Document Sample
             ISSUE NUMBER ONE


             November 2004

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Welcome to the first edition for finance                               PERSPECTIVE ON THE STATEMENT
practitioners and CIPFA Members                                        OF RECOMMENDED PRACTICE FOR
working in the charity sector, which has                               CHARITY ACCOUNTING
been prepared by CIPFA’s Charities
Panel.                                                                 Readers of CIPFA’s September Spectrum
                                                                       magazine will already be familiar with
In this first issue, Nigel Davies gives a                              some of our regulatory findings from
regulator’s ‘top tips’ on the Statement of                             using the SORP top 20 approach, and this
Recommended Practice. Some of our                                      article discusses the Commission’s
Members introduce themselves and give                                  regulatory stance, the basis for the SORP
their reasons for joining the Panel and the                            top 20, and the uses to which the top 20
Panel’s response to the draft Charities Bill                           approach is put and the future
is outlined.                                                           development of the Commission’s
                                                                       regulatory approach.
                                                                       The Commission’s regulatory stance is
The Charities Panel was established by                                 set out in our mission statement with our
CIPFA in December 2003 with a remit to                                 aim being to provide the best possible
support professionals in the not-for-profit                            regulation of charities in England and
sector. The role of the Panel is to focus on                           Wales in order to increase charities’
governance and financial issues relating to                            effectiveness and public confidence and
the charity sector, consider government                                trust. The Commission as regulator and
policy statements and initiatives relating to                          registrar for charities in England and
the charity sector and also provide a                                  Wales seeks to do this by:
variety of training resources for charity
professionals. This newsletter has been                                    securing compliance with charity law
developed as a means through which the                                     and dealing with abuse and poor
Panel can share information and details of                                 practice
the work that it is undertaking, and                                       enabling charities to maximise their
encourage finance professionals and                                        potential within an effective legal,
CIPFA Members to help shape its future                                     accounting       and       governance
work programme according to areas of                                       framework, keeping pace with
need ‘in the field’.                                                       developments in society, the economy
                                                                           and the law
Since its inauguration the Panel has                                       promoting sound governance, better
responded to the recently published draft                                  working and accountability.
Charities   Bill,   and    the    Charity
Commission’s call for comment on the                                   One aspect of charity law and regulation is
Draft Standard Information Return and                                  the Accounting and Reporting by Charities
Exposure Draft of the Statement of                                     Statement of Recommended Practice (the
Recommended Practice. These responses                                  SORP). The SORP brings together the
can be accessed from the Panel website at:                             legal requirements concerning the form                                 and content of the trustees’ annual report
/index.cfm                                                             with the accounting requirements. These
                                                                       accounting requirements have the force of
The Panel is currently looking at ways of                              statute for non company charities due to
tailoring the CIPFA qualification to                                   the Charities (Accounts and Reports)
include a ‘charities’ focus.                                           Regulations and are backed by Financial
                                                                       Reporting Standard 18 for Companies Act
TOP TIPS – A SORP ‘TOP 20’                                             charities. Compliance with the SORP is
                                                                       necessary for an auditor to give a true and
NIGEL DAVIES, DEPUTY HEAD OF                                           fair opinion.

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Compliance with SORP is therefore part                                 Poor Trustee Annual         Technical
of the accountability and transparency                                 Reporting                   Compliance with
agenda and an aspect of charity regulation.                                                        SORP
Far from being only recommended                                        Insufficient explanation    Restricted funds
practice, it is mandatory.                                             and review of annual        not shown
                                                                       Insufficient explanation    Missing FRS8
The basis of the SORP ‘top 20’ is an                                   of charity’s objects/       (related party)
emphasis on a proportionate and risk                                   organisation or structure   disclosure
based approach to regulation which                                     and key relationships
identifies a minimum level of SORP                                     Insufficient explanation    Investments:
compliance and addresses those aspects of                              of designated funds         Missing
SORP of the greatest concern for the                                                               investments
majority of charities submitting accounts.                                                         Investments not at
Circa 65,000 sets of accounts are                                                                  market value
submitted for charities with an income in                              Insufficient explanation    Deferred income
excess of £10,000 and whilst most non                                  of investment               used incorrectly
                                                                       performance (where
company charities with an income below
                                                                       income exceeds
£100,000 exercise the option to submit                                 £250,000)
receipts and payments accounts, a                                      Legal or administrative     Incorrect cost
significant minority submit accruals                                   disclosures incomplete      classification
accounts. All charities above the threshold                                                        (where income
(currently £100,000 gross income) and all                                                          exceeds £250,000)
company charities must submit accruals                                 Evidence of manipulation    The disclosure of
accounts compliant with SORP.                                          of thresholds or            non compliance
                                                                       inappropriate activities    with a treatment
The SORP top 20 is divided between                                     outside of the objects      required by SORP
trustee annual reporting and accounting                                                            is missing or
requirements plus a check on the presence
of a scrutiny report and an audit where                                Sufficiency of the policy   Other material
required. A sizable minority of charities                              statements:                 departure from
have returned accounts that are not SORP                               Risk Statement (required    SORP eg non
compliant.                                                             only where income           consolidation of
                                                                       exceeds £250,000)           wholly owned
Poor Trustee Annual        Technical                                   Reserves policy             subsidiaries
Reporting                  Compliance with                             Investment policy (where
                           SORP                                        applicable)
Missing Trustees’ Annual Missing Primary                               Grant making policy
Report                     Statements:                                 (where applicable)
                           Statement of                                                            SOFA & balance
                           Financial                                                               sheet do not agree
                           Activities (SOFA)                                                       Significant notes
                           Missing Balance                                                         omitted (eg
                           Sheet                                                                   grants)
                           Missing Notes                               Scrutiny related:
                           Missing Cash Flow                           Missing scrutiny report
                           (if required)                               Incorrect Scrutiny (audit
Missing Policy statements: Endowment funds                             required)
Missing Risk Statement     not shown
(required where income                                                 The SORP top 20 is used as a
exceeds £250, 000)
                                                                       proportionate tool to review the trustees’
Missing Reserves Policy
Missing Investment policy                                              annual report and accounts requested as
(where applicable)                                                     part of the review visits programme
Missing Grant making                                                   (where 600 charities with an income in
policy (where applicable)                                              excess of £250,000 are visited every year),
                                                                       in the routine sample monitoring of
                                                                       submitted trustees’ annual report and

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accounts, and, where appropriate, as part                              shortly to be presented to the Scottish
of the routine interaction between the                                 Parliament.
Commission and charities where we offer
advice and guidance or exercise our                                    OSCR was invited to join the Panel,
powers including investigation powers.                                 following an initial approach I made to
                                                                       Chris Harris. As a new regulator, and as
Where justified by the context,                                        one which seeks to encourage best practice
Commission accountants will carry out a                                in the Scottish charity sector, we are
full SORP compliance review and identify                               looking to forge relationships with all
issues in addition to those of the SORP top                            those who participate alongside us in
20, therefore charity trustees, their                                  upholding and improving standards.
accountants and auditors should not                                    CIPFA Members are involved in Scottish
presume that provided the SORP top 20                                  charities in many guises, all of which are
criteria are met, they can disregard the rest                          of importance. As well as those who are
of the SORP!                                                           employed as directors of finance (or
                                                                       otherwise in finance tasks), including
The development of the Commission’s                                    those who administer local authority
regulatory approach will be subject to                                 trusts, there are CIPFA Members
change due to the changes in strategic                                 participating as treasurers and trustees of
direction following the appointment of our                             charities, and as charities’ independent
first Chair, Geraldine Peacock, the new                                examiners.      Often attendance at such
draft SORP, the outcome of an internal                                 forums is given the description “observer”.
strategic review of the Commission, and                                I welcome the Panel’s different approach
finally the outcome of the draft charities                             in calling the position “by invitation”, as I
Bill. So the advice is to ‘watch this space’.                          hope I can provide some input of
                                                                       information and guidance to the Panel as
PANEL MEMBERS                                                          well as just watching from the sidelines.

Without our volunteer Members the Panels                               We are keen to work together with all the
could not exist – but who are they?                                    accountancy bodies, both on a UK level
Members of the Charities Panel come                                    and with their Scottish elements. We were
from a wide range of organisations and                                 pleased that CIPFA was one of the first
regulatory bodies. Each contributes                                    bodies with which we have been able to
something unique to the Panel, enabling it                             work, and we look forward to the synergy
to support sector professionals in a variety                           that our liaison with CIPFA, through this
of ways. Here three Panel Members                                      Panel, will bring about into the future.
outline their reasons for joining the Panel
and what they feel that have gained from                               Paul Breckell, Finance Director,
Panel Membership.                                                      Church Mission Society, is the CFDG
                                                                       representative to the Panel and shares
Richard Hellewell, Head of Regulation                                  his reasons for joining:
and Compliance, Office of the Scottish
Charity Regulator, gives his views:                                    Few people can have failed to notice the
                                                                       increasing overlap and synergies between
The Office of the Scottish Charity                                     the public and voluntary sectors. In a time
Regulator (OSCR) is the new regulator of                               when traditional understandings of what it
charities in Scotland. It was established in                           means to be ‘private’, ‘public’ and
December 2003 with the dual purposes of                                ‘voluntary’ are continually eroding, space
establishing     an    active     regulatory                           is made for a whole range of creative
framework for charities in Scotland,                                   developments in relation to social
including proactive monitoring, and                                    entrepreneurship, community development
preparing the way for the statutory                                    and complimentary service provision.
successor that is proposed by the Charity
and Trustee Investment Bill, which is                                  I have had the privilege of working in both
                                                                       public and voluntary sectors, beginning

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my career with the Audit Commission,                                   of Recommended Practice and ever
with a wide variety of health service and                              increasing public, media and government
local government clients and then working                              scrutiny in relation to performance
for the HIV/AIDS charity Mildmay, and                                  measurement and reporting.         In an
currently with the international mission                               environment this challenging, CIPFA
agency Church Mission Society. It is from                              continuing to actively engage with and in
this perspective that you begin to see the                             the sector can only be a positive
similarities in ethos, drive, values and                               development.
focus in sectors where ‘the bottom line is
not the bottom line’ and that ‘all that is                             Alison Murdoch, Lewisham Parochial
valuable cannot be counted’.                                           Charities shares her reasons for joining
                                                                       the Panel:
Because of these natural connections
between sectors, I warmly welcome the                                  I have been a CIPFA Member since 1986
initiative that CIPFA has undertaken in                                having worked in the GLC and for the
setting up the Charities Panel, and have                               Corporation of London before leaving to
been a Member since its inception. As one                              have children. Part of the reason I decided
of many CIPFA Members who work for or                                  to go for a professional qualification was
with charities either in a professional or                             because I saw it as a good basis for
voluntary capacity, it is particularly good                            returning to work after having a family
to see this development in the context of                              and that has certainly proved to be true. I
being an additional benefit of membership.                             have found that, as an accountant, there
                                                                       are many people who are willing to buy
Another specific reason for being actively                             my expertise! It has not been a
involved with the Panel is in my capacity                              conventional career but very rewarding
as the current Chair of the Charity Finance                            none the less.
Directors’ Group (CFDG). CFDG is
committed to developing and promoting                                  I have concentrated on keeping my work
effective good practice in financial                                   local and part time – although with three
management       in    charities    through                            or four part time jobs at any one time these
education and example and is seeking to                                days it feels like full time employment and
create an environment that will engender                               more! As my husband travels a lot with his
public confidence in charity financial                                 job I needed to be the one around for the
management. CFDG is itself a registered                                children in the holidays or if they were
charity with over 1,000 members who are                                unwell. I have built up the amount of time
senior     finance     and     management                              I spend working over the years so that I
professionals.                                                         was more available for the children when
                                                                       they were small. Now they are 15 and 12
CFDG is committed to working with                                      they do not need me so much and I am
professional institutes and other voluntary                            virtually working full time.
bodies and it has been very positive to
make a good connection with the Panel.                                 I started by helping out a local church
Current priorities for CFDG include                                    community centre doing six hours a week.
helping to shape, and then deliver training                            This is when my interest in working for
on the content and application of the new                              charities began. I realised that there was a
Charities Bill and Charities SORP;                                     gap in the market for qualified accountants
consolidating     and     expanding     our                            to help smaller charities to comply with
membership and regional presence; and                                  the increasing legislation and regulation of
continuing to provide excellent training                               the sector. It has meant that I have had to
and information services and develop                                   master many other areas in order to fulfil
supporting alliances and partnerships.                                 this need. It is generally the case I think
                                                                       that the smaller charities can only afford to
There is much for a finance professional to                            pay for a limited amount of administrative
be engaging with in the charity world at                               help. I have had to learn about governance,
present, with the new Bill, new Statement                              health and safety, employment law and

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many other things not directly connected                               Action, Public Benefit: a Review of
with accountancy! In addition to working                               Charities and the Wider-Not-for-Profit
within charities, I have also undertaken                               Sector". The Government’s response to
independent financial examinations for a                               that report was set out in “Charities and
number of small organisations and am a                                 Not-for-Profits:    A    Modern     Legal
member of ACIE.                                                        Framework”. The draft Charities Bill is
                                                                       subject to pre-legislative scrutiny by a
It is with this background that I came to                              Joint Committee of both Houses, which is
the first meeting of the proposed Charities                            due to report its recommendations by the
Panel. I was pleased that CIPFA had taken                              end of September 2004.
the step to focus on the sector in this way.
There is no qualification directly relevant                            CIPFA has welcomed the draft Bill as a
to the accounting requirements for                                     thorough and well thought through review
charities and with its background of public                            of charity law and regulation. The charities
sector (and hence not for profit)                                      sector has been calling for such a Bill for
accounting I felt that CIPFA was best                                  many years and we believe that the
placed to fill the gap. I am firmly of the                             changes in the nature of the provision of
opinion that CIPFA Members have a great                                public services give this call even more
deal to offer charities both in terms of                               impetus. The current legislation has had
working for them and in undertaking                                    little significant change since the
independent financial examinations for                                 Elizabethan laws of 1601 when the
smaller organisations. Whilst the burden                               requirement for public benefit originated.
of having a full audit has been removed                                Charities are treated differently under tax
for many charities I know that it can still                            law for this reason. In 2003 Government
be a struggle for them to find someone                                 became the most significant funder of
suitable for an independent examination. I                             charities and it seems set for this trend to
have many more requests than I have time                               continue. We welcome the initiative and
to do this work.                                                       fresh vision that charity service providers
                                                                       have brought to many public services
When I was asked if I would like to                                    however we also note that charities have
become a Member of the Charities Panel I                               much to learn from the experience of the
accepted with pleasure. The timing of the                              public sector.
launch could not have been better with
new legislation being proposed in the                                  CIPFA has made a number of specific
Charities Bill and the new Charities SORP                              responses to matters that are dealt with in
on the horizon to name but two. It is vital                            the draft Bill. The full text of CIPFA’s
that CIPFA gives an informed and relevant                              response is on the CIPFA Charities Panel
response to these initiatives and the                                  website     at:
Charities Panel is able to do that because                             panels/charity/responses_charity.cfm
of the experience of its Members.
                                                                       The expansion of the definition of
A full list of the Panel’s current                                     charitable purposes in Section 1 of the Bill
membership can be found at the end of                                  is welcomed, as is the desire to make more
this newsletter.                                                       explicit the link between public benefit
                                                                       and charity. However, it seems that
THE      CHARITIES    PANEL                                            government is unwilling at present to
RECENTLY RESPONDED TO THE                                              legislate further on public benefit tests for
DRAFT   CHARITIES  BILL.  A                                            charities charging high fees given that the
SUMMARY OF THAT RESPONSE IS                                            Charities Commission does have powers
GIVEN BELOW                                                            and plans to pursue “Public Character”
                                                                       returns. CIPFA has suggested that the
The draft Charities Bill was published on                              government should review this issue
27th May 2004 to give effect to many of                                within five years to establish whether the
the proposals contained in the Prime                                   Commission has done enough to address
Minister’s Strategy Unit report "Private                               public unease over this point.

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One of the new specific objectives of the                                  not improved the legislative changes
Commission will be to “encourage                                           will not have the desired effect at
charities to maximise their social and                                     ground level);
economic impact.” The measurability of                                     proposals to allow payment of trustees
this kind of objective causes obvious                                      for certain particular services.
problems, with which the public sector
generally also wrestles. The most recent                               CIPFA has also submitted comments to
major evidence on this subject appeared                                the Charity Commission on their Exposure
over the summer in the form of the interim                             Draft of a revised Charities SORP. This
report from Sir Tony Atkinson, and the                                 new draft is an attempt to deal with a
measurability issues also figure large in                              number      of   compliance      problems
the Chancellor’s efficiency agenda. CIPFA                              experienced by charities in respect of the
believes that lessons can be shared cross-                             2000 SORP, although it also addresses
sector.                                                                some new issues including programme
                                                                       related investments and pooling schemes
The second section of the Bill deals with                              that operate under the Trustee Act 2000.
the regulation of charities. Government                                The burden on some smaller charities will
regulators vary considerably in their                                  be reduced through their exemption from
powers, funding ability and purpose and                                many disclosure requirements.
CIPFA supports the changes that are
recommended,       while    recommending                               A useful new departure included in the
further    within     five   years.   The                              draft is the use of worked examples to
Commission’s more active stance towards                                illustrate particular points, including points
the charity sector is welcomed. This more                              of how to present information.
supportive approach to charities will not
compromise           their      regulatory                             CIPFA’s response can be seen in full on
responsibilities.                                                      the       Panel       website         at
The Bill also includes several provisions                              index.cfm
that should help to simplify various
administrative burdens, including:                                     FORWARD PLANNING

      charity variation schemes concerning                             Look out for the Spectrum’s December
      unendowed trusts and permanent                                   issue which will include an article by
      endowments. Many Health and Local                                Charities Panel Member Nigel Davis on
      Authorities deal with a myriad of                                money laundering and the proceeds of
      small trusts and these schemes should                            crime act.
      simplify administration;
      governance changes within the                                    The current Panel membership is as
      Commission, working towards more                                 follows:
      openness and transparency are
      overdue;                                                         Chris Harris              Action for Blind
      clarification on regulation of exempt                                                      People
      charities particularly those in Higher                                                     (Chairman)
      changes to Audit thresholds and the                              Carl Allen                Consultant
      recognition of membership of CIPFA                               Paul Breckell             Church Mission
      as being a suitable qualification for                                                      Society
      Independent Examiners. (CIPFA is                                 Sarah Cicco               Cross      Sector
      however concerned that the level of                                                        Consulting
      financial competence available to                                Julie Coates              CIPFA
      some small charities is low and yet the                          Nigel Davies              Charity
      reporting regime under the Charities                                                       Commission
      SORP is demanding. If this capacity is                           Brian Fishwick            Age Concern
                                                                       Noel Flannery             Rethink

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David Jones                              Regional Action               Further information about the Panel’s
                                         West Midlands                 activities and publications is available on
Pat Macaulay                             Consultant                    the         Panel         website         at
Alison Murdoch                           Lewisham            
                                         Parochial                     ex.cfm or from the Panel Secretary
                                         Charities                     Suzanne            Dowse             email:
Francesca Palmer                         Buzzacott            or telephone
Alistair Richards                        Winged                        020 7543 5795.
                                         Fellowship Trust
Kevin Rodd                               Oxfam                         The Panel is especially keen to receive
Jim Tindall                              Acorns Children’s             feedback on this newsletter and
                                         Hospice Trust                 suggestions on areas that finance
Andrew Turnbull                          National Autistic             professionals in the Charities sector feel
                                         Society                       should be covered.
By Invitation:

Richard Hellewell                        Office   of the
                                         Scottish Charity


Tom Lewis                                CIPFA
Suzanne Dowse                            CIPFA

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