; six out of 10 lifeboat launches; a third of Cancer Research UK’s life-saving work; half the calls to the Lullaby Trust’s bereavement helpline; and a third of the work done by the Royal National Institute of Blind People.
The campaign is designed to encourage everyone to include some charitable bequests in their wills, but is also a prompt for all charities to make sure that they do not overlook this important potential source of income.
Don Bawtree is lead partner for charities at accountants BDO LLP