POTENTIAL CHANGES TO THE CHARITIES AND TRUSTEE INVESTMENT (SCOTLAND) ACT 2005
32. OSCR's 2008 Annual Report includes a number of recommendations on amendments that Scottish Ministers might consider making to the Charities and Trustee Investment (Scotland) Act 2005, based on OSCR's experience of exercising their functions. This section of the consultation paper sets out our proposals for changes to implement these recommendations, and asks a number of specific questions. A list of all the questions asked in the paper is given on pages 35-36 below, and you may find this helpful in structuring your response. However we would welcome comments on all aspects of our proposals.
33. Scottish Ministers have already announced their intention to take forward two of these recommendations. A provision to allow charities to provide trustee indemnity insurance is planned to be included in the Public Services Reform Bill which is scheduled to be introduced to the Parliament later this year. A requirement for registered charities to state that they are charities when fundraising will be consulted upon and addressed, if possible, through the Public Benevolent Collections Regulations which are currently under development. We expect to consult on these regulations later this year.
34. OSCR made a further 5 recommendations discussed in the three following sections. All of these further changes would require amendment to the primary legislation and, therefore, would have to await a suitable legislative vehicle, even if the Government decides following this consultation to take them forward at the first possible opportunity.
Additional Powers for OSCR to assist charities in particular circumstances
35. Three of these recommendations would give OSCR additional powers to assist charities in specific circumstances where the 2005 Act does not currently allow them to do so. The need for these powers was not foreseen at the time of the Act - but has been revealed by experience during OSCR's first three years as regulator. These powers would only be exercised at the request of the relevant charity - and therefore represent a reduction in the regulatory burden created by the 2005 Act, rather than any extension of regulatory control. The three recommendations are:
1. to add a power into the 2005 Act to allow OSCR to appoint additional charity trustees in situations where a charity is unable to operate because they do not have a sufficient quorum or any mechanism in their constitutions to appoint new trustees. This would enable the charity to resume operations. At present the Act does not contain such a power;
2. to amend the charity reorganisation provisions in the 2005 Act to allow a charity to add new provisions to its constitution which are unrelated to existing provisions, in particular in relation to reflecting improved governance and administration arrangements. At present the Act only allows the constitution to be changed in relation to the charitable purposes, or for other provisions where the existing ones can no longer be given effect to, or are no longer desirable; and
3. to amend the charity reorganisation provisions in the 2005 Act to allow OSCR to approve the reorganisation of restricted funds within a charity. A charity which has restricted funds and no provision for them in the constitution is unable to amend the restriction and the 2005 Act does not allow OSCR to approve any change.
The Government's initial view is that implementing these recommendations would help individual charities in the relevant circumstances without in any way reducing either public transparency or accountability, or imposing any additional regulatory burden. It is therefore minded to take these forward when a suitable legislative opportunity arises.
Question 1 Do you agree that allowing OSCR to appoint additional trustees, to approve changes when charities wish to add new unrelated provisions to their constitution, and to reorganise restricted funds will enable OSCR to assist charities without unintended consequences?
Recommendation to reduce the regulatory burden of the "rolling review" - definition of "charitable purposes" in charity constitutions
36. As part of the transition process to implement the 2005 Act, all Scottish bodies recognised by HM Revenue and Customs prior to April 2006 as having charitable purposes were automatically entered in the Scottish Charities Register without at that stage being assessed against the new Scottish charity test. The rolling review is the process by which OSCR is reviewing these entries - and by which OSCR will subsequently confirm charities continue to meet the requirements of the charity test.
37. Part of the charity test is that an organisation must have only charitable purposes, as set out in the 2005 Act. Since the 2005 Act included changes to the list of charitable purposes, many charities established before the Act may find that their constitutions refer to charitable purposes defined in terms of the tax legislation. In such circumstances, the relevant charity would not meet the charity test, as the 'charitable purposes' contained in the 2005 Act are slightly different to those contained in the English and Welsh tax definition. Five of the thirty charities reviewed under phase 1a of the Rolling Review which finished in October 2008 were in this position.
38. Where there is no substantive difference, charities are faced with the unnecessary requirement to amend their constitution or risk failing the charity test on what in many cases will be a minor technicality. OSCR's suggestion to avoid the need for this is:
4. to amend the 2005 Act so that it sets out that all references to 'charitable purposes' in charity constitutions written before 2005 should be read as including 'charitable purposes' under the 2005 Act.
All charities should of course keep their constitutions under regular review to ensure that they remain up to date and accurately reflect their activities. So this issue should resolve itself over a period of time. However, should a suitable legislative slot occur in the near future, this may reduce the need for otherwise unnecessary constitutional review.
Question 2 Do you agree the phrase "charitable purposes" in charity constitutions written before 2005 should be read as including a reference to charitable purposes as defined by the 2005 Act?
Information charities provide to the public
39. OSCR's final recommendation seeks to ensure the public are fully informed about whether or not the body they are dealing with has charitable status. While there are already detailed requirements specifying the information charities must include in their publications, the requirements of the 2005 Act apply only to "documents" (whether in hard copy or electronic form), and OSCR's view is that the same requirements should now apply to websites. Their recommendation is, as a first step:
5. to amend the 2005 Act to require charities to state their name, charitable status and charity number on their websites.
This has the theoretical potential to increase the regulatory burden by requiring the amendment of existing internet material. However, the Government believes that the vast majority of charity websites already include these details as a matter of best practice. Any documents (such as annual accounts) published on charity websites are already captured as they are "documents". So the changes charities would be required to make if this recommendation became law may be small - and the Government believes that, given sufficient lead-in time to allow these changes to be made as part of the normal process of updating websites, the cost burden should be minimal. At the same time there is a potential increase in transparency which may be welcomed by the public.
Question 3 Do you agree that requiring charities to state their name, charitable status and charity number on their websites will increase transparency? Can this be done without imposing significant costs on charities?
Clarifying Powers of the Regulator to vary Directions given under s30(1)(a)
40. One further area for potential change to the primary legislation has been suggested by discussion with the Regulator. Section 30 of the 2005 Act applies when OSCR consider a charity no longer meets the requirements of the charity test. Section 30(1) compels OSCR to either direct the charity to take within a specified period such steps as OSCR considers necessary for the purposes of meeting the charity test, or to remove the charity from the Register (hence removing the body's charitable status). Section 30(3) provides that if a charity fails to comply with a direction under this section OSCR must remove it from the Register. Later on in the Act, section 71 lists OSCR decisions which can be reviewed and/or appealed. Section 71(i) includes in that list "[any decision to] remove a charity from the Register under Section 30(1) or 30(3)." There is no provision for review or appeal in respect of OSCR deciding to issue a direction under section 30(1). Section 74 allows OSCR following a review to "confirm, vary, reverse or revoke" the original decision.
41. This means that it is possible for OSCR to vary or revoke a decision to remove a charity from the Register - that is, a decision under Sections 30(1)(b) or 30(3) - but not to vary or revoke a direction to take steps under Section 30(1)(a). This can potentially disadvantage both OSCR and the charity, for example, when circumstances change or new information becomes available. It might therefore be helpful to amend the legislation to make clear that OSCR can vary the details of such a direction - for example, the time allowed to make changes - either at its own discretion or following a request for a review of the original decision.
The Act allows OSCR to vary other types of direction at its own discretion, and not only in response to a request for a review of the decision. For example, a direction suspending a person from the management or control of a charity, made under s31(4) can be varied by OSCR, at its own discretion, under s32(1). The decision to suspend a person from management or control of a charity is also listed in s71, meaning that OSCR can vary, reverse or revoke the decision after undertaking a review at the request of the person to whom the direction applies.
Question 4 Do you agree OSCR should be allowed to vary the details of directions given under Section 30(1)(a) to require a charity to take such steps as it considers necessary for the purposes of meeting the charity test? If so, do you think this would be better achieved by: a) permitting OSCR to vary or revoke the direction; b) allowing the charity to request a review of the decision to give a direction; or c) both?