NICVA Response to the Draft Charities (NI) Order 2006

NICVA is the umbrella body for the voluntary and community sector in Northern Ireland.  It provides its members (approx 1,000) with information, advice and training on a wide range of issues from management consultancy and finance, through to policy development and lobbying.  NICVA adopts a community development approach, attempting to empower local communities to pursue their own needs and agendas.

NICVA’s response is based on its role as the representative body for the voluntary and community sector in Northern Ireland.  This response is informed by the consultation seminars held in conjunction with DSD’s Charity Branch and also NICVA’s work on last year’s consultation paper on the Review of Charities Administration and Legislation in Northern Ireland; the initial Advisory Panel work and the ongoing work of its Governance and Charity Advice section.

General Comments

It is suggested that any update and modernisation of legislation and administration of charities would in itself help to improve and enhance public support and confidence in this sector.  NICVA agrees that a regulatory system would help ensure that charities are properly run and therefore deserving of support.   

NICVA welcomes the provisions of the draft Order which provides statutory definitions of charity and charitable purpose; establishes a Charity Commission for Northern Ireland and a Charity Tribunal; creates a Register of Charities for Northern Ireland; and introduces the Charitable Incorporated Organisation (a new form of charitable body); sets out new rules with regard to fundraising and collections.  NICVA has reservations about the independence of the new Commission and strong concerns about the tight thresholds that are outlined for auditing requirements. 

Definition of charity

Proposal: The current four heads of charity, originating from 1891, will be replaced by 12 charitable purposes: 

1.The prevention or relief of poverty;
2.The advancement of education;
3.The advancement of religion;
4.The advancement of health or the saving of lives;
5.The advancement of citizenship or community development;
6.The advancement of the arts, culture, heritage or science;
7.The advancement of amateur sport;
8.The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
9.The advancement of environmental protection or improvement;
10.The relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
11.The advancement of animal welfare;
12.Any other purposes includes any purpose recognised as charitable under existing charity law and any purposes which may reasonably be regarded as analogous to the listed purposes above as well as those by virtue of section one of the Recreational Charities Act (1958).

NICVA’s comments

The expansion of the definition of charity helps to reflect the wide range of charitable organisations and helps to modernise charity legislation.  The new additions should help to recognise and deem charitable the work of many Northern Ireland groups in the areas of peace and reconciliation and/or addressing sectarianism and racism.

NICVA supports the broad interpretation of the advancement of religion which will include the belief in more than one god and a religion which does not involve belief in a god. 

NICVA expects that Purpose 5, which also includes rural or urban regeneration and the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities, will make it easier for support networks and infrastructure bodies within the sector to achieve charitable status. 

The retention of the miscellaneous category provides for the ongoing development and flexibility of charity law over time which provides scope for new charitable purposes to be recognised in the future.

The Charitable Purposes listed above reflect the definition within the Charities Bill for England and Wales thereby ensuring consistency with UK tax relief matters and that Northern Ireland charities receive comparable financial assistance.

NICVA notes that the Charity Commission for NI must provide guidance on the interpretation of all the purposes and NICVA believes there must be clarity (and as much alignment as is possible) in the language used in the definition of charitable purposes across the different jurisdictions including the Republic of Ireland.  This will ensure consistency with UK tax relief matters and that life is not made more difficult for the significant number of bodies that organise on an all island basis. 

The public benefit test 

The draft Order states that all charities will have to demonstrate public benefit and that no particular purpose should be presumed to be for the public benefit.

NICVA agrees that in order to register as a charity in Northern Ireland, an organisation must have one or more of the charitable purposes as listed in the Order and it must provide public benefit in Northern Ireland or elsewhere.  NICVA agrees that the public benefit test should be set out in legislation and supports the public benefit test which is outlined in the draft Order.   NICVA agrees that the public benefit test will take into account any benefit to individuals who are not legitimate beneficiaries and consider if their activities would be detrimental to the public.  The test will also consider whether any conditions on obtaining that benefit are unduly restrictive such as any charge or fee for the benefit.  NICVA believes that this will help ensure that charities which levy a high charge or fee, such as a private school, will have to demonstrate charitable activity. 

NICVA welcomes the provision that the Commission must issue guidance on the public benefit requirement and consult on this before the relevant guidance is issued.  However NICVA is concerned at the inclusion of the clause in Article 6 (4)(b) that permits the Commission not to consult before revising any such guidance if it considers that it is unnecessary to do so.  As the public benefit test will be applied in line with the guidance, it is extremely important that the Commission be required to consult on this guidance.  The latter is essential as some of our members are concerned about the application of this test and the implications that it may have on their future work.  It would be in the interests of the charity sector to have assurances from the new Commission, for example, that charities which are pursuing their charitable purposes have the right to advocate on behalf of their beneficiaries.

Perhaps the wording in the Scottish Bill would make this much more clearer which states that “OSCR must, after consulting representatives of the charitable sector and such other persons as it thinks fit, issue guidance on how it determines whether a body meets the charity test”

The Charity Commission for Northern Ireland 

There shall be a body corporate to be known as the Charity Commission for Northern Ireland.

NICVA believes that there is overwhelming support for the establishment of the Charity Commission for Northern Ireland both from within the voluntary and community sector and from the wider public. 

NICVA welcomes this new regulator of charities which will have powers of investigation and enforcement.  Effective regulation of all charities operating in Northern Ireland should enhance public trust and confidence in charities.

The Commission will have both a regulatory and an advisory function.  There were strong feelings in our consultation seminars that there needs to be a clear distinction between regulation and more general guidance.  It was agreed that the Commission should give clear focus on regulatory advice and the more general advice giving should be delivered by independent umbrella bodies in the sector. NICVA believes that if the Commission is going to give out advice on best practice and regulation then it should communicate clearly that the advice is on best practice and not instruction on mandatory requirements.  It is envisaged that the capacity of those organisations with an advice role on charity and governance matters will be stretched when the new Commission comes into being and the Department needs to resource these organisations accordingly. 

NICVA now questions the Commission being set up as a non-departmental public body and recommends that the new Commission be set up as a non ministerial government department . The Charity Commission of England and Wales and OSCR are both set up as non ministerial government departments which are answerable directly to parliament/executive and not a government department.   

NICVA does not agree with Article 8(3) that members of the Board are to be appointed by the Department but believes that this should be a duty of Ministers.  NICVA suggests that the Department examines Schedule 1 of the Scottish Bill which provides detail about how the board members are appointed and indeed who is not eligible to be appointed, namely elected representatives.  The appointments to the board of the Commission should be overseen by the Office of the Commissioner for Public Appointments (OCPA) to ensure that the appointments are made on merit and in a fair and open way.   NICVA strongly recommends that the Department consult with OCPA on this issue. 

NICVA has reservations about the independence of the new Commission.  NICVA would question if the new Commission would be able to make truly impartial decisions as the provisions in the draft Order with regard to staffing, for example, require the Commission to get approval from the Department.  If the new Commission were to be established as a non ministerial government department then all references in the draft Order for approval from the Department may also need to be revised.  In addition, Schedule 1 of the draft Order provides that the Commission may make arrangements for secondments from the civil service.  Whilst NICVA does not disagree that this should be possible it is concerned that the new Commission should not be made up entirely of people seconded from government departments.  NICVA strongly recommends that there should be a limit to the number of secondments from the civil service so that the Commission is truly independent and that its staff is recruited on merit and consists of people who have a good working knowledge of charities and the law.    NICVA would also question why the draft Order is being prescriptive about secondments from the civil service: surely it may also benefit the Commission to have secondments from the Voluntary and Community Sector?

It is recognised that this Commission must build on and maintain strong links to other charity regulators in the UK and Ireland.  The continuation and strengthening of existing relationships with such bodies will be essential for the provision of and access to information for charities that operate across the different jurisdictions, especially with regard to registration and reporting.

Charity Tribunal

NICVA welcomes the creation of a Charity Tribunal to allow for charities, or a body seeking charitable status, to question and appeal decisions, orders or directions of the Commission. 

Registration of charities

NICVA welcomes the establishment of a Register of Charities which will list all charities that are established or which operate in Northern Ireland.  The Register shall be open to public inspection at all reasonable times which should help promote transparency and public confidence as the Register will provide accessible information on charities which is currently not available.  The Register should also help to reduce the instance of rogue charities carrying out collections in Northern Ireland.  When the Register is fully up and running the public will be able to check the legitimacy of a charity.

The introduction of the register is to be phased in, checking the information provided for the register is to be on a risk assessment basis and there is to be limited access to the details of certain groups. It is envisaged that large charities will be registered first: concerns were raised about this from smaller charities at the consultation seminars.  Smaller charities are concerned that funders will expect to see them on the Register at the same time as the larger ones.  Therefore it is imperative that a schedule detailing expected registrations is made public so that no existing charity is penalised. 

UK wide charities have concerns about the reporting requirements (see below) that registration would bring with it.  However they do understand the need for them to be on the Register in the interests of public trust and transparency.

Charity accounts, reports and returns

NICVA agrees with the requirement that all charities will be required to keep proper accounting records, however it does not agree with the thresholds for the accounting procedures and audit requirements laid out in the draft Order.  NICVA would argue that the type of prescribed person or organisation, outlined in the draft Order, which is permitted to carry out the independent examination is not proportionate to the proposed income bands, thus resulting in added expense for smaller charities. 

For charities with an income of under £25,000 it is proposed that an independent examination must be carried out by an independent examiner who is reasonably believed by the trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts.  NICVA recommends that the £25,000 threshold be increased to £100,000 to allow for the independent examination of accounts by an unclassified independent examiner, as is the case in the rest of the UK. 

For those charities with an income falling between £25,000 and £100,000 it is proposed that an independent examination would have to be carried out by a reporting accountant, a member of the Chartered Institute of Public Finance and Accounting or a Fellow of the Association of Charity Independent Examiners (see below for comment on type of examiner) if they choose not to have a full audit.  NICVA recommends that the income bands for this type of examination should be £100,000 to £500,000 which would align Northern Ireland with the audit and accounting thresholds throughout the UK. 

The draft Order proposes that charities with an income of between £100,000 and £500,000 will be required to carry out a full audit on their accounts, however in Scotland, England and Wales, an independent examination carried out by a prescribed independent examiner (as outlined above) is required for this income band.  NICVA believes that the stated audit threshold is unnecessarily low and that charities in Northern Ireland who have an income of £500,000 or more should be required to carry out a full audit in alignment with the rest of the UK.   NICVA agrees that charities should have the option of choosing to have a full audit if they fall under this threshold.

The draft Order also proposed that a charity with assets of £500,000 or over must carry out a full audit even if its gross income is only £25,000 or above.  In Scotland, England and Wales a charity with gross assets greater than £2.8m is required to carry out a full audit.  NICVA believes that the proposed asset threshold should be increased to that proposed for the rest of the UK.  Northern Ireland has been experiencing significant rises in the value of property, with no indications of it slowing down and NICVA would argue that many small charities which own properties would have to incur the unnecessary expense of a full audit. 

It is stated in the draft Order  that a ‘Fellow’ of the Association of Charity Independent Examiners (ACIE) is permitted to carry out a qualified independent examination of a charities accounts however there are currently no Fellows of ACIE operating in Northern Ireland.  The ACIE has outlined the following categories which fall under its accredited membership, known as Full Membership:

• Licentiate (R&P) can carry out independent examination for charities with incomes up to £100,000 which produce R&P accounts
• Licentiate (All accounts) –the limit is £100,000 but with charities producing Accruals Accounts as well as R&P
• Member – the limit is £250,000
• Fellow – over £250,000 to whatever legal limits apply

From these categories, it is apparent that the word Fellow needs to be changed to Full Member, as is the case in Scotland, as the wording in the draft Order is too restrictive.  The ACIE has also pointed out that in order to become a full member of their organisation, practitioners have to demonstrate experience and understanding of charity accounting and independent examination.  If independent examinations are to be a real option for charities in Northern Ireland this provision, coupled with the income bands as outlined above, need to be changed.

The ACIE has also helpfully pointed out that it has turned down a number of applicants for full membership who were qualified accountants because of their lack of awareness of the differences between commercial and charity accounts. 

NICVA recommends that the accounting thresholds and audit requirements need to be completely rewritten to align Northern Ireland with the rest of the UK and that the new thresholds would apply regardless of legal structure.  NICVA proposes that further exploration is needed into what constitutes an independent examination.   For example the Charity Commission of England and Wales’s guidance on what an independent examiner should do is more prescribed than that of the Scottish regulator. NICVA believes that the new Commission should consult on this and have special regard to advice from the ACIE who are specialists in this field and have many years of experience in working with charities accounts.    

UK wide charities and those that operate throughout the island of Ireland are concerned that they may be required to draw up Northern Ireland specific accounts and believe that this would result in an unnecessary expense for them.  The Department has identified that “the Charity Commission for Northern Ireland will work with other charity regulators as to how registration documentation might be shared to avoid charities having to generate new Northern Ireland-specific accounting/reporting material”  but this is not written into the draft Order itself.   NICVA recommends that it should be written into the Order that the new Commission would accept consolidated UK accounts or all Ireland accounts, prepared in accordance with accounting regulations in whichever jurisdiction they are in with the proviso that disaggregated accounts could be required if the Commission had good reason for requesting them. 

NICVA proposes that the requirements of other regulators (housing association regulatory bodies, social services, funders, etc) should be taken into account when setting requirements so as to avoid duplication of regulation. Regulators, not just charity regulators should passport information between each other so that reporting requirements do not become too onerous for some charities. 

Charity trustees 

NICVA notes that there is neither a definition in the draft Order of what a charity trustee is nor a definition of charity trustee duties.  In other jurisdictions this is explicitly written into the legislation and NICVA believes it should be written into the Northern Ireland Order.  There are certain instances where this lack of definition could cause problems.  For example, if a trustee was appointed to the board of a charity by a statutory body it must be apparent that they are compelled to put the interests of the charity first, and not the interests of the body they represent.  The definition of a charity trustee and their duties must be clear in the legislation to avoid potential confusion and conflicts and ensure that all charity trustees are aware of their duties and responsibility to act in the best interests of the charity.

NICVA agrees that not everyone will be eligible to act as a charity trustee, for example, undischarged bankrupts and people with unspent convictions for offences involving dishonesty; those that have been removed as a charity trustee by the Commission or by the court for any misconduct or mismanagement of the charity.  NICVA welcomes the power that the new Commission will have to waive disqualification in exceptional cases, for example, charities who work with ex-prisoners would be considered. 

Incorporation of charity trustees

NICVA welcomes the ‘incorporation of trustees’ provision whereby the trustees of a charity may apply to the Commission for a certificate of incorporation of the trustees. After their incorporation the trustees may enter into contracts and sue and be sued in the name of the incorporated body.   This will be of particular benefit to those unincorporated charities which currently have the need for holding trustees.   Taking away the need for a holding trustee avoids the need for the execution of deeds, transferring land and/or investments, which costs money and can be quite time consuming.

Charitable incorporated organisations (CIO) 

NICVA welcomes the introduction of the new Charitable Incorporated Organisation as a specific legal structure for charities. The CIO will be similar in some ways to a limited company in offering protection of trustees from personal liability.  The main benefit is that those charities opting for this type of legal form will not have the burden of dual registration or reporting with company and charity law as the CIO will be regulated by the new Commission.  The organisation would always have to be charitable and the CIO would be entitled to the same tax benefits as any other charity.

The draft Order provides some clarity around the characteristics of this legal entity.  This is a positive development for charities.

Public charitable collections

NICVA welcomes the provisions laid out in the draft Order to cover all public charitable, philanthropic and benevolent collections.  NICVA agrees with the definitions of collections in the draft Order and the definition of a public place. NICVA also welcomes the inclusion of direct debit solicitation in the charitable appeal definition. 

NICVA agrees that an organisation must have a public collections certificate and a permit to carry out a collection in a public place: however NICVA is not convinced that the Commission should issue the permit as well the certificate.  Participants at the consultation seminars were concerned that the Commission would have limited local geographical knowledge and it would therefore be best if the new local authority issued the permits.  During the consultation seminars representatives from the Department of Social Development indicated that when the Review of Public Administration was completed in Northern Ireland the task of issuing the permit would indeed be transferred to the new local authorities. However, NICVA would welcome a more concrete assurance that this will be the case.

NICVA agrees that in order to carry out a door to door collection, the promoter of the collection must also hold a public collections certificate however they are merely required to notify the Commission and not hold a permit for this.   NICVA would argue that a permit should be required for a door to door collection also as it is possible that those soliciting direct debits could end up going door to door if they are curbed from the traditional public areas. 

There was concern expressed at our consultation sessions by those charities that currently use exemption certificates for regional collections for Northern Ireland that the provisions would make it more difficult for them in that they would be required to obtain a permit in each council area.   NICVA believes that this would place an unnecessary administrative burden on some charities and would like to see provisions, if not in the legislation but in the operational guidance, relating to the issue of permits for regional collections so that only one permit is required by the charity. 

NICVA also welcomes the provision for local short-term collections which will be considered exempt from the requirement to obtain a public collections certificate and a permit to collect. 

NICVA understands that the provisions laid out in the draft Order do not cover lotteries or internet fundraising.

Control of fundraising

NICVA welcomes the requirement that charities must draw up written contracts or agreements with professional fundraisers and commercial participators.  This is not only good practice but should also assist charities to better plan and monitor their interaction with such bodies or individuals.  The existence of a written agreement may protect a charity or allow redress in rare cases where a professional fundraiser or commercial participator seeks to exploit a charity or charitable beneficiaries.

NICVA also welcomes the provision in the draft Order that professional fund-raisers will be required to indicate which institutions will benefit, how the fund-raiser’s remuneration in connection with the appeal is to be determined and the amount of that remuneration.  Commercial participators will also have to indicate the institution(s) to benefit as well as the notifiable amount that will be given to the institution(s).  This will be of great benefit to the public, enabling them to be more discerning about where and to whom they make donations. 

In conclusion:

NICVA broadly agrees with

• The definitions of charitable purpose and public benefit test, recognise however there is some opposition to the public benefit test
• The establishment of a Charity Commission for Northern Ireland
• The creation of a Charity Tribunal
• The establishment of a Register of Charities
• The provision for the Incorporation of Charity Trustees
• The introduction of the Charitable Incorporated Organisation
• The provisions for the control of fundraising
• The provisions covering collections in a public place

However, NICVA has concerns with;

• The provision that it will not be mandatory for the Commission to consult on guidance for the public benefit test if it considers it unnecessary to do so
• The Commission being set up as a NDPB
• The independence of the new Commission
• The accounting thresholds and audit requirements
• The omission of the definition of a charity trustee and charity trustee duties
• The Commission as opposed to the local council issuing the permit to collect in a public place
• A permit not being required for house to house collections
• Uncertainty of UK wide and all Ireland charities reporting requirements