Official Report: Minutes of Evidence

The Chairperson (Mr Gildernew): I welcome Sarah Burrows, who is an executive committee member with the Charity Law Association (CLA) and a partner at Edwards Solicitors; and Hannah Sloan, who is a member of the Charity Law Association and an associate at Edwards Solicitors. Sarah, I think, will make the opening remarks, and then we will go to questions from members.

Ms Sarah Burrows (Charity Law Association): Thank you very much for having us here this morning. In broad terms, the CLA's working party supports the Bill and welcomes the proportionate regulatory tools that have been introduced. We are fully in favour of clearer information sharing, limited to relevant public bodies — I will come to that in a moment — and modernised accounts with a reduced burden on smaller charities.

We feel that it is vital to highlight the importance of proportionality in relation to the sector. Transparency is really important, as is clear drafting to avoid, in particular, unintentional reputational damage to generally well-run charities. That is a big concern of ours.

We have concerns in respect of the Department's proposed amendments to section 24 of the Charities Act (Northern Ireland) 2008. The proposed definition broadens whom the commission can share information with to include

We are happy with the amendments to allow information to be shared with public bodies rather than persons discharging functions of a public nature. I am conscious that there was a consideration and a proposed amendment. When the working party was discussing the Bill, concerns were raised about sharing information with individuals and members of the legislature, particularly the circumstances in which the information would be shared and the confidentiality of the information that would be shared.

We feel that the disclosure provision set out in the Charities Act 2011 — the legislation that is relevant in England and Wales — is much clearer than the proposed amendments to section 24 of the Act here. That legislation sets out two distinct provisions in respect of disclosure to the commission under section 54 and disclosure by the commission under section 56. If that distinction were included, it would ensure that the legislation would be much clearer for users. The sections that I have referred to specifically state that information must be made to a "relevant" public body. We would propose similar wording in the Bill to ensure that only "relevant" bodies are entitled to receive "relevant" information, rather than

We also welcome the introduction of an official warning. We believe that it would be a useful sanction in proportionate regulation. The introduction of the power will ensure accountability and independent scrutiny. There is a benefit in having that power and the safeguards in place to ensure transparency with the public. We had a serious concern that the power would not apply to designated religious charities, but we are aware that you have reviewed that. We are content that it applies to the designated religious charities but would have concerns about other pieces of the legislation not applying.

The power to issue official warnings should be delegated to staff. That would reduce delays regarding Charity Commission decisions. In addition, staff are often closer to the issues than the commissioners. It is funny, but, before I came here this morning, I was liaising with a client regarding an issue for registration with the commission. That is not an issue for today but is an interesting point to make. There is significant delay at the moment in registering new charities, the consequence of which is that the Department for Communities cannot provide funding to certain sectors. It is the sponsoring Department for the Charity Commission, and, if some decisions were delegated to staff, that would allow commissioners to deal with expedited applications. A charity can apply to staff for an expedited application for registration, but it is the commissioners who make that decision, so that would ease that burden.

The working party agrees in principle with the proposal to expand the scope of the power to remove trustees and officers from charities, including those who have resigned from office. The issue for us is that we do not agree with the exemption for designated religious charities in that instance. I will give you an example. In this jurisdiction, so far as I understand it, there is one faith-based organisation that is a designated religious charity, and it happens to be the one where there have been many issues. I am conscious, from a historical perspective, of why that would be seen to be a good idea when Presbyterian Mutual had issues in relation to solvency and bankruptcy in that denomination. As far as I am aware, a person who was bankrupt at that stage could not officiate as a minister of religion in that designation. I understand, but, if there were serious failings in a charity and individuals were involved, irrespective of their positions, there should be sanctions to ensure that they cannot carry on, notwithstanding the fact that they may be the persons providing religious support to individuals. In our submission, we requested the Department to consider the employment and equality law implications of that proposal and to consider extending the disqualification further by incorporating a provision similar to that in section 178 of the Charities Act 2011, applying to England and Wales, which provides that where:

under subsection (4) —

It is not that they cannot be there; it is disqualification from senior management functions.

In relation to charity accounts, my colleagues from the Chartered Accountants Ulster Society are in the room, and we do not propose to labour that. We will leave it to them. They know more than we do. However, we have three key bullet points from the working party that we would like to highlight rather than go through what we put in our paper.

The first is that charity accounting thresholds are increasing in England, Wales and Scotland for the 2026 year ends.

Northern Irish charities should not be left behind. It would be good to allow charities with income of up to £500,000 to use receipts and payments accounting, as such charities in England and Wales do. That would save many charities from grappling with the charities statement of recommended practice (SORP) 2026 and worrying about what they need to do next. As is the case in Scotland, charities in Northern Ireland with income of up to £1 million should be subject to independent examination rather than audit. In England and Wales, that threshold has gone beyond £1 million to £1·5 million, as far as I am aware, but that goes, perhaps, just a bit too far for a small jurisdiction such as Northern Ireland.

It is essential that all registered charities in Northern Ireland prepare accounts. We do not think that they should be excluded from that requirement, because exempting some charities would cause funders major problems with accountability. The Charity Commission already produces a simple template for receipts and payments accounting by smaller charities, so we do not feel that any further simplification is needed. However, it makes sense to exempt the smallest charities from the requirement for an independent examination of their accounts. That would address our biggest problem here. In England and Wales, the income threshold at which independent examinations become compulsory was £25,000 and is now £40,000. Although that is a bit too high for Northern Ireland — we understand that — we suggest that an exemption from independent examination for Northern Irish charities with an income of, say, up to £20,000, would make excellent sense. We certainly do not think that any threshold should have triggers based on assets as well as income. That would create a level of complexity in charity regulation that has so far been avoided in this jurisdiction. We propose that the rules be based on the total income of the charity.

Finally, I re-stress our call for the implementation of provisions for charitable incorporated organisations (CIOs) in Northern Ireland. They were provided for in the Charities Act (Northern Ireland) 2008; all that is needed for their final implementation is secondary legislation. At present, everyone who tries to set up and run charities in Northern Ireland has to consider all the implications for charity trustees of incorporating a company limited by guarantee under the Companies Act 2006. CIOs will be bodies corporate, meaning that a charity that is a CIO will not be subject to the level of scrutiny involved in incorporating a limited company. A lot of funders require that charities be bodies corporate, and a lot of dormant funds are being used to convert unincorporated entities into bodies corporate. The CIO model would provide the perfect way of converting charities. From our perspective, it is not that we want regulation to be easier — in our individual roles rather than as representatives of the Charity Law Association, that is our day job — but that would make things easier for charities in this jurisdiction.

The Chairperson (Mr Gildernew): Thank you, Sarah. I have a couple of questions, and I will then open it up to members.

You described the amendment in clause 2 as too vague, particularly when it comes to sharing information with individuals and members of the legislature. What specific legal or practical risk do you foresee arising from the current drafting, and how would adopting the clearer "relevant" public body model that you identify address those risks?

Ms Burrows: Hannah, come in any time you want.

The Bill refers to bodies discharging "functions of a public nature", which broadens the definition of "public body" in the 2008 Act and therefore the scope for charities' confidential information to be widely shared. My concern is about how that information would be kept confidential — how it would be dealt with.

The Chairperson (Mr Gildernew): How would using the other model address those concerns? You said that the model was the 2011 Act.

Ms Burrows: Yes.

The Chairperson (Mr Gildernew): What is in the 2011 Act that would help to mitigate or address those risks?

Ms Burrows: It refers to the "relevant" public body. If a charity came to us and said, "We have to provide that information; do we need to do it?", my response would be to ask, "Is it a relevant public body? Have you looked at the definition? Does the body that is requesting that information fall within that definition?". That is where I would be.

It is also really important to think about the way that the 2011 Act's provisions on disclosure to the commission and disclosure by the commission are drafted. That is important from a confidentiality perspective. Practically speaking, confidential information can affect reputation. When we talk to clients, we often refer to a charity's assets. Trustees are the stewards of a charity's assets, but any charity's most important asset is its reputation, and I have concerns from a reputational perspective.

The Chairperson (Mr Gildernew): Thank you. When it comes to designated religious charities, you have expressed concerns around the official warning power and some of the strengthened regulatory provisions. From a legal and regulatory perspective, what potential problems do you see arising from treating those charities differently, and do you see any justification for maintaining a distinction?

Ms Burrows: From a regulatory perspective, the representatives of the Charity Commission are the people to answer that. From a transparency perspective, it is an issue. We have one charity that has that religious designation in this jurisdiction, but other organisations could have that designation. They have chosen not to go down that route, but, were they to do so and were we to have a number of designated religious charities, why should they be treated any differently from other charities because they are faith-based organisations? That is my concern from a transparency perspective.

A lot of people do not think that religious organisations should be registered as charities. The advancement of religion is one of the basic charitable objectives that were set out in common law before the legislation came into force. It is important to stress that they are charities, but, because they are charities, they should be treated in the same way as any other charity. If they have officers who act in breach of trust or outwith the law or do not comply with regulatory requirements, they should be treated in exactly the same way.

The Chairperson (Mr Gildernew): Thank you. That is helpful.

I will go to members. I have indications from Sian and Maurice at this stage.

Ms Mulholland: My two questions were asked by you, Chair, so they were answered. Thank you.

The Chairperson (Mr Gildernew): I will come to Maurice then.

Mr Bradley: I have a quick question about the official warnings. Do you think that, for a small charity, an official warning can have a detrimental effect on its reputation before it is corrected? Is there a way around that?

Ms Hannah Sloane (Charity Law Association): The safeguards in the legislation around the official warnings give the charity the opportunity to respond before the warning is officially published. Those safeguards are important. If an organisation or individual is contacted about their conduct, even if it is a smaller charity, that gives them the opportunity to respond before that warning is officially published. That is an important safeguard for even the smallest of charities.

Mr Bradley: Do you think that the resource and staff are in place for when the legislation comes in?

Ms Sloane: No.

Ms Burrows: We could expand on that and talk to you all day about it. The Charity Commission, to be fair, does a great job. Its staff do a fabulous job, and I do not think that anyone could say other than that. We are on the phone to them and fighting with them most of every day, so I know that they do a great job. However, they are understaffed and under-resourced.

I will give you an example. This morning, a client contacted me. Three months ago, we submitted an expression of intent for registration of a charity. The system is down at the minute. There are no charities being registered. It was supposed to be that no charities would be registered in July and August because of a reset in the system. We were informed that it would be September potentially. Then, we were informed that we were looking towards the end of September. This morning, a colleague sent an email to the Charity Commission to ask whether we had progressed any further, given that it is now October. It is simply a resource issue for the commission. Our regulator has teeth, but it does not have the resources to use those teeth. That is the issue.

Mr Bradley: We could take that forward, Chair. Thank you very much.

Ms K Armstrong: My question is on the warnings that Maurice mentioned. You say that protections are in place: I see no appeal mechanism.

Ms Burrows: There is none.

Ms Sloane: That could be your right of response initially. I suppose that the official warning is that step before any additional steps. You have your right of appeal, essentially, in your right of response to explain what happened and the circumstances in which it happened. That will be a useful tool for the commission.

Ms K Armstrong: I am just worried. I worked in the community and voluntary sector for a long time before I got this job. If it gets to the stage where a warning is issued in any way that, the Charity Commission feels, is appropriate, which is not defined, I would be concerned that the reputational damage to a charity could be extremely significant. It could lose government funding or something like that. A charity might be able to write to the Charity Commission to explain what has happened and what has gone wrong, but the fact is that there is no formal appeal. The Charity Commission could say, "Thank you very much for your communication. We are still going to issue a warning". The necessary formality is missing.

Ms Burrows: I do not know that it would do that. I think that it would take any correspondence into consideration. That takes us back to the resource issue, however. If there were to be a further right to appeal and you can appeal to the tribunal, how long would that take, and what resources would be required for it? Will there be the money to provide those resources? That is the issue.

Ms Sloane: The commission has always stressed that it is a proportionate regulator; I suppose that it comes back to that as well. It is all about proportionate regulation. Sarah is right: it would take into account any submissions that were made by any potential recipients of an official warning.

Ms K Armstrong: There is nothing in the draft legislation to say how it needs to take that into account. That is what I am worried about.

Ms Burrows: Yes. It would probably be an issue for the commission internally to have terms of reference on how it does that. I would use the example of serious incident reporting. If there is an actual or alleged incident of a serious nature, the charity trustees have a duty to report it to the Charity Commission. For what it is worth, the experience that I have had — I am sure that yours is the same, Hannah — is that, if we write to the regulator on behalf of the charity trustees and say, "This is what has happened. A serious incident has occurred" — it is an actual or alleged incident, so it has happened, might happen or could happen; it might be in 10 years' time, but it could still happen; and it might, could or would have a detrimental effect on the charity or sector, which is pretty broad — the position that the commission has taken, certainly with reports that we have made, is that, if we tell it what has happened, why it has happened, how it has happened and what the charity trustees will do to rectify it and ensure that it does not happen again, it is satisfied to permit the charity to try to fix it. As I said, it has the teeth to intervene, but, due to resources, it rarely does.

Ms K Armstrong: Yes. My last question is on clause 13, at the end of the Bill, and the commencement of amendments that will be made by the Bill. Clauses 7, 8 and 10 relate to preparing accounts, disapplication for small charities and annual reports and returns. Those will not come into play at the same time as the rest of the Act. Do you see it causing any legal impediment to charities that those parts will not be in play when the other amendments are commenced?

Ms Burrows: The only thing that I can see is that it might have a detrimental effect on smaller charities. That is the issue.

Ms K Armstrong: Funders will obviously have to take note of what is in the Bill, but, if those parts are not enacted, they will still look for the higher level of reporting until those parts come into force, however long that takes.

Ms Burrows: They will, but then it will be back to the point that I made about CIOs. That is in the 2008 legislation; that part of it just needs to be enacted. It is the same with the part of the legislation that refers to charity land: that has not been enacted yet, which means that old legislation is being used for that. The same thing applies to reports and returns. That could be an issue for the smaller charities.

Ms K Armstrong: Thank you very much. That was really useful.

Mr Boggs: I will be brief, because a lot has been covered. You said that this is a smaller jurisdiction, but some charities operate on an all-island basis. Does anything in the Bill create an obstruction to their operating as easily as possible, albeit with the right checks and balances in place, or is there an opportunity for the Bill to make things easier? Where are we on that?

Ms Burrows: I am not so sure that the Bill affects the operation of charities working on a 32-county basis. Other things have occurred in the past few years that have had bigger implications. For example — I will get on my soapbox now; I am sorry — the Finance Act created a provision whereby an entity that is not governed in one of the UK jurisdictions cannot avail itself of charity tax reliefs in this jurisdiction. That will have affected charities registered in Ireland that operate here. They will have lost significant revenue from gift aid etc. That is a big concern. For what it is worth, I do not believe that it was the British Government's intention to create that issue with charities that operate on this island; it had more to do with the rest of Europe. However, we have to deal with the consequences of it. That is potentially a bigger issue.

Because section 167 of the Charities Act will be gone, for want of a better word, a charity that operates in Northern Ireland will not have to register here. An entity registered in the Republic of Ireland will have to answer to the regulator there, which is the Charities Regulatory Authority (CRA). A charity registered in Northern Ireland that operates in the Republic of Ireland will have to register with the CRA in any event, so there will be a two-tier regulatory scenario for them anyway. If a charity is registered here and operates here, what is proposed in the Bill will, with some tweaks, work.

Mr Boggs: OK. Thanks.

The Chairperson (Mr Gildernew): I have a final question for Sarah or Hannah. You raised the issue of the employment law and equality law implications of extending automatic disqualification to employees and whether that had been sufficiently considered. It is important that we hear about that from your perspective. What risks or unintended consequences should we think about before agreeing to that provision?

Ms Burrows: We are not employment lawyers; we are purely charity lawyers. However, from an employment law perspective, if the individual were my client, I would tell them to ensure that they submitted a claim that they were unfairly dismissed. Unfair dismissal or constructive dismissal of an employee could be the implication. The employee knew that it was coming; they walked away, and that is why they walked away; or they went as a consequence of it. That would have to be addressed. It would have to be deemed not unfair dismissal if a regulator had stepped in.

The Chairperson (Mr Gildernew): OK. Thank you. That was a really interesting perspective on the whole thing. I almost felt that we were getting a look under the bonnet at how things work. That was really useful for us. Thank you for your evidence, for your presentation and for taking members' questions today.