The Charitable Incorporated Organisation (CIO) – high hopes?

The Charitable Incorporated Organisation (CIO) – high hopes?

As from 2 January 2013 the legal framework for CIOs (initially created by the Charities Act 2006, set out in the 2011 Charities Act and since supplemented by regulations and an Order) allows the Charity Commission to enter CIOs on to the register of charities. The introduction of the CIO is an attempt to reduce the regulatory burden for charities. Having been initially suggested some 20 odd years ago, many in the charity sector have been waiting for it for long enough.

But it remains to be seen whether the CIO will turn out to be the all singing all dancing vehicle for charities many have wanted. As an incorporated charity with legal personality, and limited liability for its members and (usually) its charity trustees, it should be simpler to set up and run than a charitable company. It will be registered and regulated by the Charity Commission alone.But there are limitations: unlike a charitable company a CIO can’t issue debentures.

A CIO won’t be simpler to set up and run necessarily than unincorporated charities. CIOs will have to submit annual returns and accounts to the Charity Commission regardless of income for instance. And unlike other charities a CIO only comes into existence when it is registered by the Charity Commission (requiring registration regardless of income).

  

For those charity trustees for whom this structure might appear an attractive option (as the recipient of the assets of an unincorporated charity say) you need to know that until 1 March 2013 only new set up CIO applications will be considered.   Existing unincorporated charities looking to set up and transfer assets to a CIO can apply to register the proposed recipient CIO after that time.  But, when exactly, depends on the income levels of the unincorporated charity, starting with those in excess of £250,000, and in phases between 1 May 2013 and 1 January 2014. On the plus side that timetable might encourage charity trustees to take time to consider whether this option -and its implications -are right for their charity.

Conversion of a charitable company to a CIO will involve re registration with a constitution and uninterrupted legal personality. But CIO registrations involving conversion of charitable companies (or Community Interest Companies) won’t likely be an option until 2014.

It may be that by the time you read this the Charity Commission will have reported registration of the first CIO. Time will tell whether this attempt to lighten the regulatory burden for charities will work: bearing in mind the time and effort that has gone into it, let’s hope so.

Consultancy for Charity Registration

Consultancy for Charity Registration

An introductory Video for an introduction to Gillian Shaw Consultancy Ltd.

Growing Successful Charities through specialist and cost effective Charity Consultancy. Well informed Charity Registrations, Good Governance, Grant Application Assistance, Public Benefit Reporting and so much more.

Good governance: one good reason why it matters

Good governance: one good reason why it matters

‘Charities Back on Track 2011-12: Themes and lessons from the Charity Commission’s investigations and regulatory casework’ makes interesting reading for charity trustees. The story the report tells suggests that governance – good governance – might be worth more attention than you think.

    

‘Charities Back on Track’ outlines concerns that have been serious enough throughout the year for the Charity Commission to justify becoming involved through statutory inquiry in their resolution: a regulator that intervenes based on a risk framework and a proportionate approach to the use of its powers and resources.

Concerns about governance feature highly in the report. Those areas exposed as causing the most concern involve failure to comply with a charity’s governing document and management of conflict of interest and transparency of decision making. Apparently difficulties for charities from poor governance or poor trusteeship featured in 73 statutory investigations closed during the period covered by the report, out of a total of 85. Acting beyond the objects of a charity arose as an issue in 17 of those cases. And unmanaged conflict of interest triggered concern in 16.

Some cases might have included more than one source of concern, of course, as the case studies helpfully illustrate.  Failures in fundraising governance are singled out for a mention, for instance, featuring in 9 of the 85 closed cases together with fraud which arose in 18 out of 85 of those concluded cases.

   

Interestingly, 44% of those charities making up the numbers for statutory inquiries closed in  2011-12 were charities with income up to £25,000. Charities with income between £25,000 and £100,000 accounted for 12% of them and charities with income between £100,000 and £250,000 made up 20% of those charities subject to statutory inquiry closed during that period.

The figures don’t reveal whether those small charities all experienced governance issues worthy of statutory investigation, but the figures do tend to suggest that many of them did so. ‘Charities Back on Track’ is intended to provide charity trustees with the opportunity to learn from the mistakes of other charity trustees. Perhaps one thing for charity trustees to take away from this report is the value in getting the governance basics right and why that can only be time well spent.

Charity trustees, data protection and risk

Charity trustees, data protection and risk

Charity trustees are faced with many legal requirements and much guidance about good practice. Keeping on top of what is expected of them to comply with their duties and responsibilities as charity trustees is by no means easy. The need for charities and charity trustees to comply with legislation that is not charity specific, in addition to the requirements of charity law, makes life for charity trustees that much more difficult.
   
Compliance with data protection legislation is just one such requirement. Processing personal data will be part and parcel of the operation for many charities. Indeed, as the Information Commissioner acknowledged in its warning to charities this year, charities will very often be vulnerable to more serious breach of data protection given that they will often process sensitive personal data.

The fine of £70,000 imposed by the Information Commissioner on the charity Norwood Ravenswood Ltd, as reported this week, is the first of its kind. Perhaps fines of that size are unlikely to become common place. But the episode illustrates the very real risks for charities posed by lack of compliance with this legislation.
    
The consequences of non compliance will not always be so severe, of course. The Information Commissioner reported in August having issued three warnings to charities regarding the loss of personal data this year, which on the face of it does not sound so bad.

But when you hear that those incidents arose through the use of memory sticks and laptops, which are now commonplace, it does bring home the risks. Risks which would fall within the scope of the Charity Commission guidance Charities and Risk Management CC26 and which charity trustees are expected to manage and mitigate. (Risk in this area might potentially, but you would hope less likely, fall within the remit of Reporting Serious Incidents updated by the Charity Commission in September this year).

Help is at hand however for charity trustees looking to mitigate this particular risk. Start with the bespoke guidance for charities issued by the Information Commissioner in August on how to steer clear of danger, including five top tips and the opportunity to arrange free advisory visits. 

See http://www.ico.gov.uk/news/latest_news/2012/charities-urged-to-sign-up-for-ico-data-protection-check-up-top-five-tips-08082012.aspx

Charity Commission Public Benefit Consultation – what next for charity trustees?

Charity Commission Public Benefit Consultation – what next for charity trustees?

The Charity Commission’s Consultation on its draft Public Benefit guidance closed on 26 September.

The timing for the re draft was triggered by the ISC case of course. But the requirement for the Charity Commission to provide guidance ‘in pursuance of its public benefit objective’ is to be found in section 17 (1) of the Charities Act 2011. That public benefit objective, set out in section 14 of the 2011 Charities Act, is ‘to promote awareness and understanding of the operation of the public benefit requirement.’ (The public benefit requirement, just to complete the picture, being ‘the requirement in section 2 (1) (b) that a purpose falling within section 3 (1) must be for the public benefit if it is to be a charitable purpose ‘– section 4 (1) of the Charities Act 2011).

  

The draft public benefit guidance reflected the Charity Commission’s view, that that statutory objective means that any guidance it produces needs to deal with the duty of charity trustees to administer their charity for public benefit, just as much as it needs to deal with public benefit as part and parcel of a charitable purpose.

   

There will, no doubt, be different views about the Charity Commission’s approach. Some will take the view that the Charity Commission has gone too far: that its guidance should just deal with public benefit as it applies to consideration of charitable purposes. Others will be more comfortable with the approach set out in the draft guidance on public benefit.

The NCVO for instance, has made known their position expressed during the consultation, cautioning against a ‘light touch’ approach to regulating the public benefit requirement, in terms of the duties of charity trustees to run their charity for public benefit.

The Charity Commission has said that it hopes to issue the guidance in its final form later this year or early next. It will be interesting to see what changes are made to the draft public benefit guidance. Given the analysis of the law relating to public benefit produced by the Charity Commission which accompanied the draft guidance, it is perhaps unlikely that there will be a shift away from its current approach to guidance on the public benefit requirement.

Whatever changes might appear to the draft public benefit guidance in due course, charity trustees will still be required by those regulations made under section 162 of the 2011 Charities Act to report annually on public benefit. Complying with the Charities (Accounts and Reports) Regulations 2008 will require charity trustees to describe how they have carried out their charity’s purposes for public benefit. The reality for charity trustees is that, no matter what the final form of the public benefit guidance looks like, on a practical level they will need to continue to be able to demonstrate, each year, just who benefits from the work of their charity and how.

Support for the importance of public benefit for charities?

Support for the importance of public benefit for charities?

Reading Third Sector in the past week I was struck by two items about charities in particular and could not help but wonder whether there might be a connection between the two.

There was a report on a speech made by Sam Younger, chief executive of the Charity Commission, about close working between charities and the private sector and the risk to public trust and confidence in charities, if that should blur the definition of charity.

This is not the first time the regulator for charities has highlighted the risk for charities if they do not demonstrate what it is that makes them distinctive, the significance of public benefit. Perhaps that concern is what we should expect from the Charity Commission.

But there was a report too on the Charities Aid Foundation research on the growing disparity between giving to charity between those over and below 60 years of age. Apparently the over 60s are twice as likely to give to charity as the under 30s. And the over 60s now provide more than half of all donations to charities.

Perhaps those over 60 developed the donation habit at a time when the notion of charity was much clearer: when the charity ‘brand’ was more distinct. Certainly the ‘third sector’ as we know it now is a relatively recent concept.

The growth of different forms of other not for profit entities, has generated a more complex picture where charities are just one type amongst many. Combine that with the increasingly complex environment in which charities operate, funding via contracts for instance, and the move away from the more traditional and towards more ‘businesslike’ arrangements and perhaps the donation picture is less surprising.

Older people may have established connections and developed loyalty to charities at a time when there was less competition between ‘good causes’ and at a time when perceptions of (and realities for) charities were very different.

If the complexity of the ‘third sector’ has anything to do with giving to charities amongst the young then maybe there is something in the message about the need to communicate what it is about a charity that makes it worthy of donation (in kind or otherwise).

The more competitive the ‘third sector’ gets the more important it becomes for charities to demonstrate how they deliver public benefit: what it is that makes them different and what makes them a charity.

Charity Consultants Gillian Shaw Intro Video launched

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