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BACKGROUND
20. The Charities and Trustee Investment (Scotland) Act 2005 (the Act) was passed by the Scottish Parliament on 9 June 2005 and received Royal Assent on 14 July 2005. The majority of the provisions in the Act, relating to the basic regulation of charities by the Office of Scottish Charity Regulator ( OSCR) in its new independent role, came into force in April 2006. The Charities Accounts (Scotland) Regulations came into force in May of that year.
21. One key driver for the Act was public concern following the high level of media attention given to a small number of court actions taken against Scottish charities and their trustees. It was clearly right for the Scottish Parliament to take action to protect the public from those preying on their generosity, ostensibly for the benefit of good causes, but in reality for their own financial gain. The vast majority of charities and benevolent organisations were delivering real benefit for those they sought to help - but public confidence had been affected, and charities were reporting that public support in the form of donations had been adversely affected by the tiny minority taking advantage of gaps in the regulatory framework. The Act therefore goes beyond charities to cover fundraising for "good causes" more generally.
22. The changes in charity regulation put in place by the Act are designed to support and encourage charitable activity in Scotland, while reassuring the public that their money is being well used and that support is being properly provided. Clearly the accounting regulations have a central part to play here. At the same time, the Government wants to ensure that charity law provides a modern, proportionate regulatory framework that will support charities rather than tying them in red tape.
23. The Scottish Government believes that there is a clear public interest in the effective regulation of charities in Scotland. For regulation to be effective, it must promote five key principles. It must be:
- independent;
- proportionate;
- accountable;
- transparent; and
- consistent.
These principles underpin the whole of the supporting framework for charity regulation, and are central to our consideration of the changes on which we are now consulting.
The Charities and Trustee Investment (Scotland) Act 2005
- Background to the proposed minor changes to the Act
24. The 2005 Act established OSCR as a new independent regulator for charities in Scotland. It regulates over 23,500 Scottish charities ranging from community groups, religious charities, schools, universities and grant-giving bodies to major care providers. Its duties include encouraging, facilitating and monitoring compliance with the Act, and giving information or advice to Scottish Ministers on matters relating to its functions.
25. Section 2 of the 2005 Act provides that OSCR's Annual Report may include any general recommendations which OSCR may have arising from the exercise of its functions. Based on OSCR's first two years operating experience, its 2008 Annual Report included a number of recommendations for changes to the Act, aimed either at reducing the regulatory burden on charities or at increasing the robustness of the regulatory regime. Most of these proposed changes would give OSCR powers to assist charities in circumstances not considered during the passage of the Act, but that have come to light from experience of the regulatory framework in action. All the minor changes to the Act considered in this consultation paper are drawn from the OSCR recommendations, or (in one case) from subsequent discussion with the Regulator.
The Charities Accounts (Scotland) Regulations 2006
- Background to proposed changes to the Accounts Regulations
26. The Charities Accounts (Scotland) Regulations 2006 set out the details of the accounting rules that charities in Scotland are required to follow. In outline, all charities are required to produce accounts and an annual report, have these externally scrutinised, and submit them to OSCR within nine months of the end of the individual charity's financial year. Larger charities (those with incomes of £500,000 or more, or assets worth over £2.8m) are required to have their accounts audited by an eligible auditor. Both they and charities with annual income of £100,000 or more a year are required to produce fully accrued accounts in line with the Charity SORP (the Statement of Recommended Practice for Accounting and Reporting by Charities, issued by the Charity Commissioners for England and Wales). Charities with an income of less than £100,000 are allowed to submit simpler "Receipts and Payments" accounts. Charitable companies are also required to meet the accounting requirements of company law which are not discussed here.
27. The Government's reasons for bringing forward proposed amendments to the regulations at this point are:
i. to take account of experience of the regulations in practice, and provide greater certainty and clarity where possible;
ii. to update out-of-date references to other documents in the regulations - in particular the SORPs that apply to charities, Further and Higher Education Institutes and Registered Social Landlords; and
iii. to consider whether steps can be taken to reduce the regulatory burden on charities.
Impact Assessment
28. We have not included a partial Regulatory Impact Assessment ( RIA) with this consultation since we do not believe the amendments we currently intend to take forward - that is, either the changes to the Act or those changes to the accounts regulations detailed on pages 17-22 below - would have a significant effect on individual charities or any other affected party.
29. Some of the other changes to the accounts regulations set out below could have a potentially more significant impact on individual charities - in particular, if the consultation were to lead to our taking forward any of the changes to the thresholds discussed on pages 24-28 below. Our expectation is that such a change would reduce the potential burden on those charities which might otherwise face more significant accounting requirements. However, any change may involve some cost. During the consultation on the draft accounts regulations in 2005, it was estimated that the additional costs for charities would be largely in the area of staff training, and these were estimated at between £37.50 and £1125 per charity. The number of charities that would be affected by the amendments depends on the changes to thresholds adopted. Similarly, we do not have any reliable estimates of the potential benefits to charities. In the event that the Government decides as a result of this consultation to take forward any changes to thresholds, and dependent on the availability of information, an RIA will be produced.
30. A partial RIA and a Financial Memorandum would be required for any amendments to the primary legislation as part of the process of laying a bill before the Parliament. At present, our view is that none of the proposed amendments have significant costs for charities. As discussed below, the amendment most likely to impose costs is the one concerning the information charities must include on their websites - but we believe costs here can be avoided by allowing a suitable transition period.
31. We would welcome any information from consultees that suggests any of the proposals in this consultation paper might impose significant costs, and would take any such information fully into account in determining the way forward.
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