annual review for charities · 2020-04-15 · annual review for charities 2017 3 we are, as ever,...

ANNUAL REVIEW FOR CHARITIES 2017

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ANNUAL REVIEW FOR CHARIT IES

2017 IN PERSPECTIVE


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Welcome to our third annual review. Once again we have curated articles and information on a diverse range of subjects, all focused on the charity sector. As ever thanks to our contributors for their insights.

Enjoy your reading!

IN TRODUCTION

WILLIAM REIDHEAD OF CHARITIES


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We are, as ever, very grateful to those who have contributed:

• Con Alexander, Veale Wasbrough Vizards

• Ian Allsop, Not for profit sector commentator

• James Brooke Turner, Yoke and Company

• Alexei Cantacuzene-Speransky, Rose Partners Limited

• Hannah Catchpool, RSM UK Audit LLP

• Elizabeth Chamberlain, NCVO

• Neil Davies, Barnett Waddingham LLP

• Fabian French, UK Community Foundations

• Shonaig Macpherson, CBE FRSE

• Thomas McGeever, All 4 Youth & Community CIC

• Andrew O’Brien, Charity Finance Group

• Catherine Rustomji, Browne Jacobson LLP

• Karl Wilding, NCVO

• Sean Williams, Solicitor

• Mohammed Zafran, BCA,BEM, All 4 Youth & Community CIC

Thank you to those charity Trustees and officers who completed our questionnaire at charity conferences over the year; and to my colleagues Alan McIntosh, Charles Mesquita, Lynn Pates and William Reid for their contributions, and particularly to Violet Kazandzhieva for her work in co-ordinating this.

If you have any feedback please contact us at: [email protected]

E DITOR’S NOTES

GEMMA WOODWARDEXECUTIVE DIRECTOR AND DIRECTOR OF RESPONSIBLE INVESTMENT

mailto:charities%40quiltercheviot.com?subject=


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Questions of the year 2017 5

Questions of the year 2018 6

Events calendar 2018 7

Working with the sector 9

Investment 10Placing investment on a sound footing Inflation proofing your portfolio Diversification: a risk management discipline Ethical investment: being sensible Responsible investment Ethical and responsible soup Reviewing investment performance Onwards and upwards?

Finance, legal and regulation 30Pension schemes risk management Risk: friend or foe Cyber security for charities Top 10 issues - Charities SORP FRS102 How to handle troublesome Trustees Update on charity law and regulation Charity governance code General Data Protection Regulation (GDPR)

Charity Stories 56Community Foundations – giving for local good The All 4 Youth storyVolunteering and the sector

The sector: now and in the future 632017: from shared society to shared ministerial responsibility Running to stand still? – the changing operating environment for charities Challenges and opportunities facing the charity sectorThe charity sector at a glance

Charity Briefings 76Common Reporting StandardLegal Entity Identifier (LEI)GDPR

trustEnews 77

Testimonials 78

Working with you 79

CONTENTS


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In total 308 people answered the following questions at conferences and through an online survey, these are the results:

Do you feel more concerned about the outlook for the charity sector now than you did twelve months ago?

� Yes - 68%

� No - 20%

� N/A - 12%

Unsurprisingly, nearly 70% of respondents are more concerned than they were a year ago.

Has your charity reviewed its ethical policy in the last three years?

� Yes - 58%

� No - 29%

� N/A - 13%

Nearly 60% of respondents have reviewed the charity’s ethical policy – very diligent!

QUE ST ION S OF THE YEAR (2017)


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Looking ahead these are the questions we will be posing to charity Trustees and officers:

As a charity, do you feel more risk averse or risk aware?

When did you last review your Statement of Investment Policy?

QU E ST ION S OF THE YEAR (2018)


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CHA RITY EVENTS CA LE NDAR (2018)

CHARITY SEMINARS The times they are a changin’ - This year’s series of seminars focuses on the ever changing environment for charities. We will be joined by external experts to talk about governance best practice, the current climate for the third sector and the challenge of technology. From an investment perspective we will look at the role of risk in making investment decisions.

Location Date Location Date

Dublin 22 February 2018 Exeter 26 June 2018

Edinburgh 27 February 2018 Bristol 20 September 2018

Glasgow 9 May 2018 Liverpool 9 October 2018

London 22 May 2018 Manchester 15 November 2018

Birmingham & Leicester 19 June 2018


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“Lively and interesting presentations which held attention. Excellent range of topics.”

Trustee

“Good balance between presentation and dialogue. Case studies approach was great.”

CEO of a charity

TO BOOK A PLACE AT ONE OF OUR EVENTS PLEASE EMAIL: [email protected]

CHARITY ROUNDTABLES This is an opportunity for you to join other charity trustees and staff for a lively debate and lunch.

Roundtable on governance and investments: essentials for trustees

Location Date

Birmingham 8 February 2018

Salisbury 21 February 2018

London 15 March 2018

Liverpool 11 September 2018

Bristol 18 October 2018

Roundtable on writing a Statement of Investment Policy

Location Date

Belfast 14 February 2018

Dublin 23 March 2018

Leicester 2 May 2018

London 18 September 2018

Manchester 4 October 2018

Salisbury 11 October 2018

Roundtable on income generation: the investment challenge

Location Date

Birmingham 17 April 2018

Bristol 10 May 2018

Glasgow 21 June 2018

Liverpool 27 June 2018

Manchester 28 June 2018

Dublin 21 September 2018

Leicester 26 September 2018

London 14 November 2018

Roundtable on defining an ethical policy

Location Date

Jersey 6 February 2018

Liverpool 12 April 2018

Manchester 19 April 2018

London 5 June 2018

Salisbury 6 June 2018

Glasgow 26 September 2018

Dublin 16 November 2018

mailto:[email protected]


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WORKING WITH THE SECTOR

In 2017 we provided training for:

CHARITY ROUNDTABLES This is an opportunity for you to join other charity trustees and staff for a lively debate and lunch.


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IN VESTMENTS

Contributors:

Alan McIntosh Chief Investment Strategist Quilter Cheviot Alan became the company’s chief investment strategist on the merger of Quilter and Cheviot and is

responsible for global equity strategy. He chairs the UK and international stock selection committees and sits on the asset allocation and fund selection committees. Prior to Quilter Cheviot, Alan was a founding partner of Cheviot Asset Management where he was chief investment officer. Previously he worked for Laing & Cruikshank Investment Management and Credit Suisse Asset Management as a senior strategist. This followed on from a 12 year career as an institutional fund manager. Alan graduated with an honours degree in economics from Heriot-Watt University.

Charles Mesquita Charities Director Quilter Cheviot Charles joined Quilter Cheviot in 2017 with responsibility for developing the firm’s specialist charity

capability. Charles has 30 years’ investment experience working for leading financial institutions including Newton, Rensburg Sheppards (now Investec Wealth & Investment) and latterly, Stanhope Consulting. Charles founded the first Common Investment Fund investing in UK commercial property and also established the first program focused on ongoing education for charity Trustees. Charles is a Trustee of Bowel & Cancer Research, RL Glasspool (a national charity which helps people step out of poverty) and PRISM, which helps to promote and to facilitate charitable giving in a flexible and efficient manner. Charles sits on the Board of the Charity Investors’ Group, a forum promoting greater understanding around investment

Lynn Pates Charity Consultant Quilter Cheviot Lynn has over 20 years’ experience working in financial services, specialising in the third and fourth

sectors. She started her career working in life and pensions sector firstly for Royal Life, then Prudential Holborn followed by Sun Life Broker Services in Liverpool. Lynn spent over ten years working at a large charity in the Finance Department of Notre Dame Trustee Company before moving on to work for Asset Risk Consultants in Guernsey on the Private Client Indices Research Team before becoming a Director of ARC UK, initiating, developing and leading its charity services. This included establishing the Charity Indices and Charity Multi Asset Fund Report. In addition, Lynn provided consulting services that included manager selection and portfolio reviews. She has a vast experience sitting on numerous charity Boards as a Trustee or adviser. Lynn has a maths degree and is a chartered management accountant holding both the ACMA and CGMA credentials.

William Reid Head of Charities Quilter Cheviot William has been managing charitable, company and high net worth portfolios since 2003. After

working at Laing & Cruickshank and UBS, he joined Cheviot as a partner in 2006 and was promoted to Head of Charities in 2013. Prior to his City career, he saw service in the Royal Navy (seven years in the Submarine Service) 1991 – 2001 and holds a BA in Economics. William is a member of the investment oversight committee. Amongst his charitable commitments, he is the independent advisor to the Investment, Finance and Audit Committee of the Royal Navy and Royal Marine Charity (RNRMC), and is a former Governor of Peaslake Free School. He is also a fellow of the Royal Society of the Arts.


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Gemma Woodward Executive Director and Director of Responsible Investment Quilter Cheviot Gemma joined Quilter Cheviot in 2015. She is responsible for managing charity portfolios as well as

developing the company-wide approach to responsible investment and the faith based investment offering. She has over twenty years industry experience and has spent the majority of that time focused on the charity sector and, specifically, clients with complex ethical and socially responsible investment requirements. Gemma started her career at Lloyds Bank and she joined Newton in 2002 following the acquisition of the Henderson private client and charity business; and latterly was at Kleinwort Benson. She graduated from Durham University with a degree in history in 1994, and is a Chartered Fellow of the CISI as well as holding the Chartered Wealth Manager designation. Gemma is a Governor of Rugby School and a Trustee of The Book Trade Charity (BTBS); additionally she is an independent investment advisor to two other charity investment committees.

In this section:

Placing investment on a sound footing

Inflation proofing your portfolio

Diversification: a risk management discipline

Ethical investment: being sensible

Responsible investment

Ethical and responsible soup

Reviewing investment performance

Onwards and upwards?


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P LACIN G INVESTMENT ON A SOUND FOOTING

Charles Mesquita, Quilter Cheviot

As a Trustee, you would be forgiven for thinking that ‘Governance’ is all that matters. Regulators, politicians and professionals all like to bang this drum, but our task as Trustees is to establish whether Governance is merely a box-ticking exercise or whether it adds real value.

Policies and procedures should be proportionate and appropriate for your organisation; they should also be a living document, not just another exercise that gathers dust once completed. As Trustees our role is to:

• Set the vision, purpose and values of the organisation;

• Establish the strategy and implementation, including policies and procedure;

• Monitor the outcome; and

• Act as a critical friend to the executive and to professional advisers.

However, our role is not to be actively part of the day-to-day running of the organisation, as that is the job of the staff. Our role is to set a clear strategy and assist when needed.

Under the Trustee Act 2000, trusts (charitable or otherwise) granting discretion to an investment professional must have a Statement of Investment Policy (SIP). The law does not state what should be in the SIP, or how long it should be. But the Charity Commission’s guidance, irrespective of your constitutional structure, goes further: “Trustees should decide on an investment policy for their charity, record it in writing and keep it under regular review”.

The guidance goes on to say: “Without an investment policy, Trustees are likely to find it difficult to demonstrate that they are making good use of the charity’s funds.”

All too often, I have seen a standard template being wheeled out by an investment manager without the Trustees discussing the various options. Yes, a policy should be developed in partnership with your investment manager, but the policy belongs to, and should be owned by, the Trustees. The policy needs to take into account the organisation as a whole — its financial objectives, the spending plans and the reserves policy.

POLICY

LAWS

STANDARD

CONTROLREGULATIONS

COMPLIANCE


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Some of the questions you may wish to ask:

• Why should we invest?

• What is the purpose of the money?

• What do we want to achieve?

• Over what time period?

• What risks worry me most?

• Should there be any restrictions placed on the portfolio?

• Who should we turn to for advice?

A clearly articulated policy ensures everyone fully understands the charity’s investment objectives and how they fit with the organisation’s overall strategy. This has the added benefit of restricting the scope for those people whose investment strategy is to be wise after the event. The test of a well-written policy is to ask a new Trustee to read the policy, and then be able to explain it clearly. Charities with significant investments would do well to make general investment knowledge a part of the induction programme.

Risk Risk can be the single most challenging decision, particularly as it means different things to different people. The investment management industry focuses on capital volatility, but as an organisation it is about understanding the risks you face and the likelihood of them occurring. This needs to be defined for the organisation, not the individuals around the table, with the aim of being risk aware and not risk averse.

Responsible investing Being seen as a ‘responsible investor’ is increasingly important to charities. We expect investment managers to include environmental, social and governance (ESG) principles within their investment process and research function, and to make sure company management understand these issues are important as investors in their business.

But how do you know if these principles are being implemented? When meeting with a manager, Trustees should ask what action has been taken on your behalf. For example, where I am a Trustee of a charity for relief of poverty, we raised the issue of the minimum or living wage. We do not expect total compliance, but we do expect to be moving in the right direction. We also want to make sure our investment managers and the companies we invest in know this is an important issue to us, both as an organisation and as a shareholder.

Ethical investing Ethical policy is a potentially contentious issue, even if the conclusion is to have no restrictions. The policy should apply as much to your organisation (suppliers, corporate supporters, etc.) as to your investments. I periodically ask my fellow Trustees and staff about our policy and its rationale. It is a great way to sense-check the policy and make sure it is being adhered to. Most charities with significant investments should have at least one Trustee with a financial background. This should provide a liaison between the Board and investment manager, and help resolve any misunderstandings. Be aware of their financial expertise and experience, but beware their preferences. It is all too easy for them to dominate the debate, or for the rest of Trustees to simply defer to their expertise. As a Trustee, I endeavour to make sure every board member fully understands the issues, so that an informed decision can be arrived at collectively.

Monitoring as the critical friend Regular meetings and quarterly reports should be the key to monitoring outcomes. Ensure the information being supplied is what you need, and over a reasonable time frame. In terms of performance, there is little value in what has happened over the short-term: much more interesting is to see how a manager has performed over the longer term, and understanding how that performance has been achieved.


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Benchmarking the portfolio is a key part of monitoring your investment objectives. Most charities use three different measures: firstly, a long-term perspective to generate an income, while maintaining capital preservation or an absolute return of inflation plus; secondly, the investment managers’ performances against the markets (a composite of market indices); and, finally, the performance compared with the industry ‘peer’ group, just for a sense-check.

My experience has taught me to look for two things: are there any long-term trends; and does the performance make sense?

As a Trustee, you don’t need to be an expert, but I would encourage you to:

( Have an inquisitive mind; )

? ? Have an inquisitive mind;

(Challenge anything you do not understand)

? Challenge anything you do not understand;

(Challenge anything that soundstoo good to be true; and)

? Challenge anything that sounds too good to be true; and

(Be suspicious of complexity)

Be suspicious of complexity.

Never be afraid of starting a question with: “this may be a silly question, but…”. If your professional adviser cannot explain it in plain English, they probably do not understand it themselves. If the solution being offered is sound, it should also be clear and make common sense.


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I N F LATION PROOFING YOUR PORTFOLIO

William Reid, Quilter Cheviot

One of the consequences of a weakened sterling is that UK inflation is back above the Bank of England’s 2% target, and rising. The inevitable question is whether long-term investors should be concerned. At a time when interest rates have been persistently low, a rising inflation rate is a change of circumstance that may require portfolios to be reviewed.

Inflation has a different effect on different asset classes but, moderate inflation erodes value of fixed income over time, while equities and property provide a natural hedge. The first assets to suffer in a rising inflation environment are bonds, or investments with a fixed return or income, such as form a sizeable part of the traditional portfolio or pension fund.

One of the traditional areas where people have sought out inflation-protection is index-linked gilts where the coupon and principal are linked to the Retail Price Index (RPI). This asset class has been very popular with pension funds looking to hedge long-term liabilities, and performance in recent years has been very strong; in fact it has far outstripped inflation. The important thing to bear in mind with index-linked gilts is that they are usually driven more by changes in government bond yields than by what is happening with inflation.

( Capital value )

1%20%

The capital value of a 30-year dated conventional Government gilt could fall by approximately 20% in capital value if and when interest rates rise by 1%.

Most of the bonds in issue are also very long-dated, meaning they can be quite volatile. Index-linked gilts returned more than 24.3%1 over the twelve months to

31 December 2016, reflecting both the rise in inflation expectations but also a general rally in gilts driven by an interest rate cut and resumption of quantitative easing. Unfortunately, this strong performance has pushed real yields – i.e. the yield after inflation – into deeply negative territory. Therefore, investors buying a 10-year index-linked gilt and holding it to maturity will receive roughly 2% below RPI over that period. Conversely, over the next twelve months to end December 2017, UK index-linked gilts returned 2.4%2.

In ordinary circumstances, equities are better equipped to remain ahead of rising inflation because good companies can pass on higher prices resulting from inflation to their customers. The FTSE 100 has returned 12.0% over 12 months to 31 December 2017, at a time when the 10-year UK gilt yield remains at about 1%. As well as achieving a measure of diversification, it is prudent to establish a long-term, stable and growing income stream to ensure the purchasing power of the income stays ahead of inflation.

Well diversified segregated portfolios or equity income funds can help portfolios outpace inflation, if invested in companies that can maintain the purchasing power of their dividends. The impact of the devaluation of sterling, following the EU referendum last year, can at first appear to make UK listed equities look expensive. However, in the round, companies active in international markets look reasonable value but remember that equities do come with historically higher levels of capital volatility than bonds.

One way of diversifying this risk is to invest in alternative assets, such as real estate, infrastructure and renewable energy. For investors who are able to lock up their investments for longer, these assets offer

1 Thomson Reuters Datastream 1/12/2015 to 31/12/2016 2 Thomson Reuters Datastream 1/12/2016 to 31/12/2017


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illiquidity premiums. It is also an option for investment managers of pension funds who are not required to pay out a high proportion of their revenue to clients.

The reasons to invest in property are familiar: the returns are based on rental income, offering diversification with relatively low volatility. Real estate investment trusts target a stable, long-term performance by investing in property with lease terms that often include an annual rental increase or, for example, in more niche areas long-dated ground rents linked to inflation. Typically, such lease terms may be for 20 years or more without break options. The asset class does have lower liquidity and higher trading costs, and is therefore suitable for long-term investors, such as charities and pension funds.

Returns from infrastructure investments, as with real estate investments, are secured by long-term contracts, offering both security and a flow of regular income.

The investments positioned at the lower end of the risk-reward spectrum can have a cash yield of about 4-5% for an average concession life of more than 20 years. However, the popularity of infrastructure investment trusts has pushed up their cost: while the average investment trust’s share price trades at 6.6% below its net asset value, the average premium for the infrastructure sector is 10.2%. Nevertheless, infrastructure continues to do well, posting double-digit share price returns over the past five years (to 31 December 2017), well above the five-year returns from UK government bonds3.

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Commodities are often thought of as a good hedge against inflation. In fact, it is difficult for UK investors today to use commodities as a hedge, as they reflect the global economy and are mostly priced in dollars.

They performed strongly from 2000-11, thanks to China’s voracious appetite for all commodities, but they are a cyclical asset. Oil is mainly of interest to UK investors because so many pension funds in this country rely on an income from the stock market mainstays such as BP and Shell. Combined, these two companies account for 23% of all anticipated income receipts from the largest 100 UK listed companies, by market capitalisation; another strong case for diversification. It is worth noting that eight companies are expected to deliver 50% of the FTSE 100’s dividends in 20184:

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Gold, perhaps the best known among so-called inflation hedges, tends to perform well in periods of negative real interest rates (as we have now), when interest rates are lower than inflation. But it can be volatile, while critics of gold point out that it does not yield anything. Quilter Cheviot holds some gold, but principally as a hedge against market disruption and most typically for private clients, rather than institutional investors.

3 Association of Investment Companies / Thomson Reuters Datastream 4 AJ Bell Dividend Dashboard December 2017


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D I VE RSIF ICATION: A R ISK MAN AG E MENT D ISC IPL INE

William Reid, Quilter Cheviot

Diversification in a portfolio is a useful risk management tool, here we explore some of the potential hurdles.

Many aspects of a charity’s financial management may benefit from the principle of diversification, from operating multiple bank deposits through, in many cases, to diversifying the sources of income used to fund its running costs and meet its charitable objects. Diversification is the principle of spreading risk to protect potential reward and for many charities that means attempting to smooth income receipts.

Beyond investment it makes sense for charities to seek income from as broad a range of sources as possible. Traditional sources of income have included fundraising campaigns, regular supporter donations, commercial partnerships, legacy giving, investment income as well as local and national government funding. Those that have relied too heavily on one source, such as local authority funding; have found to their detriment how tough life becomes when austerity bites, and grants and contracts are curbed. Those charities with high levels of reserves face the risk of poor donor perception – why do you need my money with all those reserves?! This is where a good impact report and clarity and transparency within the report and accounts really matter.

Overall, income levels within the sector have remained relatively static with increases in public donations replacing lost government-linked income streams. Legacy income remains a varied, time-consuming and volatile income source that is almost impossible to realistically forecast. In some cases income from investments plays a dominant role, especially for grant making organisations supported by endowments. However, across the charitable sector as a whole it has tended to represent a modest 7-10 percent of overall income receipts.

All income sources are subject to variations and risks, but investment income in particular is subject to a variety of risks. Historically, charities tended to

focus the search for equity income on the domestic market. Whilst there is an overall yield of 3.5% on the FTSE 100 (the largest 100 listed companies in the UK by market capitalisation), further scrutiny highlights the danger of concentration. Within the FTSE 100, the top eight dividend payers in the UK account for 50% of the index’s income. Sustainability of income is always a consideration and investors must be wary of companies paying high dividends without having the money to have adequate cover for these. For example BP has dividend cover of just 0.99x.

Dividend cover: the amount of profit a firm makes divided by the dividend it pays out to shareholders. As an example a company has a profit of £100 and is paying three different levels of dividends:

Dividend Calculation Dividend cover

£50 £100 divided by £50 2x

£100 £100 divided by £100 1x

£150 £100 divided by £150 0.67x

2018 forecast: FTSE 100 will pay out £88.5 billion in dividends

50% from 8 companies amounting to £44.25 billion

£12.4bn £7.9bn £6.2bn £4.4bn

£3.5bn £3.5bn £3.5bn £2.7bn

Source: AJ Bell Dividend Dashboard, December 2017

Nowadays it is possible for investors to earn a reasonable income investing in overseas equities and in most cases, we have witnessed charities shifting a


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significant level of the equity exposure in this direction to mitigate risks, both of income and currency to their benefit. Many others have also adopted a total return approach, with permanent endowments able to take advantage of new Charity Commission rules to follow suit. This approach works as long as expectations remain reasonable, the policy is well thought out and the focus turns to sustainable withdrawal rates.

We are informed that there is no magic money tree and, similarly, a switch to this policy will not necessarily result in a higher level of income. However, a focus to total return can lead to higher overall returns as witnessed by comparing the outperformance of the FTSE 350 lower yield versus higher yield over the last decade. Again, markets move in cycles, over 25 years an income based approach has outperformed in this market.

Other risks alongside weak investment performance include market shocks, although more often these are likely to have a greater immediate impact on capital values than income returns. However, if reserves may be required in a relatively short time horizon, the risk appetite will be lowered and this in turn will translate to lower overall income levels. Trustees, with long-term investment horizons, should be able to be relaxed about capital volatility and focus instead on a broadly based, less volatile investment income. Diversifying into other asset classes, such as property, infrastructure, renewable energy, private equity (there are private equity vehicles that generate an income) and corporate bonds should also assist in reducing both potential capital and income volatility.

Further risks to a charity’s income might include political decisions by a government that decides, for example, to cut the level of gift aid payments and refunds that the charity sector enjoy; this has happened previously – it was not that long ago that charities enjoyed reclaiming dividend tax payments.

Charities also have had to consider broadening their options; for example, setting up partnerships with investors and donors who may want to support the charity in exchange for networking opportunities or other ways of sharing in the success or public profile of the charity. This is a fine line to navigate to ensure that the charity remains the right side of current regulations ranging from losing potential gift aid on donations or falling foul of the Bribery Act. Again the size, reach and objects of the specific charity involved will impact on an ability to pursue this course of action. So too will considerations of investing in a fully funded fundraising operation; in many cases the targets at the start are overly optimistic, unachievable and schemes are

abandoned prematurely, leaving everyone, executive, Trustee and donor, dissatisfied by the outcome.

Geo-political considerations and central bank policy errors continue to feature prominently today in any income source risk analysis, and charities, in partnership with their investment manager, need to be aware how this may impact their investment income. The answer is not always covfefe! By way of example, the governments and central banks of the US, Japan, continental Europe and to some extent the UK have intervened regularly over the past few years with quantitative easing policies, particularly affecting government and corporate bond markets. So long as the policies continue, investments will remain unaffected, but the danger comes with any change in policy, and the subsequent impact of either intended or unintended actions on underlying investments.

Even the prospect of such intervention can spook investors, with the UK infrastructure sector a current example following Jeremy Corbyn’s proposal to nationalise PFI (Public Finance Initiative) contracts. In most cases, the income receipts are based on contracts, which are written in law. However, any government could in theory decide for political reasons that, for example, these PFI contracts, which have been used for the construction and operation of schools, hospitals, renewable energy schemes and some transportation, should be terminated and perhaps use new tax legislation to lead to unfavourable outcomes for investors – as matters stand, most quoted infrastructure closed ended funds are suggesting a recovery rate of 95% of all income owed.

If such an eventuality is regarded as unlikely, this is an indication that the markets have become sanguine about political risk. If markets are too sanguine about political turmoil, such as resulted from last year’s Brexit referendum, or the election of Donald Trump as President of the United States, then they are also unlikely to factor in risk resulting from perhaps more serious events that may yet occur. However, even North Korean missiles flying over mainland Japan did little to unsettle investors last year!

In summary, in all aspects of charitable income, the message is simple, diversify. The challenge is in the implementation and that, where investment income is concerned, employing a competent charity investment specialist offers the best chance of success.


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ETHICA L INVESTMENT: BE IN G SENSIBLE

Gemma Woodward, Quilter Cheviot

Ethics are commonly defined as moral principles that govern a person’s behaviour or the conducting of an activity. The lineage of the term is from the Greek and Latin terms for character and customs. This is apposite when considering ethical investment as it is very much driven by the individual’s or group’s concerns. There is no one ethical policy which will fit every individual or group; although, like-minded investors will be more inclined to implement similar policies such as those defined by faith groups.

Historically, ethical investment has been related to avoiding investment in specific areas which were contrary to the investor’s ethos; for many investors this remains the case. The development over the last decade or so has been to reflect an investor’s ethos in positive ways through creating a bias towards investments that do ‘good’ or reflect positive attributes particularly compared to other companies operating in the same area. As an example, an investor who has environmental concerns may look to invest more in companies which limit their environmental impact and which have created new or innovative ways to manage environmental concerns. This is often referred to as socially responsible investment.

Responsible investment has gained traction; this is the integration of environmental, social and governance (ESG) factors into the investment decision-making process. In simplistic terms this process incorporates what are sometimes called (incorrectly in our view) ‘non-financial’ factors into the decision as to whether to buy or sell an investment. In many cases ESG factors will have a financial impact – from a governance perspective, excessive executive remuneration can only be a financial factor.

(Taking the time to identify an investor’s concerns and calibrate these into a policy, is critical

in formulating a workable policy )


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For many investors, having an ethical policy is implementing the way they live their lives and the choices they make. The term ‘policy’ may seem over-bureaucratic, however, framing an investor’s beliefs is important for them to understand the implications of the policy (what is the extent of the investment universe which the policy is ruling out? Is there a potential impact on their returns?) and to ensure it truly reflects their concerns. Obviously for a charity the ethical policy must be in the context of the charity, not the Trustee’s personal beliefs.

An example of how important a policy is may be seen in the recent decision by the Portland (Oregon) City Council to disinvest from all corporate investment and to focus solely on US government bonds. The city has c. $540 million invested and has been under pressure from activists to review a number of its investments; the city commissioners took the decision to sell (over the next two years) all its corporate holdings (in equities and bonds) as it seems they felt that they could not spend the time on an on-going basis identifying the companies the city did not wish to invest in. It has been estimated that this decision will cost the city a minimum of $4.5 million in 2017, and even more the following year. Given the expected returns from US government bonds versus that of corporate bonds and equities over the long-term, the city’s finances will be impacted.

Taking the time to identify an investor’s concerns and calibrate these into a policy, which should also be reflected in all aspects of the investor’s activities, not just those related to investment, is critical in formulating a workable policy.

If you would baulk at investing in a company where there is evidence that its T-shirts are made in a sweat shop, then why would you buy one of those T-shirts?


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RE SPONSIBLE IN VESTMENT


As a responsible investor Quilter Cheviot is committed to its role as a steward of clients’ assets in order to protect and enhance long-term returns. This encompasses our engagement with investee companies, through proxy voting and face to face dialogue, as well as taking into account environmental, social and governance (ESG) factors which could impact shareholder returns.

Quilter Cheviot formalised its approach to responsible investment at the beginning of March 2017. Our client base is a mix of private client portfolios, small pension funds, trusts and charities; given this we have a long tail of small holdings which represent legacy and cherished positions. It would be impractical to vote on all our equity and investment trust positions and therefore we have chosen to focus on our largest and most widely held positions where we can have most influence. Given the nature of our predominantly UK client base, these are UK listed equities and investment trusts. We may look to expand the voting universe in the future.

Where clients wish to vote their holdings in a specific way we will do so on a reasonable endeavours basis; this applies whether the investment is in the core universe or not, and also to overseas holdings. We use the ISS proxy voting service in order to inform our decision making, however, we will not automatically implement its recommendations. When we meet a company to discuss governance issues the relevant analyst does so alongside the Director of Responsible Investment as we are committed to ensuring that responsible investment operates within our investment process rather than apart from it.

In 2017, we have voted on behalf of our discretionary clients at:

151COMPANYMEETINGS

(15 meetings we voted against or abstained for at least one resolution)

15 meetings we voted against or abstained for at least one resolution

Board composition

(6 votes against)

VOTE against the reappointment of non-executive directors (NEDs) where we have concerns about independence or the number of non-executive positions they hold

(3 abstention votes)

VOTE abstention votes on the reappointment of NEDs (including Chairmen)

Remuneration

(2 votes against)

VOTE against remuneration reports where targets had not been met but awards were being made at the discretion of the remuneration committee

(1 votes against)

VOTE against specific long-term incentive plan (LTIP) resolutions

(1 votes against)

VOTE against the remuneration policy


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Capital structure

(6 votes against)

VOTE against changes to the capital structure including the issuance of shares

Governance and shareholder resolutions

(1 votes against)

VOTE against amendments to the articles of association

(3 abstention votes)

VOTE against shareholder resolutions

What does this voting record mean?

Board composition is a vital sign of a company’s health - independence and time to devote to the company are important characteristics of a healthy board

Ensuring independent NEDs Chair key committees

Board refreshment – is there a succession plan in place?

Moving the goalposts to award executives incentives when targets have not been met is not OK – and excuses are definitely not OK

Remuneration must be aligned with the interests of shareholders

Share issuance which does not protect the rights of existing shareholders, and which does not have a compelling rationale will not warrant our support

Shareholder resolutions have to be reasonable and to have garnered reasonable support


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E THICAL AND RE SPONSIBLE SOUP


Is your charity investing on an ethical, sustainable, green, SRI (social responsible investment) focussed, responsible, ESG (environmental, social and governance), SEE (social, environmental and ethical) basis? Are you making impact or social investments? Or just plain tired of trying to work out what this all means? I’ll put my hand up to that and I do this for a living - although please don’t hold me responsible for the jargon. We continue to develop jargon soup on this topic and it shows no abatement. My job title is Director of Responsible Investment, if only I had a £1 for every time I heard the quip -‘who is the Director of IRRESPONSIBLE Investment?’ I would be a very happy person … instead I grit my teeth.

Perhaps some of the difficulty with this topic and the jargon is that it seems that if you are not adopting such an approach, then de facto you are the antithesis of it - just like my amusing colleagues and their joke about my title. For example let’s take ’sustainable’. In this world it means looking to the future and identifying future themes often in a resource-constrained world - which makes sense. However, I think we would all hope that charities’ investments are all sustainable (in the non-jargon sense of the word) given that for the majority of charities the investments are there to provide for current beneficiaries and future ones.

A few years ago I think the industry somehow as a whole, decided that ethical was a bit passé and that Socially Responsible Investment (SRI) sounded much cooler and that was the new mot du jour. Within this was the belief propagated by some that charities should worry less about avoiding investing in certain areas and should instead engage more with companies to influence their behaviour, be it themselves (only possible for the very large charities or through likeminded coalitions) or their investment manager. I agree entirely with the point that as asset owners and managers we should be engaging with companies


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and holding them to account. However, the thrust of this argument is potentially ignoring the fact that for some charities investing in certain companies or activities would simply go against everything the charity stands for. (The other point is that if you exclude a company from your investment portfolio then this restriction needs to be applied across all your activities).

At the same time came the rise of Corporate Social Responsibility (CSR) as the umbrella for everything a company should do to show it was a good citizen. Somehow (and I wasn’t invited to this discussion either) this morphed into Responsible Business. This came in tandem with a move from talking about ESG and SEE, and instead using the terminology Responsible Investment (RI). They all are interchangeable - in fact you could add stewardship to the RI bit but at certain times the nomenclature changes.

The revised CC14 introduced programme related and mixed motive investment, which in turn relate to impact and social investments, and many charities have collectively been scratching their heads about how they should go about doing this as it sounds like a very fine thing to do. This was followed by the Charities (Protection and Social Investment) Act in 2016. This gave charities the power to make social investments – the definition of these being ‘a relevant act’ of a charity which is carried out ‘with a view to both directly furthering the charity’s purposes and achieving a financial return for the charity’ (the Charity Commission’s interim guidance). For many charities the only way that they would be able to make such investments would be as part of a wider group, however, the market mechanism to do so is not yet developed enough for this to be widely accessible and this remains on the to do list.

So, how to decipher the jargon? If we put it into different pots hopefully it becomes easier to understand what we mean by all of this.

Ethical / SRI Typically these mean that the decision has been taken to avoid certain companies, activities or sectors as they are not in line with the charity’s ethos (remember it’s all about the charity and not the Trustees’ personal ethics) and the guidelines remain those of the 1991 Bishop of Oxford case i.e. - not in line with the charity’s objects, would alienate supporters / beneficiaries, is detailed in the trust deed, to implement such a policy has no financial detriment. At the same time these exclusions may be paired with positive criteria (usually this is more SRI than ethical) such as positive environmental outcomes.

Responsible / ESG / SEE / Stewardship This is when (usually) the appointed investment manager demonstrates that they are:

1) engaging with companies on environmental, social and governance issues

2) voting on behalf of clients at AGMs (or facilitate the client’s voting)

3) publishing the details of the engagement and voting

Sustainable / Green This is the focus on industries of the future, and tends to exclude fossil fuels and will have varying degrees of ‘green’ within it; and may specifically exclude specific activities as they are not in line with the agreed ethos.

Programme / mixed motive / social / impact About furthering the charity’s aims but the element of financial return will vary between the categories.


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R EVIE WING INVESTMENT PE RF ORMANCE

Lynn Pates, Quilter Cheviot

We all like to know how well we are doing, particularly when it comes to investments; for charities the performance measurement of its investments is vital in establishing how well it is doing in meeting its objectives.

Ongoing legislation affecting UK charities has focussed many Trustees’ thoughts on the way their investments are managed. The Charity Commission’s document “Charities and investment matters: a guide for Trustees” (known as CC14) has highlighted the requirement for Trustees to review their investments to ensure that performance is acceptable over time. But what is ‘acceptable’ performance? The rationale underlying the performance measurement process can best be summarised by the following anonymous quote: “You can’t know where you’re going until you know where you’ve been.”

In seeking to review investment performance, many charity Trustees may feel that they do not have the relevant information, investment insight and expertise to judge portfolio performance. Indeed, assessing performance is not a simple task! It is not just a question of looking backwards at return numbers but understanding the risks and other factors being taken to generate those returns. Whilst each charity may be different, with differing aims, objectives and resources, Trustees should be clear about exactly what the charity is trying to achieve by investing its funds; as after all the funds are there to deliver the charity’s objects.

Whilst a purely quantitative approach ticks lots of boxes, there are other factors which are important. By undertaking more in-depth analysis it is possible to reveal risks that may be mitigated before they lead to performance disappointment. Factors such as liquidity, transparency of pricing and complexity are just three examples of risks that Trustees might wish to consider in a portfolio review.

However, let’s consider three areas that charities may initially wish to focus on when conducting an investment performance review: accounting for conflicting time horizons, selecting appropriate measurement yardsticks, and adopting a robust, systematic approach to addressing any findings.

Dealing with conflicting time horizons

Charities have a duty to use their money on good causes, giving due consideration to balance the interests of current and future beneficiaries. Certain charities will

have a mission to spend their capital over a predefined period, while most will aim to exist in perpetuity with a need to protect their capital value from the effects of inflation. The investment time horizon for a charity portfolio is often ten years or more; in the case of endowment funds it is theoretically infinite.

However, for most charities the amount of money available for investment is not a constant. Rather it waxes and wanes according to the funding cycle of the charity. It therefore becomes important to understand how the investment portfolio is performing over much shorter periods as this has a direct influence on the scope of charitable activities being planned for the future.

In practice, performance is usually considered on at least a quarterly basis. The problem which arises as a consequence is that a long-term investment objective becomes overshadowed by short-term fluctuations in equity and bond markets. To avoid being carried away by sentiment swings and the latest “zeitgeist” a balancing act is required: with the Trustees mindful of the long-term goals but receiving regular updates and undertaking regular reviews.


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A start might be to review performance on a discrete quarterly and calendar year basis, but also to review rolling one, three and five year periods. Trustees should certainly aim to give a new portfolio manager at least 36 months before being tempted by a replacement unless performance is abysmal or corporate changes, such as mergers or key staff leaving, cause concern.

Selecting a measurement yardstick

When setting the investment objectives for a portfolio, the law requires that charity Trustees are satisfied that the overall level of risk

being taken is appropriate for the charity given its objectives. In other words, both target risk and target return (capital and income) need to be considered and quantified. As well as forming part of an investment policy statement, these key factors are typically expressed in a “benchmark” against which future performance will be judged.

The Charity Commission suggests taking expert advice when setting benchmarks and historically a market index or composite of indices has been used. However, these can be misleading and even unhelpful as the sole measure placing portfolio performance into context.

A more robust approach is to consider using four yardsticks: cash; the manager’s benchmark; “inflation +X%”; and a suitable peer group. Let’s look at each of these in turn.

Cash is easy to reference and currently relatively easy to beat. Many Trustees take the view that if the charity investment manager is not tasked with at least beating the return of cash over time there is little point in investing at all. Cash can be thought of as a proxy for the “risk-free” rate of return.

Traditionally, investment managers have used financial market indices (such as FTSE All Share; FTSE All World; FTA Government All Stocks; etc.) or composites of such indices as benchmarks against which relative performance can be measured.

Usually, the benchmark is a composite of financial market indices including equities, bonds and cash in appropriate proportions, representing the various asset classes and opportunities into which the manager may invest. The investment manager’s objective is then to beat this composite benchmark after costs. The main advantages of using a basket of financial indices as the basis for assessing portfolio performance are simplicity and transparency.

Inflation plus X% benchmarks have perhaps traditionally been the preserve of those investment managers who focus on an absolute return investment style. However we would argue that every charity should have, as part of its arsenal of performance benchmarks, one that is based on an inflation plus metric. The rationale for this is that ultimately the charity will want to ensure that it maintains it purchasing power for the future (inflation) as well as funding its current commitments (the X).

Finally, there is peer group performance or “what could I have got elsewhere?” There are now peer group indices available which reflect the “opportunity set” available and provide a reference to illustrate how any investment manager is performing against the industry average.

Adopting a systematic approach

Once a series of performance yardsticks have been established, a systematic approach to assessing portfolio performance should be

applied. This process needs to go beyond purely looking at returns and should encompass risk and consistency amongst other factors. There is no ‘silver bullet’ statistic; rather any quantitative approach will need a qualitative (common sense based) overlay.

As a starting point, Trustees should consider whether returns are in line with their expectations and whether the risks that are being taken are tolerable. Is the return per unit of risk acceptable? Has the pattern of performance produced any surprises? Other considerations such as liquidity, transparency of pricing and complexity are just three factors that Trustees might also wish to assess in a review.

There are a number of technical and practical difficulties in implementing a systematic, standardised approach to performance assessment including: data collection issues; treatment of fees and charges; impact of investment constraints; and how to deal with strategic holdings amongst others. However, without a systematic process, evidence of an audit trail becomes much harder to maintain and making a decision to change a manager becomes a more qualitative judgment.

In addition, by adopting and rigorously following a systematic procedure including a robust escalation process when questions or problems have arisen, the visceral aspects of manager change are ruled by evidence rather than emotion.


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Make time to discuss

Taking all these performance factors into consideration, it is not surprising Trustees without investment knowledge or a good grasp of maths

can get confused. Taking a limited view of performance measures can lead to misguided or jaundiced opinions by Trustees and advisors about certain investment managers.

In practice, Trustees should consider using a range of measures to ensure their investment policy is appropriate, reflecting the relevant time horizon of the charity and, crucially, the interaction of fundraising with grant giving over time. Assessment of any external investment manager should be multi-faceted and include more than just comparing returns versus a traditional index-based benchmark.

This is not always straightforward. Trustees may only meet twice a year so it is incumbent on the investment manager to assist Trustees through regular and timely reporting. Detailed and regular communications remain the key to success. Some charities tackle this challenge by having separate finance or investment committees enabling them to monitor their investments more regularly and in-depth. Others appoint independent investment advisers to hold the investment managers to account.

Monitoring investments to ensure that charity assets are not mismanaged and establishing robust and objective methods of assessing manager performance, given the increased legal requirements, must be treated with the seriousness and attention to detail that it requires.

Top tips for reviewing investment performance

• Make sure the objective meets your risk appetite and reflects the charity’s requirements for its investments.

• As a long-term investor keep an eye on short-term performance but be mindful of your time horizon.

• Having more than one measure of performance is helpful in assessing the manager versus the peer group, the market and the charity’s own long-term objectives.


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ONWARDS AND UPWARDS? Alan McIntosh, Quilter Cheviot

For the first time since the financial crisis in 2008, the global economy enjoyed a period of synchronised growth in 2017. Leading indicators suggest that this momentum should continue in 2018. The improvement in economic conditions has driven company profits higher, which in turn supported strong gains in equity markets during 2017, with many indices closing the year at, or near to, all-time highs.

MSCI ACWI Year-In-Review

400

420

440

460

480

500

520

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Dovish Fed hike

First Brazil Central Bank rate cut of 2017 totalling 500bp cuts for 2017

UK triggers Article 50

Macron wins French elections

UK elections 2nd Fed hike of the year

Brazil central bank cuts rates for the 3rd time to single digits

China bans new deposit certificates, tightening policy on interbank lending to curb risks

Asian markets rise on strong China inflation reading

OPEC agree on oil cuts until 2018

US tax bill passes

US breakevens trough for the year

US – North Korea geopolitical tensions

German elections

Abe secures a strong mandate/ ECB to taper its QE programme

3rd Fed hike of the year

Source: Morgan Stanley, 2 January 2018

The underlying economic conditions are the best in a decade. The breadth of growth is almost unprecedented and less debt dependent than most previous cycles, the exception perhaps being China. The main engines of growth are the US, eurozone and China, all of which look set for another strong performance in 2018. In the closing days of 2017, President Trump succeeded in delivering on one of his election pledges – namely the biggest overhaul of US taxation in 30 years. The cuts in tax should boost economic growth and could add 6-8% to company profits in 2018. As expected, the US Federal Reserve raised interest rates by a quarter of one per cent in December, the third such rise in 2017. Official forecasts point to another three quarter point increases this year followed by two more in 2019. This would take official borrowing costs to 2.5%, still well below levels that prevailed before the financial crisis.

The eurozone is also enjoying resurgence in growth across all member states and sectors. Overall financial conditions remain very supportive with the European Central Bank programme of quantitative easing (bond purchases) continuing into 2018. The quantity of bonds purchased will reduce from €60 billion per month to €30 billion per month during this year, but the improvement in economic health justifies the reduction in the pace of financial stimulus. The level of unemployment in the eurozone is falling, but still remains high in absolute terms at around 9%. With economic recovery set to continue, unemployment rates have considerable scope to reduce further. Markets largely shrugged off a series of potentially destabilising political events during 2017, notably the French and German elections, marked by a revival of “extreme” party popularity. This is testimony to the more robust economic environment currently being experienced.


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Source: Citi Global Economic Outlook and Strategy charts, 1 December 2017

-3

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge (%

)

Global inflation

UK CPI inflation US CPI Inflation Europe CPI Inflation

Source: Thomson Reuters Datastream 31 December 2017

30bnBONDS

Politics and Brexit uncertainty have begun to affect the UK economy. Although surveys suggest that consumers remain confident about their current conditions, they are less so about the future. The squeeze on real disposable incomes from higher food and energy costs is influencing larger ticket expenditure and with the last reading of CPI inflation above 3%, this pressure could continue through the early part of this year. The Bank of England raised interest rates once last year, but if inflation levels remain above target, there may be some

further small adjustments in the pipeline. In contrast to mainland Europe, growth forecasts for the UK have steadily reduced in recent months. From enjoying the fastest economic growth of the major G7 economies prior to the EU referendum in June 2016, the UK is now at the bottom of the pack. Much depends on the Brexit negotiations. A “breakthrough” by Theresa May and her negotiating team means that the next phase of talks can commence, but many of the issues remain unresolved. The pound has been caught between a strengthening euro and a weakening dollar in 2017, but may carve more of its own path this year as we inch closer to agreeing the conditions around leaving the European Union.

China continues to meet its official annual growth target of 6.5% despite the ongoing transition from an export and infrastructure led economy to a more service orientated one. The Japanese economy meanwhile is benefiting from the improvement in global trade and demand, particularly in technology related products.

After a strong showing in 2017, global stock markets have enjoyed their best start to the year for over a decade. The US Dow Jones Index closed above 25,000 for the first time ever and has recorded its fastest thousand point rise (36 days). How much further can we expect share prices to move from here? Until recently, there have been very few signs of over-optimism embedded in market psychology. Indeed most sentiment indicators have expressed a high degree of scepticism surrounding the long bull market. The role played by central banks in driving down interest rates (and pushing up asset prices) has attracted much attention. However, the recovery in the global economy has taken many by surprise and has added a huge amount of fundamental support to the strong rise in equity markets already seen. Sentiment indicators are now pointing to a greater degree of optimism. This suggests that we may be moving towards the last leg of the current bull market, although share prices could still trend higher for some time to come. To quote Sir John Templeton:

Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on

euphoria.”We may be well through this cycle, but equity markets are not ready to lie down just yet!


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F IN A N CE , LEGAL AND RE GULATION

Contributors:

Con Alexander Head of Charities Veale Wasbrough Vizards Con has advised charities of all kinds for more than 15 years and specialises in helping clients with the

governance and the strategic challenges that they face. Con acts for clients across the charity sector, from small social enterprises to universities and charities operating nationally and internationally. He trained and practised as a tax lawyer with Linklaters before deciding that he wanted to advise charities. Con was previously a partner with charity law firm, Bates Wells and Braithwaite. He is a member of the Charity Law Association and has sat on a number of CLA working parties. Con is also the author of “Charity Governance” (published by Jordans) and leads on VWV’s contribution to Jordans’ Charity Administration Service. Most recently, he has lead on VWV’s work supporting the Law Commission’s review of charity law. Until recently, he was a governor of Cabot Learning Federation (a multi academy trust which operates a group of 12 academies).

James Brooke Turner Co-Founder Yoke and Company James Brooke Turner is the Finance and Investment Director of the Nuffield Foundation, a £400m

endowed charity and has worked for grant making charities his entire career. He has been treasurer of both AMRC and ACF, umbrella bodies for medical research charities and charitable foundations respectively. He is an acknowledged expert in managing charitable funds from the Trustees’ point of view, most recently being recognised by the Charity Finance Group as one of the inaugural three Inspiring Leaders in the sector. After several years of frustration about the lack of accessible strategic financial advice for Trustees of charities he has set up Yoke and Company to help remedy this situation by offering independent financial advice for Trustees and CEOs so that they can make informed financial decisions as they are expected to by the Charity Commission.

Alexei Cantacuzene-Speransky Business Development Director Rose Partners Limited Alexei joined Rose Partners in September 2015, bringing with him an infectious energy and core

knowledge of the Private Client, Family Office and Philanthropic world. Alexei has spent the last ten years building and shaping relationships with clients, their advisers, and structures they employ. Alexei has built up an extraordinary network of key advisers across all sectors, making him one of the ‘go to’ people for a huge number of professional adviser, when it comes to client questions that sit outside of their remit, particularly in cyber security.

Hannah Catchpool Partner RSM UK Audit LLP Hannah has worked for RSM for 14 years and has been part of the not for profit team since joining. Her

portfolio includes local and national charities as well as a number of education institutions, incorporating independent schools, further education colleges and academy trusts. Hannah works with a number of top 250 charities. Hannah is the London and East head of charities and the firm’s national head of academies. Hannah regularly writes publications for RSM’s charity and education sectors. Hannah has obtained the ICAEW Diploma in Charity Accounting and has completed an MSc in Voluntary Sector Management with Cass Business School. She is also the Chair of the resources committee and Trustee of a children and young people’s charity near her home in the East of England.


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Neil Davies FIA CERA Partner Barnett Waddingham LLP Neil advises a range of UK businesses on investment matters relating to their defined benefit (DB) and

defined contribution (DC) pension schemes, as well as advising Trustees of charities on their investment strategies. He has expertise in a range of investment and actuarial work relating to pension schemes including strategic investment advice, investment manager selection, valuations, and expert witness support. He also advises charity clients on the investment of their charitable funds, including support with objective setting, asset allocation advice, governance issues, and manager monitoring. In June 2014 he represented Barnett Waddingham and the Institute & Faculty of Actuaries as a visiting lecturer to KNUST (University) in Ghana, and outside work he is a Football Legal Assistant Referee.

Shonaig Macpherson CBE FRSE Shonaig worked as a lawyer both in private practice and industry. Shonaig is Chairman of the Royal

Lyceum Theatre Company, BT plc’s Scottish Management Board and Chairman of The Robertson Trust, Scotland’s largest grant making charitable trust. She sits on the Governing Body of the Royal Conservatoire of Scotland and is a non-executive director of Futurelearn Limited, Euan’s Guide, Dunedin Consort and the Joint Management Board of the Scotland Office and the Office of the Advocate General. Her past appointments include Chairman of The Prince’s Scottish Youth Business Trust, Scottish Council for Development and Industry, the Scottish Council Foundation, The National Trust for Scotland, Edinburgh Business School and ITI Scotland Limited, Vice Chairman of The Royal Edinburgh Military Tattoo (Charities) Limited and its subsidiaries, Vice President of the British Chambers of Commerce and a director of the Edinburgh International Film Festival and Edinburgh International Conference Centre. She also served on the Governing Bodies of University of Edinburgh, Heriot Watt University, The Open University and Edinburgh College of Art. She was a non-executive director of Scottish Government, a member of the UK Government and Scottish Parliament’s Commission on Scottish Devolution, the Scottish Executive’s Culture Commission and the Knowledge Economy Task Force.

Catherine Rustomji Partner Browne Jacobson LLP Catherine is a specialist charities solicitor who advises charities, not for profit organisations, social

enterprises, charity Trustees and individuals wishing to establish charities. Her particular focus is on constitutional and governance matters including different legal structures and the duties and responsibilities of charity Trustees. Catherine operates across the health, education, arts, public and private sectors and advises a diverse client portfolio including national, regional and local charities, not-for-profit organisations, community groups, schools, colleges, churches, welfare and professional associations. Legal 500, 2015: ‘highly professional lawyer’ Catherine Rustomji has ‘a wealth of knowledge and an approachable manner’.” Chambers & Partners, 2017 edition: Catherine Rustomji of Browne Jacobson LLP is held in high esteem for her advice on governance and constitutional issues as well as Trustee duties. One client states: “She is extremely knowledgeable in her field and is an excellent resource.”

Sean Williams Solicitor Sean acts for high-net-worth individuals including business owners, executors, charities, Trustees and

beneficiaries. Sean advises on succession planning, tax mitigation and wealth protection, involving drafting and advising on wills, trusts and related documents. He acts as a professional executor and Trustee, and advises Trustees on the establishment and administration of charitable trusts. He also undertakes contentious work for Trustees and beneficiaries advising them on their duties and beneficiaries on their rights. Sean has significant experience of administering high-value cross border estates and estates with private company shareholdings. Sean is a member of both the Association of Contentious Trust and Probate Solicitors and of the Society of Trust and Estate Practitioners (STEP). He holds the STEP certificate on advising the owners of family businesses on succession planning.

In this section:

Pension schemes risk management Risk: friend or foe Cyber security for charities Top 10 issues - Charities SORP FRS102

How to handle troublesome Trustees Update on charity law and regulation Charity governance code General Data Protection Regulation (GDPR)


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PE N SION SCHEMES R ISK MANAGEMENT

Neil Davies, Barnett Waddingham LLP

Every charity should have an overall risk budget that it works to in respect of its investments. Managing the risk in the pension scheme is a key component to managing the risk in the charity as a whole.

Sometimes the risks inherent in the pension scheme can be large and can take up a large portion of the overall risk budget of a charity. Pension scheme Trustees are obliged to consider the risks to delivering member benefits, but this need not conflict with the charity’s return and risk objectives.

The Pensions Regulator (TPR) has issued regulatory guidance to help pension fund Trustees and employers develop an Integrated Risk Management (IRM) framework, which TPR views as ‘an important tool’ for managing the risks associated with funding defined benefit (DB) pension schemes. TPR’s approach focusses on modelling, understanding and mitigating the interaction between three key risk areas – funding, investment and employer covenant.

Investment strategy

Many charities adopt identical or near-identical investment portfolios for both the assets of the charity and the assets

of the pension scheme together – the problem with this approach is that both sets of assets may have different objectives. For example, the charity assets may be invested to maximise returns and retain value in real terms; whereas pension scheme assets may need to achieve returns to make up any deficit, while also seeking to manage funding level volatility and make sure that benefits get paid.

The approach of combining strategies can lead to unsatisfactory outcomes. For example, limiting the choice of investments to only those that both charities and pension schemes can hold, precludes the use of liability management tools, which can be mutually beneficial to schemes and charities in reducing the volatility of contributions needed to plug a deficit. Complementary strategies reduce the risk of both the charity and scheme performing adversely at the same time.

Employer Covenant

TPR defines the employer covenant as the “employer’s legal obligation and financial ability to support the pension fund now and in the future”.

The employer covenant underwrites risk and should guide the pension fund Trustees’ approach to strategy and prudence.

TPR guidance in relation to charities and not-for-profit employers:

• Understand the legal status of the employer and the implications for support both on an ongoing basis and in the event of insolvency.

• Understand the extent of any restrictions on income, assets or reserves, particularly on which assets can be used for pension contributions.

• The ability of the employer to generate cash, and the extent to which this cash is available for the pension fund. This will depend on factors such as:

• the diversity of the employer’s income sources, including their reliance on voluntary contributions;

• the future outlook for these income sources;

• the availability of reserves and the policy for retention of reserves;

• the level of discretion over costs incurred by the employer; and

• the key risks to these income streams (e.g. reputational risks) and policies for managing these risks.


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Pension scheme risks

In most pension schemes, the biggest investment risk will be interest rate and inflation risk. Interest rates and inflation

expectations are usually key for the discount rate used to value the liabilities - if interest rates fall or inflation rises then pension scheme liability value increases. If the assets backing the pension scheme are not linked to interest rates and or inflation and don’t go up at the same time as the liabilities, a deficit will arise. This mismatch between the assets and liabilities of the scheme can make for a volatile deficit and can add uncertainty to the amount of contributions the charity will need to make to the pension scheme.

As readers will know, any cash diverted to the pension scheme is cash that is diverted away from spending on the charity’s other aims.

Thankfully, there are tools in the market that can help to manage this interest rate and inflation risk, such as Liability Driven Investment (LDI) products. These products utilise derivatives to more efficiently match the pension scheme’s assets to the liabilities, by reducing overall exposure to interest and inflation rate movements, without reducing the expected return on the assets.

Typical key investment risks in a pension scheme:

• A mismatch of assets and liabilities, particularly around inflation and interest rates. The value of pension benefits are determined by expectations of inflation and interest rates – if these expectations change then the expected value of the liabilities changes. If this is not matched by a similar change in the assets then the funding level will fluctuate and a deficit can arise.

• Equity risk is usually another key risk in pension scheme investment strategies. Equities are volatile assets and can cause volatility in a scheme’s funding level. Diversification via uncorrelated assets or through a Diversified Growth Fund is an established method used to dampen this volatility.

An efficient risk-managed approach

As a simple example, consider a charity and a pension scheme with identical strategies of 80% growth assets and

20% bonds. In this case, replacing the bonds within the pension scheme with an LDI approach would be expected to maintain the same level of expected return within the assets, but reduce risk of contribution requirements arising to the benefit of both members and Trustees of the pension scheme and to the benefit of the charity.

In summary

Reducing risk in the pension scheme in this way can have a positive effect on the strength of the charity – giving a long term benefit for the pension scheme and for the charity as a whole.

A checklist for Trustees

• To what extent does the pension scheme impact the day to day running of the charity, particularly around cashflow requirements?

• If the pension scheme and charity assets are pooled, is this still appropriate and can risk be managed more efficiently by separating the assets, at least notionally? If the reason for pooling the assets is governance burden, does this cost outweigh the additional risk in the charity?

• Can risks in the pension scheme be managed better – in particular, could LDI help manage the funding level volatility?

• If the pension scheme and charity assets are separate, do they have consistent approaches to Environment, Social and Governance considerations or are there reasons that these should be different? Are there risks to the reputation of the charity and, stemming from that, risks to the covenant strength?

• If the pension and charity assets are separate, has risk across both pools of assets been considered? For example, do they both have a high exposure to equities meaning that a fall in pension scheme assets, and the need for additional contributions, would coincide with a time when the charity assets have fallen and there is already a strain on cashflows?


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R ISK – FR IEND OR FOE James Brooke Turner, Yoke and Company

We all want to make as much money as possible without taking any risk, or at least by taking as little risk as possible. What we don’t want is to take a lot of risk and get very little money in return. We can all do without that anxiety.

This is the basic principle of investing: you should get compensated for taking risk. If two businesses, Curmudgeon Widgets and Ultra Events, both want to borrow money from you and it is clear that Curmudgeon Widgets is a safer bet; then you will obviously lend to Curmudgeon Widgets (who will issue you a piece of paper which represents a bond-holding in the company which pays you a fixed rate of 2%) and that will be the end of that. However Ultra Events still needs to borrow money, so the company decides to offer you shares, indicating they hope to pay you an income of 4%, twice as much as Curmudgeon Widgets and also to increase it as their profits increase, but they cannot guarantee it. That makes your decision more difficult – both offers have their attractions so it becomes more difficult to decide what to do. In order to make the best decision, you need to be clear about what matters to you.

So what sort of things might these be? The most obvious is whether or not you can afford to lose your money if they can’t repay you. If you have future commitments, then you will want to take no risk at all, maybe not even putting the money in a bank. Most people can afford to lose some money but not everything, so they spread their risk. In our example you would give some to Curmudgeon Widgets and some to Ultra Events, and probably to another few companies as well. This is the essence of investing: risk, return and diversification.

This still leaves you with the problem of how much to give to the ‘safe’ Curmudgeon Widgets and how much into the ‘risky’ Ultra Events. That will depend on how important it is that you get your money back on the due date. If it is very important you won’t want to take any risk at all. However, if you didn’t have anything specific to repay you could afford to try and make a bit more money by taking a bit more risk.

One of the factors worth bearing in mind is when you might want your money back. If the date is several years ahead what will you do about inflation? Inflation is like a negative interest rate because it decreases the amount of things your money can buy. The offer of 2% interest from Curmudgeon Widgets is attractive in the short-term, but if inflation is 3% you will in effect lose 1% every year. On the other hand, if Ultra Events does well as a business, it can put its prices up when there is inflation, and you will share in that increase because you are a shareholder. So the Ultra Events dividend will still be worth 4% because its profits can increase alongside inflation.

So far, we have covered two different types of risk (of how you might lose your money). The company you invest in might be an unreliable business and not repay you. The second type is that the interest you are paid is slowly eroded by inflation. These are different risks and generally speaking what guides most investors is how quickly and how certainly they want their money back. The longer the time frame, the more risk they can take. Long time frames have the apparently perverse effect of making what are thought of as ‘safe assets’ more dangerous than ‘risky assets’, because safe assets are so exposed to inflation.

Short-term Long-term

Safe assets Fixed Interest Shares

Dangerous assets Shares Fixed Interest

A fourth feature of investing is that people buy and sell their stakes in companies such as Ultra Events and Curmudgeon Widgets everyday and so everyday a new price is set, therefore, the price will go up or down too. This ‘volatility’ of price is therefore a reflection of the instability of your investment – the more


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volatile the less attractive it is – so you should be paid more to lend to a volatile company. Small companies are considered to be more volatile than larger ones.

So this is what we have established: the more risky a venture the more you should be paid for taking that risk.

Shares are more risky than fixed income (because their value can go up and down) so they have to pay more to attract investment, but they also provide better protection from inflation than fixed income does. The more risky something is, the more volatile the price of it will be, and the more volatile the price the greater the return (as long as you can hold your nerve).

For a long-term investor volatility should not really matter, but it does, and in fact is probably the most significant impediment to successful investing by those Trustees who are lucky enough to have a long-term investment horizon. The reason it matters so much is because the best long-term assets are the ones that not only pay a decent return, but protect you from inflation, and these are the volatile assets. Volatility means that the value of portfolios can fall far and fast and that can be terrifying for Trustees. A well planned strategy will be able to sit out such a crisis, but Trustees who are ill prepared – or who panic – will probably want to sell at the wrong time. When Trustees do sell at the wrong time (which is more common than it should be) it permanently destroys part of the charity’s resources. Only Trustees can do that; markets can’t.

Another way of understanding volatility (which is the usual synonym for risk) is as a measure of the governance strength of a Board. Steadfast Trustees with a well planned strategy should be confident that they can hold more in higher returning (but riskier) assets than a Board that is fickle and ill prepared. Well prepared Boards will be better investors.

And that is the task that falls to Chief Executives and Finance Directors – to help their Chairman and Boards be better prepared and more successful investors. There is plenty of help in selecting investment managers, but there is almost no support for CEOs and FDs in designing policies that help Trustees hold their nerve in frightening times.

THE ENDOWMENT PARADOX

You cannot have stable assets and inflation protection

Low returnsStable assetsNo inflation protection

High returnsVolatile assets

Inflation protection

100% in bonds/cash 100% in equities/property


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CYBE R SECURITY FOR CHARIT IES

Alexei Cantacuzene-Speransky, Rose Partners Ltd

Cyber-crime is one of the biggest growth areas of crime in the charitable world. It is important therefore to understand that it is highly likely that your charity may face a cyber-attack in the future. In part, this is because many charities are unprepared for the cyber threats they face. Few charities have done a cyber security audit, even though the Trustees themselves are aware of the need for one.

The growth of cyber-crime and its success in penetrating IT security is due not to sophisticated technology but to human frailty. For example, the fact is that anyone may fall victim to a phishing scam. This involves tricking you into opening or answering an email from a sender whom you may or may not recognise. These phishing emails will have links or attachments which, if opened, will cause malicious code to be downloaded onto your computer. The code is able to work in different ways: it might just steal your passwords or banking logins; it might destroy your files; or it might close down your machine and only restore your access on payment of a ransom.

The basic rule is to be always vigilant: if you receive an email that doesn’t look right, don’t open it! Even if the email comes from a trusted source (a friend, your bank, your mortgage lender), be aware of any odd language, inconsistencies and inaccuracies, as these are all signs that the sender may have been hacked (or this is a fake email address), and is being used to trick you into opening an attachment. If you have any suspicions, phone the sender to check whether this is a genuine email.

So, how did the scammer get your email address? In any one of a number of ways, for the fact is that your email address may be found anywhere. You will, after all, you have shared it with countless people and, once shared, it will remain sitting in your contact’s smartphone address book. In the terms and conditions of your smartphone contract, which you will have signed (without reading the reams of small print), there will be a clause allowing for your details to be used for ‘marketing purposes’. When you download Whatsapp onto your smartphone, your address book is copied immediately. This is one of the conditions for using Whatsapp.

It is surprising how much open source information (a term used to refer to data collected from publically available sources) there is about you on the internet, if you know where to look. In an hour of searching the public domain, enough data about you may be found to build a detailed picture of your life, including your mortgage lender, what your property looks like, your spending habits and your family. For example:

(Visa is a gold mine)

A Visa account is a mine of information about you, reflecting the spending patterns of you and your family.

Facebook, which has no security settings whatsoever, is another good source of information. Then there are other open data sources, such as the Electoral Roll and Companies House, which supplies information about any company directorships you may have.

Information is hugely valuable, and collecting that information is the business of all the biggest criminal gangs around the world. They collect information so that they are able to use it at some point in the future. For them, it is good business, it is easy and they are less likely to get caught than if they diverted their efforts into a bank heist.


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Charities have huge amounts of valuable information, for example, on their donors. The biggest risk for any charity is its reputation: it only needs one member of staff to make the wrong decision and click on the wrong email and the charity may be opening its doors to possible blackmail. Scammers might use your logo to send out emails to all the donors on your database — a fast way to lose the confidence of your donors. The key point in any security system is that every member of staff is responsible, from the receptionist to the CEO. You will remember that David Beckham had to pay a large ransom to recover his data: his information was taken from his secretary, whose phone was hacked.

millionLOST IN

10 sec

We were asked to ‘do a bank job’ — legitimately, with the approval of the bank concerned — to test its systems. Our target was one of the big four UK banks, which boasted the most sophisticated security systems available. The cost of the bank job to us was £1,005. With a £5 aerial, we were able to download all the bank’s HR data as well as all the client accounts as the staff left the building for lunch. We called the bank’s CEO, and asked him to open the balance sheet.

With one click on our computer, we were able to empty an account of £70m in 10 seconds.

What we had done was to clone the CEO’s phone, which enabled us to send instructions to the CFO, apparently from the CEO. They believed their system was impenetrable, but we had used a brand new bit of software that came off the dark web. The bank was blissfully unaware of this, which is why the management thought they were safe.

After such an event, a bank can rebuild its business, but can your charity? The most basic trick to security is to “make your neighbours look more interesting”. In other words, if you can make your charity safe and secure, the hackers are likely to go elsewhere. Criminals take the path of least resistance.

What to do if your charity is hacked…

• In such an event, you must tell people quickly.

• Getting a reputational PR manager on Board is essential. Staying out of the press may not be your choice.

In any case, get an insurance policy. If your charity hasn’t got one, make it a priority for your Board’s next meeting. Go and talk to your insurance brokers, and ask for a ‘breach and ransom’ policy. You’ve all heard of kidnap and ransom policies – this is exactly the same, except it is for kidnapped data. Insurance policies against cyber-attack need to be for around the £1-2m mark.

A classic example of what not to do is T-Mobile’s decision last year, when it was hacked, to stay quiet for three days. This is the worst way to deal with a hacking. It caused massive damage to the company’s reputation. The information that was taken may not resurface for a year perhaps; however, you may be sure that the data are out there, being sold and resold.

(Be vigalent of odd looking emails)

You can’t stop this crime, but you are able to educate your staff and Trustees about the nature of cyber-crime and how to manage it. Awareness of cyber issues is the best defence. If it is not already a feature of your charity’s management policy or on the risk register, it should be an item on the Board’s next agenda.


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RISK TO CHARITIES FROM SCAMMERS AND FRAUDSTERS

The following alert to charities, issued by the Charities Commission last year as regulatory advice, gives a good idea of the type of cyber risks charities face. The information contained within this alert is based on reports made in November 2016 to Action Fraud, the UK’s national fraud reporting centre. There are two prevalent scams to be aware of:

1 — ‘Crime Prevention Advice’ email

Fraudsters are sending out a high number of phishing emails with the message subject heading ‘Crime Prevention Advice’. The email sender appears to be spoofing a Metropolitan Police email address, showing the sender as ‘[email protected]’. The email contains the text:

‘TO THE GENERAL PUBLIC See attached document to read more about crime prevention advice. Regards, Metropolitan Police Service.’

The email includes an attachment titled ‘11212527.zip’. This attachment contains malicious content which downloads the iSPY key logger to the victim’s device. This key logger records keystrokes, steals passwords stored in web browsers and Skype conversation records, takes pictures via webcam and stores the licence keys of software, such as Microsoft Office and Adobe Photoshop.

2 — ‘Notice of Intended Prosecution’ email

Phishing emails are being sent out with the message subject heading ‘Notice of Intended Prosecution’ and ‘NIP - Notice Number’ followed by a combination of letters and numbers.

Its primary function appears to be distributing Banking Trojan malware, through a malicious link embedded within the email. The emails purport to come from the Greater Manchester Police. In both cases, charities are advised to protect themselves in the following ways:

• ensure charity software has up-to-date virus protection

• do not click on links or open any attachments you receive in unsolicited emails or SMS messages

• check the email header to identify the true source of communication

• always install software updates as soon as they become available

• install ‘anti-spyware’ software

• undertake regular backups of your important files to an external hard drive, memory stick or online storage provider

• if you suspect your bank details have been accessed, you should contact your bank immediately

If you think your charity has been affected by a phishing scam, or any other type of fraud, you should report it to Action Fraud by calling 0300 123 2040, or visiting www.actionfraud.police.uk.

Trustees are advised also to report suspected or known fraud incidents to the Commission at [email protected].


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TOP 1 0 ISSUES - CHA RIT IE S SORP FRS102

Hannah Catchpool, RSM UK Audit LLP

For some charities, 2018 will be their third year of applying the updated Charities SORP FRS102, and despite this experience there remain some common areas where the application could still be improved. Many of the observations below relate to larger charities.

SORPs (Statement of Recommended Practices) are sector-driven recommendations on financial reporting, auditing practices and actuarial practices for specialised industries, sectors or areas of work, or which supplement FRC (Financial Reporting Council) standards and other legal and regulatory requirements in the light of special factors prevailing or transactions undertaken in that particular industry, sector or area of work that are not addressed in FRC standards. SORPs also address matters that are addressed in FRC standards, but about which additional guidance is considered necessary.

The SORP defines larger charities as generally having an income in excess of £1 million or by reference to the charity’s level of gross assets. In this case the charity is required to undertake an audit.

Based on our experience these are our top ten tips to applying the Charities SORP FRS 102.

1 Trustees’ Report - activities

The Trustees’ report must explain the charity’s objectives and activities and, for larger charities, an explanation of its strategies for achieving its objectives as well as key financial activities undertaken should be included.

Although this narrative element is often done well, a clear link between activity headings in the Statement of Financial Activities is sometimes lacking and the income generating activities are not aligned to the charity’s core charitable activities, making it hard for the users to relate the narrative back to this primary statement.

Link charitable objectives and activities to its key financial activities

2 Trustees’ Report – investments

There are several new requirements from the 2005 SORP for larger charities and disclosures in the Trustees’ Report (“TAR”) that are commonly overlooked.

Under FRS102 Charities SORP, a larger charity that holds material financial investments, the financial review in the TAR must comment on

• The investment policy and objectives set

• The investment performances against those objectives

• Explain to what extent it takes social, environmental or ethical considerations into account in its investment policy.


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Good reporting

Policy and objectives

Investment performance

Social, environmental and ethical considerations

=The second area, of explaining the actual investment performance against the objectives and targets set, is often the missing link. At times, it is difficult to relate the narrative objectives set to the financial performance that is disclosed.

3 Related party disclosures

Despite exemption given under FRS102 section 33 for the disclosure of related party transactions between a parent and its wholly owned subsidiaries, where this relates to a charity and its trading (and non-trading, e.g. CIC, charity) subsidiaries, the SORP deems that these disclosures are in fact material by nature and therefore charities cannot take advantage of the exemption.

As such a charity should include a note detailing all transactions and balances, along with comparatives and the nature of these transactions, in the notes to their accounts.

Show all related party information

4 Financial instruments

Although not solely applicable to charities, the introduction of FRS102 meant several changes for accounting for financial assets and liabilities. In accordance with FRS102, the FRS102 SORP distinguishes from ‘basic’ financial instruments and ‘other’ financial instruments. “Basic” financial instruments include cash, trade debtors, trade creditors, loans, overdrafts and bank deposits. “Other” financial instruments typically include financial derivatives.

Alongside this, FRS102 introduced the requirement for a financial instruments accounting policy to explain the nature and type of these financial assets and liabilities and either to detail out which balances within the financial statements fall within the scope of the financial instruments note, or a separate note to the financial statements that list out all such balances and their financial value.

5 Charity Commission Information Sheet 1 – comparatives

In April 2017, the Charity Commission published Information Sheet 1 which enhanced the disclosure requirements set out in the original SORP and model accounts.

In particular, the summary of assets and liabilities of each fund of the charity, including details of movements in individual funds are specific notes where a full comparative will need to be added to the accounts. Some charities have added their activities by restricted / unrestricted fund to the narrative throughout the SoFA notes, for others a full comparative SoFA works more effectively.

This has resulted in more disclosure than in the previous SORP.

The analysis of charitable funds will include fund movements from the beginning of the prior reporting period to the end of the prior period; and from the beginning of the current reporting period to the end of the current period. http://www.charitysorp.org/media/645536/charities-sorp-information-sheet-implementation-issues-april-2017.pdf

http://www.charitysorp.org/media/645536/charities-sorp-information-sheet-implementation-issues-april-2017.pdf

http://www.charitysorp.org/media/645536/charities-sorp-information-sheet-implementation-issues-april-2017.pdf


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6 Accounting estimates and judgements

The introduction of FRS102 heralded the requirement to disclose the key judgements and assumptions that management has made in the process of applying the entity’s accounting policies. Additionally the key assumptions and estimations that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next reporting period, are now included.

Common examples that are disclosed by charities include the valuation and assumptions of defined benefit pension schemes and valuations of investments. These balances often require the use of third party experts. They may also include judgements on balances such as goodwill or the existence of impairments; or simply the application of the going concern basis of preparation of the financial statements.

All areas of judgement and estimations should be considered for inclusion.

7 Change in income recognition criteria, albeit a non-event for many

The FRS102 Charities SORP changes one of the three criteria in income recognition. While the two criteria of ‘entitlement’ – being the control over the rights or other access to the economic benefits, and ‘measurement’ – being the income that can be measured reliably has remained the same as the 2005 SORP, the FRS102 Charities SORP requires income to be recognised when its receipt is only ‘probable’ and not ‘virtually certain’ as was the case previously.

Despite this change in criteria, practically, we have not seen a significant change to many charities, but all different streams of income need to be considered with this change in mind.

Income to be recognised when its receipt is at least ‘probable’

8 Key management personnel

A new disclosure was required, not only for charities but all entities reporting under FRS102, which is to disclose the total remuneration and benefits to key management personnel; this should include the employer’s National Insurance as well.

Common misconceptions are made in that the key management personnel are just the Trustees of the charity, but key management personnel may include senior management and those persons having authority and responsibility for planning, directing and controlling the activities of the charity.

Charities should ensure they have a detailed process for considering how to set the remuneration of key management personnel including the use of benchmarking data and performance to be able to disclose these processes as well.

Key personnel = Trustees + senior management + other employees


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9 Government grants

FRS102 introduced a new section for dealing with government grants, which includes the use of the ‘accruals model’, which recognises income in line with when the costs are incurred. This is not permitted under the Charities SORP and income must be recognised when the income recognition criteria has been met. That means the full grant income may need to be recognised, sometimes even when there are terms and conditions attached. Each grant needs individual consideration.

In addition, further disclosures are required when in receipt of government grants:

• Nature and amounts of the grants recognised in the accounts

• Any unfulfilled conditions and other contingencies attached to the grants that have been recognised in income

Any forms of government assistance from which the charity has directly benefited from

Further disclosures required for government grants

10 Intangible assets and websites

Website costs are commonly incurred by charities; care needs to be taken in establishing whether the recognition criteria have been met for capitalisation of these costs. Charities should refer to FRS102 and the capitalisation of development costs when considering if website costs should be capitalised or not.

The recognition criteria for capitalisation include, but are not limited to:

a. The technical feasibility of completing the intangible asset so that it will be available for use or sale

b. How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset

c. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset

Need to apply a suitable accounting policy to classify costs


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HOW TO HANDLE T R OUBLE SOME TRUSTEES

Shonaig Macpherson

Do you sometimes feel your charity isn’t making the most of your own or your colleagues’ talents? Perhaps your charity’s Board may contain one or two of what I would describe as troublesome Trustees that become a barrier to effectiveness, who on occasion can go beyond the irksome to impede or divert the charity from its core purposes? And yet, quite often the Chair or we as individual Trustees don’t tackle them until it is too late.

What can we do as individuals to ensure that our own talents are used to be best effect and that the troublesome Trustees are dealt with? To assist me in dealing with this issue I have developed my own personal classification system for troublesome Trustees. After all, Trustees are people and come in all sorts of shapes and sizes, requiring different strategies and tactics to manage them.

(Missing in action trustee )

First of all, “missing in action” — the serial non-attendee, whose apologies become a standing item on any meeting agenda, and who has no engagement with the charity outside formal Board meetings. This sometimes occurs with the well-known person, where the charity thinks it would be helpful to have then on the Board to open up networks or attract attention. That is laudable, but why not make them a patron or ambassador instead? You will achieve the required benefits and be able to populate your Board with Trustees with relevant skills and proper levels of engagement.

(The distracted trustee )

Next is “the distracted” — the person who arrives on the dot or late for a Trustees meeting, usually without their papers or, if they have them, they are still in their unopened envelope; who then proceeds to fiddle with their smart phone and generally indicating a wish they were elsewhere.

(The evergreen trustee )

Then there is “the evergreen” – the Trustee who will not retire, who often blocks progress and constantly refers to the past. Make sure that your constitution has limited terms of office for Trustees and stick to them. No-one should be exempt from those rules.


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In charities that are membership organisations, with Trustees elected from within the membership, the evergreen is the individual who manages to ensure that they are nominated time and again for election. It would be wrong to challenge the right of the membership to elect who they want and there is always the benefit of corporate memory from a Trustee who has been around for a while. But that needs to be balanced with the requirement to ensure that each Trustee can truly contribute to the work of the Board. Also, ensure that the evergreen elected Trustee is properly engaged with the views of the broader membership, rather than the few supporters? Don’t rely on them solely as the voice of the membership.

The evergreen often falls into another of my categories, “the fighter of good causes” otherwise known as “the man/woman on a mission” — I am the first to advocate that a charity Trustee should have empathy or an interest in the core purpose of the charity that they serve. However, on occasion, passion can spill over into a lack of objectivity and the pursuit of peripheral causes, resulting in highly charged and non-productive Board meetings. One way to tackle this is to ensure there is a good meeting agenda to stick to. Even then, however, the Man/Woman On a Mission can wait for Any Other Business, and bowl a googly!

(The Meddler)

The evergreen passionate fighter can also transform into “the meddler” — this is where the charity Trustee crosses the non-executive/executive divide and begins to intervene in operational issues. In small charities, Trustees do on occasion need to literally roll up their sleeves and help out, but it should be on a basis agreed at Board level and on a project basis rather than ongoing interference.

I have always called my next group “the Corbyn”, though after the last general election I may have to find another name for them. I am referring to the Trustee who will not stick to the party line or accept cabinet responsibility, who constantly seeks to re-open decisions that the Board has made, or who broadcasts loud and clear that they do not agree with the decision even as disaster looms. In this case, there may only be one potential outcome, which is to ask the Trustee to step down. Before you do, make sure that your governance arrangements allow you to do that.

This can also occur in my final category, “conflict? what conflict?” — the thorny issue of the Trustee with a conflict of interest that they cannot or will not manage. This can take many forms but is typically the Trustee who is still at the coal face in their executive career and hopes that involvement in the charity might result in some benefit for his or her employer or an associate.

Motivations for becoming a Trustee should be explored at appointment. Far too often have I heard, when a candidate is asked to explain their interest in becoming a Trustee: “It will be good for my career”. That’s an early signal that conflicts of interest may need to be managed with that particular candidate.

The more difficult conflicts of interest can arise when a major donor becomes a Trustee, or when the charity’s Founder moves from an executive role to a non-executive role and remains as a Trustee. This can result in an expectation on their part of undue influence being exercised or undermining of the current executive team. It requires careful handling. As for the Missing in Action, if a major donor or Founder is to have an involvement then perhaps it is best to consider options other than as a charity Trustee.

One of the best ways to make the most of charity Trustees is to avoid appointing troublesome Trustees in the first place. Ensure that your charity has robust and effective recruitment processes in place for the appointment of Trustees. As detailed above, the starting point should be a skills matrix, which assesses the mix of skills and experience that should be on the Board. Trustees should be able to demonstrate how they would contribute to that skills mix.


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During the recruitment process, there should be clarity on the role and responsibilities of the charity Trustees including the required time commitment, which sometimes turns out to be more than stated.

In interviews and during your due diligence on candidates, challenge them about their own style and conduct in meetings, asking them how they deal with situations where they don’t agree with a course of action and how they approach conflicts of interest.

Make sure you use an appointment letter that sets out responsibilities, time commitment and other expectations – including the right to remove.

Induction is another important element – if run properly, this not only provides information to the new Trustee but will flag up to the charity any issues there might be about the individual’s style, concerns and modus operandi. This can be helpful with existing Trustees too: where a Trustee’s appointment is being renewed or extended for a further term, they should go through another induction process. This also provides the opportunity to feedback on any performance issue.

In all of this, the role of the Chairman of the Board is critical. If you have a skills matrix then the Chairman is its guardian, ensuring that recruitment exercises respect it and that it is kept up to date.

The Chairman should ensure that each Trustee understands what their responsibilities are and know the culture of the organisation, including how Board meetings are run and what is expected beyond attendance. Chairmen should know their Trustees and be able to anticipate when issues may arise and know how to manage them.

What happens when Chairman goes native? I am a great fan of Vice Chairs, who can act as a conduit from other Trustees in the event of any issue arising.

Board Evaluation/Effectiveness Reviews are another useful way of making sure that you are getting the best out of your charity Trustees and for tackling troublesome Trustees. Asking Trustees to complete performance surveys, coupled with one-on-one meetings, provides an excellent opportunity for an objective appraisal.

Getting the best out of charity Trustees and managing troublesome ones is all about ensuring that the governance of your charity is fit for purpose, and not a box-ticking exercise. It should provide a framework embodied by a culture of openness, integrity and respect, with last and not least a strong dose of common sense.

I would conclude by saying that troublesome Trustees do have a proper place at all of our tables. A diverse Board in terms of gender, race, disability, age or socio-economic background does not necessarily bring diverse perspectives. Sometimes a Trustee is labelled as troublesome because they think differently. I am a fan of original thinkers, as they are the ones to bring a new perspective and challenge to the Board’s responsibilities of strategy, governance, risk management and performance monitoring.

It is incumbent on us all to ensure that troublesome Trustees have their place on the Board, but we should also insist that we be allowed to discharge our responsibilities effectively.

Green flags

• A robust and effective recruitment process in place for the appointment of Trustees

• A robust and effective induction process for new Trustees

• Skills matrix to assesses the mix of skills and experience that should be on the Board, under the management of the Chairman

• Board Evaluation/Effectiveness Reviews to get the best out of your Board and for tackling troublesome Trustees

• Original thinkers, to bring new perspectives and challenges to the Board’s responsibilities

Red flags

• When Trustees are asked to explain their interest in the charity, they respond: “It will be good for my career”

• When a major donor becomes a Trustee

• When the charity’s Founder moves from an executive role to a non-executive role and remains as a Trustee

• When a Chairman goes native• When diversity ‘group think’ shuts

out original thinkers • Trustees with conflicts of interest

TRUSTEE CHECKLIST


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U PDATE ON CHARITY LAW A N D REGULATION

Con Alexander, Veale Wasbrough Vizards

The regulatory landscape for charities is going through a period of rapid and in some cases, quite radical change. Recent change has generally involved more of standards, regulation, enforcement and expectations. This article outlines some of the changes that I presented to the Quilter Cheviot Birmingham and Leicester Annual Charity Seminar 2017.

Standards

The Charity Governance Code is a widely recognised best practice code developed by the sector. It has been with us for over a decade and a new edition was published in

July 2017. At the same time, the Charity Commission withdrew its own “Hallmarks of an effective charity” leaving the Charity Governance Code as the one go-to authoritative text on general governance issues.

The code is organised around seven key principles:

• organisational purpose;

• leadership;

• integrity;

• decision making, risk and control;

• Board effectiveness;

• diversity;

• openness and accountability.

The changes generally increase standards for transparency, recruitment and evaluation of Trustees, the scope of decision-making and the role of the Chair. The guidance is intended to be practical and recognises that aspects may be aspirational or a stretch for some charities. It is an essential read for anyone involved in administering or reviewing charity governance. Indeed, one of its key recommendations is that charities should either apply the code or explain why they do not.

Regulation

Fundraising by charities (and other philanthropic causes and organisations) is now regulated by the Fundraising Regulator. It might

not be a statutory regulator with hard law behind it, but there should be no doubt that it is the regulator. It maintains and updates the Code of Fundraising Practice. It adjudicates complaints about fundraising, and published its adjudication into the fundraiser Neet Feet and eight charities.

The impact of Data Protection regulation on fundraising was felt acutely, first in December 2016 when the Information Commissioner fined RSPCA and the British Heart Foundation and again in April 2017 when it fined another eleven charities.

The law has also changed to protect vulnerable people and the public from unreasonable intrusion, unreasonable persistence and undue pressure from fundraisers. This protection must now be covered in agreements with professional fundraisers. Charities whose accounts are audited under the Charities Act must include a report on fundraising, to include the measures taken to protect vulnerable people and the public from intrusion, persistence and pressure.

The Charity Commission’s own guidance on fundraising, “CC20”, stresses the personal responsibility of a charity’s Trustees for its fundraising.


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Enforcement

On 1 November 2016, the Charity Commission was given power to issue official warnings. These can be given if there has been breach of trust,

breach of duty or misconduct or mismanagement. The Charity Commission does not need to have opened a formal inquiry before issuing a warning.

The Commission intends to publish the warnings it issues and the two warnings issued at the time of writing contain some detail about the Commission’s concerns. Warnings could have a potentially serious impact on a charity’s public relations and the personal reputation of its Trustees.

Before issuing an official warning, the Commission will generally give 28 days’ notice which explains the grounds for the warning and what the Commission considers should be done as a result. Trustees faced with such a notice should use the window to respond to the Commission and to plan for publication.

The powers given to the Commission in an inquiry have also been extended and sharpened. For example, the Commission can now disqualify someone from being a Trustee or senior manager of a charity in certain circumstances.

Expectations

The Commission continues to regularly publish reports on its inquiries and other casework. These give a flavour of its expectations and

several themes have emerged.

One theme was the need to report serious incidents to the Commission promptly. Since I delivered my talk, new guidance has not only extended the requirement but also requires reports to be made as soon as is reasonably possible, or immediately the charity is aware of the incident.

Other themes in reports have included expectations around Trustees carrying out due diligence and having robust systems and procedures as well as paying for loss they cause to charities and returning unauthorised benefits.

The Commission is also interested in the way Trustees manage the financial health of charities, publishing fifteen questions it expects them to ask about governance and financial resilience. The questions cover aspects of the economic environment, the charity’s commitments and opportunities for collaboration.

Conclusion

Charity Trustees and managers find themselves faced with a rapidly changing regulatory environment with more regulators, more exacting rules and expectations to keep on top of. More change is on the horizon, because the Law Commission has now published its report and draft legislation on charity law. In refreshing contrast to recent changes, the Law Commission’s theme is de-regulation and simplification.


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CHA RITY GOVERNANCE CODE

Catherine Rustomji, Browne Jacobson

The Charity Governance Code was reissued in July. It is not new, and you don’t have to comply with it. The Code is a tool, for you to take from it what is useful, and what suits your needs. Some provisions are useful but others may not be suitable for every charity. The Trustees hold up the seven principles within the Code that altogether support the charity in its work.

Principle 1 – Organisational Purpose

The Board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably. Keeping an eye on the charity and what it’s doing; periodically reviewing whether the objectives are up to date; whether the charity is still relevant to the needs of its beneficiaries; what’s going on in the external environment.

Principle 1 – Organisational Purpose

It is interesting that the Code says that the Board “leads development of, and agrees, a strategy”: in my experience that is not normally led by the Board, but by the chief executive. The Board usually sees it in its final draft with the Board amending or getting directly involved in varying amounts within different charities. It is a joint piece of work in terms of setting the strategy, but it is relevant here to ask whether the Trustees are doing enough. Should they take ownership of that task, rather than follow the chief executive’s lead on this?

Perhaps they should also be looking at regularly reviewing sustainability of income sources, to diversify and business models, and how their charity could evolve and operate differently.

The Code suggests we should consider “the benefits and risks of partnership working, merger or dissolution”. Partnership working was flavour of the month a few years ago, but not so much anymore, though if relevant it should be considered with care particularly in relation to reputational and financial risk. Mergers are often talked about but don’t happen that frequently - often because of issues of cost but also particular issues such as pension deficits. Dissolution, at the risk of being controversial, is something that some charities might well want to consider. Some charities are not as effective as they could be, or ever would be, which raises the question of whether they should transfer their charitable assets to another more effective charity with similar objectives.


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Principle 2 – Leadership

Every charity is headed by an effective Board that provides strategic leadership in line with the charity’s aims and values.

Principle 2 – Leadership

• Take collective responsibility for its decisions – this means that once a decision is taken, every member of that Board is bound by the decision, regardless of whether they voted in favour or against, abstained or were absent. Trustees can’t distance themselves from a decision made on behalf of the charity because they are bound by collective responsibility for that decision. It is not an option. If you want to continue as a Trustee, you have to be as positive about the decision you disagree with as with any other decision.

• Chair provides leadership to the Board – I am not convinced that is what most Chairs are doing at the moment. Sometimes the Chair is only there because others have been too slow to volunteer - in a way, it is an unlucky role that no-one really wants to take on, but if the Chair really wants to develop the Board then they have to take the lead.

• Staff – proper arrangements: this means job descriptions, proper contracts of employment and any other related policies.

• Functions are formally recorded – any functions of the Board need to be formally recorded as a master copy to refer to. Far too many charities just assume “everyone knows”.

• Subsidiary – if your charity has a subsidiary, there needs to be a clear rationale as to why it exists. Some charities merely say that ‘we have a trading company because other charities have trading companies’. A business decision has to be made about the need for any trading subsidiary, its purpose, its business plan; in this way looking at not just the benefits of having a trading subsidiary but also the risks.

• All trustees give sufficient time to the role – the key word here is ‘sufficient’. Each Trustee may well have to give different amounts of time to carry out their role. This depends on their skills and experience, and how quickly they may be able to digest the information that is presented

to them. Trustees need to be clear about the time commitment required for their role. Some seem to think attendance at meetings is optional, but attendance needs to be as close to 100% as possible.

Principle 3 – Integrity

The Board acts with integrity, adopting values and creating a culture which helps achieve the charity’s purposes.

Principle 3 – Integrity

• Code of Conduct – with suggested standards of probity and behaviour. The risk with having a Code of Conduct is that it becomes just another policy that may or may not be implemented. Unfortunately, for some charities, there needs to be a set of hard and fast rules that state clearly the standard of behaviour expected between colleagues and in particular what is not permitted.

• External perception – clearly very important. Reputation is a highly valued asset but one that, if damaged, is so difficult to repair. Charities need to operate in a way that is responsible and ethical.

• Follows the law – this is obvious but, if that is not enough for you, you could consider adopting non-binding rules, codes and standards. For some, this would be the Nolan Principles, but if you are fulfilling all your legal duties, you don’t necessarily need any other principles or codes. It is fine to adopt a code, but you need to work out whether it will be useful to the charity before adopting it.

• Identify, deal with and record conflicts of interest/loyalty/duty – this can get quite complicated, as it may involve family members, an employer, personal interests, another charity. The procedure is as follows: step one, declare and record the conflict of interest in the minutes. Step two, the non-conflicted Trustees decide how to respond and manage that conflict. A conflict of interests policy is useful, as it sets out the appropriate responses, a process that you follow every time which ensures consistency that a conflict arises and reminds people of their duties. Once a year, it is good for Trustees to review their interests. For example, they may have changed employers, so that may change the picture.


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Principle 4 – Decision-making, risk and control

The Code says that the decision-making process needs to be informed, rigorous and timely – quite often I go into a Board meeting and find it is neither informed, rigorous or timely. Sometimes this is about prioritising Board time: what is on the agenda for this meeting; what do we have to decide today; what are the longer term discussions and plans?

Principle 4 – Decision-making, risk and control

• Effective delegation, control and risk-assessment and management systems – some Boards will set these systems up and never look at them again, or put them into day-to-day practice. There is often a gap in the decision-making at this point, where the Board is not rigorous enough to link all of this together. The Board should review which matters are reserved to the Board, and which matters are delegated to other bodies so that the Trustees can be confident that they have the right mix, and that they are being discussed appropriately.

• Committees – A suitable membership of the Board will comprise a good mix of lay Trustees, staff and Trustees. Trustees can become exhausted if they have to sit on sub-committees as well as the full Board. In addition, if all they hear are other Trustees, then they will not get varied and informed debate, rather they will get ‘group think’. A solution might be to invite new people to join the sub-committees, rather than becoming a Trustee.

• Regularly review key policies and procedures and monitor performance – again, when a business plan is drawn up with strategic targets, one never tends to see those targets ever again. There is a tendency to wait for perhaps a five-year period before looking to see whether the charity is performing properly. If you have key performance indicators with key targets to meet, you must surely want to know at any moment whether you are on track to achieving those targets, or off course and in need of some changes.

• Regularly review specific, significant risks – again it is about priorities. This is not about reviewing all risks at all meetings but about focusing on

significant risks and what needs to be done to monitor and minimise those risks.

• Appointing auditors and audits – this section is about the audit regime, appointing auditors and making the charity compliant.

Principle 5 – Board Effectiveness

The Board works best when it has an appropriate balance of skills, experience, backgrounds and knowledge. Diversity among Trustees should be based on a diversity of skills, experience and, much more importantly, personality types.

Board E�ectiveness

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• Meets as often as is needed to be effective – most charities do not need to meet more than three or four times a year, though this does depend on the charity.

• Chair plans the Board’s programme of work and its meetings – It is the Trustees’ Board meeting, so it is they who should be setting the agenda and agreeing the content of meetings. Too often this is done by the chief executive. This can certainly be done in consultation with the chief executive, but not to the point of handing over control of the agenda.

• Vice-Chair or other intermediary to back up the Chair – it is often thought that the Chair’s role is a lonely one, one that would benefit from having a deputy, so that together they can provide a broader balance of skills.

• Regularly discusses effectiveness, motivations and behaviours – the Board needs to review honestly its performance and practices. How could things be improved? Could they be more effective by making some practical changes? Look to make improvements immediately rather than reviewing once a year or less.

• Regularly considers the need to govern, lead and deliver – Trustees are aware that they need to govern, but less aware of the need to lead and deliver.

• Size is right – it is thought that a minimum of five and a maximum of 12 is typically considered good practice.


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• Development of the Board – charity Trustees are required to have an induction; there is also the need to ensure the ongoing learning and development of Trustees. This would involve attending seminars, reading materials and being informed about the sector in which the charity works.

• Annual review of Board performance, including Trustees and Chair – what does this achieve? This is a voluntary position, not annual workplace appraisal, and looks very much like a box-ticking exercise, rather than making the Board better or identifying problems. If faced with behaviour problems, the charity should tackle them when they arise, rather than wait for the annual review to come round.

• Evaluation of the Board – this could be an explanation included in the charity’s Annual Report. However, such a Report is about what the charity does, its impact on the sector, the outcomes of its campaigns, rather than some navel-gazing exercise about the performance of the Board.

Principle 6 – Diversity

Principle 6 – Diversity

• The Board’s approach to diversity supports its effectiveness, leadership and decision-making. After recent research showed that the vast majority of Trustees are ‘pale, male and stale’, the Charity Commission has stated that charities should more closely reflect the communities that their charity serves. The subtle point about diversity is one of ‘group-think’, in other words that if you have the same background, you may well think alike. When discussing the composition of the Board, time would be more usefully spent focusing on diversity of skills mix, experience, motivations and personalities, rather than gender, ethnicity, religion or any other issue.

• Encourage inclusive and accessible participation – often this is simply resolved by changing the day of the week or time of day for the meetings, as some Trustees have day jobs. Technology, such as Skype or video conferencing, is also a good way of ensuring good attendance at meetings.

• Periodically undertakes training – this is an opportunity to gain expertise – a chance to shine!

• Positive effort to remove, reduce or prevent obstacles to people becoming Trustees: one example of the sort of obstacles that may prevent people from wanting to become Trustees is the move by some charities, after the Westminster MPs’ expenses scandal, to effectively abolish expenses and require Trustees to pay for their own travel, as part of a misguided attempt to be holier-than-thou. All such a measure would achieve is to put off all potential Trustees except the independently wealthy.

• Regular feedback on how meetings could be more accessible and constructively challenged – this is more about behaviour in the boardroom that will encourage participation from all Trustees and so be more productive.

• Publish an annual description about the Board and leadership diversity – why would anyone want to read that? Does this improve the charity? Or is this another box-ticking exercise?

Principle 7 – Openness and Accountability

Openness and Accountability

• The Board leads the charity in being transparent and accountable – unless it has a good reason not to be. This is an issue about communication, so that you do communicate your good works but without becoming a slave to accountability.

• Identify key stakeholders – users, beneficiaries, staff, volunteers, members, donors, suppliers, local communities and others.

• Strategy for regular and effective communication – Trustees should decide on the message they want to communicate and how else this might be communicated.

• Process for remuneration of staff – this should explain the pay of not just the chief executive, but also the senior executives: how much they get paid and how that decision was arrived at. Providing too much information, in the spirit of openness may cause problems, as such information may easily be misunderstood. This leads to the need for greater communication in a way that keeps people informed.


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My final word would be – think first. Some of the provisions in the Code may present good ideas and opportunities to improve your charity; others may be better achieved in different ways. Choose and implement what is best for your charity.

THE SEVEN PRINCIPLES OF PUBLIC LIFE

The Seven Principles of Public Life, known as the Nolan Principles, were defined by the Committee for Standards in Public Life. They are:

• Selflessness Holders of public office should act solely in terms of the public interest. They should not do so in order to gain financial or other benefits for themselves, their family or their friends.

• Integrity Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties.

• Objectivity In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.

• Accountability Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.

• Openness Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands it.

• Honesty Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.

• Leadership Holders of public office should promote and support these principles by leadership and example.


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G E N ERAL DATA P R OTE CTION REGULATION

(GDPR) Sean Williams, Solicitor

The past year has seen data protection at or near the top of the agenda for most organisations. This is because of the forthcoming introduction of the General Data Protection Regulation (GDPR). The GDPR becomes directly enforceable in EU member states from 25th May 2018. The GDPR aims to achieve a consistent approach to data protection across the EU, addressing perceived deficiencies in the existing law and increasing the penalties for non-compliance. The maximum penalty is €20,000,000 or 4% of an organisation’s turnover. In the UK the GDPR will be enforced by the Information Commissioners Office (ICO).

But what bout Brexit? But what about Brexit?

The provisions of the GDPR will continue to apply following Brexit. Organisations that are not based in the EU but which offer goods or services to individuals within the EU will remain directly subject to the GDPR post Brexit. Those organisations whose activities are limited to within the UK will be subject to forthcoming UK legislation which mirrors that of the GDPR. The UK government published a new Data Protection Bill in September 2017 which will bring the UK’s own legislation up to the standard of the GDPR. The provisions of this Bill are expected to be enacted in 2018 and should be read side by side with the GDPR. Therefore regardless of the eventual terms on which the UK ceases to be a member of the EU the UK’s new Data Protection Act will ensure that, post Brexit, the principles of the GDPR apply to organisations whose activities take place only in the UK as well as those with links to the EU.

The new #social world

The new #social world

Many people would consider it appropriate for the laws which regulate the collection and management of personal data to be updated. In the UK the handling of personal data by organisations is regulated by the Data Protection Act 1998. A lot has changed in the digital world during the last 20 years and most people would accept that the law needs to take into account the new developments which have occurred since 1998.

The new rules are concerned with “personal data” which is information relating to a living, identifiable, individual. It is important to appreciate that personal data in the public domain is still personal data and the new law will apply regardless. There is also no exemption from the new law for charities or volunteers. An organisation is wholly responsible for its volunteers and also for any activity which it sub-contracts unless data is stolen or the agent uses it for its own purposes.


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Subjects, controllers and processors

Subjects, controllers and processors

The GDPR refer to the “data subject” being the person to whom the data relates, the “data controller” which is an organisation that gathers and uses personal data and the “data processor” which carries out specific tasks on behalf of the data controller. The aim of the new law is to better control the collection and management of personal data, to make the controllers and processors of personal data more accountable and the purposes for which data controllers use personal data more transparent. Whilst some of the terms used may be familiar there are significant differences between the old rules and the new legislation.

Data controllers must only hold personal data for a lawful reason and must not use the data they hold in a manner which is incompatible with that reason. An organisation that holds personal data must meet one of the six conditions contained in the GDPR which allow the collection and processing of personal data and ensure that the process they follow is fair. Other provisions include a right of access, the right to be forgotten, the right to have inaccurate information corrected and a right to sue for compensation. The new rules also contain a greater emphasis on accountability with enforcement provisions to enforce the obligation to keep data secure.

Previous support for an organization does not constitute consent

Previous support for an organization does not constitute consent

Of the six conditions contained in the GDPR which allow the lawful processing of personal data, the condition on which charitable organisations are likely to rely is consent. In order to justify the processing of personal data by consent, the consent must be freely given and specific. Consent to the processing of personal data must be expressly confirmed and the request clear and easy to understand. It will not be acceptable to bury a consent clause in standard terms and conditions or to ask individuals to opt out by unticking a box.

Previous support for an organisation does not constitute consent. If a third party provides an organisation with data on the understanding that the individuals have consented the recipient organisation is responsible for the consequences if that proves to be untrue. The ICO is able to bring enforcement action against an organisation that fails to obtain evidence of consent before acquiring the data. Therefore, reviewing, recording and managing data subjects consent will be very important.

Data breaches

Data breaches

Organisations that can rely on one of the conditions to process personal data must process that data in a fair way. They must also have procedures in place to detect, report and investigate any breach of personal data and to be able to demonstrate how they would do this. Any significant data breach must be reported to the ICO without “undue delay” and in any event within 72 hours. Staff must therefore be aware of their obligations under the GDPR and how to report any breach. It may also be necessary to designate someone to the role of Data Protection Officer.

12 steps

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2

3 5 7 9 11

4 6 8 10

12 steps

Organisations which have still not considered the application of the new law to their activities need to do so as a matter of urgency. Fortunately there is a significant amount of information available to help organisations understand the changes which are being introduced and how this will impact upon them. The ICO has published useful guidance including 12 steps organisations need to take now in order to prepare for the introduction of GDPR. The ICO acknowledges that its guidance will require further updating and charities should refer to the ICO website for updates on a regular basis. The ICO also operates two helplines, one exclusively for smaller charities and businesses.


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Planning

Planning

It is most important to develop a plan for implementing any changes in time for the introduction of GDPR. Preparing for GDPR will require a review of all personal data held, where it originated from and who it is shared with. Staff will need to be aware of the information to be provided in the event of a transfer request and how to comply with such a request in the time allowed. The process to follow in the event of a breach will need to be agreed and circulated. Changes may need to be made to existing consents if they do not meet the new standard. Existing privacy notices should be reviewed. Going forward, any proposed data processing will need to take into account the GDPR. Effectively addressing these various matters within the remaining time will be almost impossible without some form of planning.

Whilst the ICO has acknowledged the difficulties of complying with the new rules in a relatively short timescale it has stated that it expects charities to demonstrate the work being done to meet the requirements of the new regulations. The ICO has indicated that it will follow a “proportionate” approach when determining penalties when the new rules take effect. Organisations which fall short of the required standard but can demonstrate that they have made every effort to comply can expect to be treated differently to organisations which fall short but cannot satisfy the ICO that they have made a concerted effort to meet the new standard.

The Information Commissioner’s Office (ICO) has set out 12 steps that need to be taken:

1 Awareness - Make sure that decision makers and key people in your organisation are aware of the GDPR changes, and appreciate the impact they are likely to have.

2 Information you hold - Document what personal data you hold, where it came from and who you share it with. You may need to organise an information audit.

3 Communicating privacy information - Review your current privacy notices and put a plan in place for making any necessary changes in time for GDPR implementation. Use plain language. Tell them who you are when you request the data. Say why you are processing their data, how long it will be stored and who receives it.

4 Individuals’ rights - Check your procedures cover all the rights individuals have, including how you would delete personal data or provide data electronically and in a commonly used format. Give people the ‘right to be forgotten’. Erase their personal data if they ask, but only if it doesn’t compromise freedom of expression or the ability to research.

5 Subject access requests - Update your procedures and plan how you will handle requests within the new timescales and provide any additional information.

6 Legal basis - Look at the various types of data processing you carry out, identify your legal basis for carrying it out and document it.

7 Consent - Review how you are seeking, obtaining and recording consent and whether you need to make any changes. Ensure you get their clear consent to process the data.

8 Children - Start thinking now about putting systems in place to verify individuals’ ages and to gather parental or guardian consent for the data processing activity.

9 Data breaches - Make sure you have the right procedures in place to detect, report and investigate a personal data breach. Inform people of data breaches if there is a serious risk to them.

10 Data protection - Familiarise yourself now with the guidance the ICO has produced on Privacy Impact Assessments, and work out how and when to implement them in your organisation. Use extra safeguards for information on health, race, sexual orientation, religion and political beliefs.

11 Data protection officers - Designate a Data Protection Officer, or someone to take responsibility for data protection compliance and assess where this role will sit within your organisation’s structure and governance arrangements.

12 International - If your organisation operates internationally, you should determine which data protection supervisory authority you come under. Make legal arrangements when you transfer data to countries that have not been approved by the EU authorities.


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CHA RITY STORIES

Contributors:

Fabian French Chief Executive UK Community Foundations Fabian drives growth of the influence and funding of Community Foundations. He also supports each of

the 46 Community Foundations across the UK in their continued development. He qualified as a lawyer and worked in corporate finance at Kleinwort Benson and Merrill Lynch. In 2009, he joined Marie Curie Cancer Care as the Director of Fundraising and Retail, and as a member of the Executive Board. He is a passionate believer of the importance of charitable activity.

Thomas McGeever Co-director All 4 Youth & Community CIC Thomas McGeever joined All 4 Youth in 2012 and immediately took on the role of developing and

organising multi-faceted sports and community programmes and ensuring that tangible outcomes were available to the participants such as work placements, employability options and clear pathways back into education. Since 2012, 94 programmes have been developed and delivered successfully and partnerships forged to expand delivery to Manchester, London and Derby.

Mohammed Zafran BCA, BEM Co-director All 4 Youth & Community CIC Mohammed Zafran is the founder and co-director of All 4 Youth & Community CIC. Zaf formed the

organisation in response to his brother being stabbed to death in 2010. Mohammed’s objective was to engage young people in positive activities and away from anti-social behaviour, crime and drugs. To date All 4 Youth has delivered over 100 programmes and has engaged with over 19,000 young people including, 4,600 back into education and 2,300 into paid employment.

In this section:

Community Foundations – giving for local good

The All 4 Youth story

Volunteering and the sector


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COMMUNITY F OUN DATIONS – G IV ING

FOR LOCAL GOOD Fabian French, UK Community Foundations

The UK remains, in relative terms, extremely affluent. Yet it is undeniable that the lives of many individuals and communities continue to be blighted by poverty, inequality and disadvantage. This is being exacerbated by cuts in public expenditure, resulting in the poorest being hardest hit. Even in areas that are perceived to be wealthy, many pockets of deprivation exist. These pockets often get overlooked.

This is why charity and philanthropy need to be much stronger forces in our society. Our vision is for a society where local philanthropy will be the norm and through Community Foundations, communities will be able to help all those in need. We know there is still an awful lot to do and as one of the UK’s largest grant makers, we believe we are a significant part of the solution.

Philanthropy

Giving to a Community Foundation is one of the easiest and most effective ways to give back to your local area. We help people invest in local communities where it is most needed and where it will have most impact.

Regardless of your reasons for giving - whether you are passionate about supporting your community, or tackling society’s big issues; whether you want to be hands-off or actively involved - we’ll work with you to set up your fund in a way tailored to your wishes and circumstances. You will benefit from our funding expertise, community knowledge and giving advice. And you’ll get regular feedback on how you’ve helped make a difference. Anyone can start a fund. It is like having your own charitable trust but without the hassle

of administration and regulation.

We know no two donors are alike, so we offer options allowing you to give when and how you choose. From starting a charitable fund, to collective giving with others who share your interests; from leaving a legacy to donating now. Whatever route you choose, your investment will strengthen communities and improve lives.

Understanding the needs in a community is the first step to addressing them. Community Foundations measure the social temperature of different communities across the UK to uncover the areas that need the most support. But the need is growing, and so must we.

Over the past year, our network of Community Foundations has got stronger. The aggregate amount of grants made has exceeded one billion pounds. Our collective endowment is over £580 million. We are anxious to increase our endowment over the next few years in order to increase our grant making and the impact on communities.

Collective endowment


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Our network of community leaders and convenors bring communities together through running local projects to address the top issues in their areas, funded by local donors. As the national network for Community Foundations, we run national programmes to address national social issues.

One example is the New Beginnings Fund. In 2015 the refugee crisis was making headlines. There had been a dramatic increase in the numbers of refugees and asylum seekers moving across Europe with an estimated 854,000 entering Greece that year alone. In the UK there was a 10% increase in new asylum applications from January to June 2015 and a 46% increase in Unaccompanied Asylum Seeking Children for the same period. The government had also announced the resettlement of 20,000 Syrian refugees across the UK.

The New Beginnings Fund was set up to address the strain that this was putting on UK support groups in an effort to increase their capacity to welcome and integrate refugees and asylum seekers into local communities. The fund symbolises a new way of partnership working – coming together to respond jointly on a social issue.

New Beginnings funded some unique projects that would have struggled to get funding from other sources. One such project is the Bike Project, supported by London Community Foundations through the New Beginnings Fund. It takes second-hand bikes, fixes them up and donates them to refugees and asylum seekers.

So far, over 20,000 refugees have been helped with a bike. Maizer, a Sudanese genocide survivor, says his bike has restored some dignity and independence to his life. “It’s like I have new wings.”

Bike Project


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THE A LL 4 YOUTH STORY Mohammed Zafran BCA, BEM and Thomas McGeever, All 4 Youth & Community CIC

At the Quilter Cheviot charity seminar in Birmingham we had a very inspirational talk by All 4 Youth & Community. Mohammed Zafran (Zaf) founded it as a CIC (Community Interest Company) and works with Thomas McGeever delivering sporting and educational programs to encourage youths to get back into full time study, employment and many other community activities. This is Zaf’s story.

My inspiration to set this up was the tragic death of my brother in law (24), who was brutally murdered in a local park and the death of my blind sister in 2009, which is another reason why I help all charity organisations. I started walking in the middle of the nights and engaging with gangs who were involved with crime and drugs. At first I got spat at but once they knew I was there for the long run, they eventually gave in.

From the street, gangs, alley ways and parks, these youths have been given a new source to get their life back on track and that through showing them love and affection. A couple of years ago, I set up a academy for young Muslim women who were being made to quit education at the age of 15 and forced into arranged marriages to continue in further education. We have engaged with over 5,000 women and progressed over 3,500 of them into further education and employment.

19,268PEOPLE HAVE SUCCESSFULLY COMPLETED AN ALL 4 YOUTH PROJECT

6,700LADIES IN THE WOMEN’S ACADEMY


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Zaf inspired the whole room and we are not alone in that. Zaf was called a “Living Legend” by Prime Minister David Cameron who asked HRH Queen Elizabeth II to honour Zaf with a British Empire Medal. Zaf was the Pride of Birmingham winner, National Diversity Award winner and received the Excellence in Diversity Award and was in the Global Diversity List 2016 for the Community Champion which included stars such as Angelina Jolie and Barack Obama.

4,600PARTICIPANTS ENROLLED BACK ONTO EDUCATIONAL COURSES

2,300 YOUNG PEOPLE PROGRESSED INTO CONTRACTED EMPLOYMENT

We have delivered 99 social, sporting and community based programs and have recently started delivery on our 100th project. The 100th project will be over a 2 year period and will target 1,500 young people across Birmingham over this life of the project; we have already begun activities with 500 young people.

The project is wide-ranging and we have 18 volunteers ensuring this is a success. Whilst we have our traditional sporting activities with the All 4 Youth & Community Football League and Indoor Cricket Project running each Saturday for 36 and 32 teams respectively for 16-24 year olds, we also have litter picking, walk and talk sessions. We are targeting 150 participants for fitness sessions and individualised nutrition plans; regular drug, community and social awareness classes as well as mentoring and communication seminars … and many more.

In spite of many accolades and recognition for the work we have completed it has not been matched with external funding. Larger and more established community companies and charities can rely on regular giving, trusts and legacies for their annual fundraising. If anyone would like to support or engage within one of our projects please do not hesitate to contact Mohammed Zafran or myself, Thomas McGeever.


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VOLUNTEERING A N D THE SECTOR

The NCVO Almanac provides a comprehensive overview of the sector. One of the areas it focuses on is the invaluable contribution of volunteers.

14.2MILLION

FORMALLY VOLUNTEERED

AT LEAST ONCE A MONTH IN 2015/16

£22.5 BILLION

THE VALUE OF FORMALVOLUNTEERING IN 2015


62

Organisations/clubs/groups to which respondents who had formally volunteered at least once in the last 12 months gave unpaid help, 2015/16 (% of respondents)

Source: NCVO UK Civil Society Almanac

18MILLION

INFORMALLY VOLUNTEERED

AT LEAST ONCE A MONTH IN 2015/16

0 10 20 30 40 50 60

Politics

Justice and human rights

Trade union activity

Citizen groups

Other

Safety, first aid

Education for adults

The environment/animals

The elderly

Health, disability and welfare

Local or community groups

Youth/children's activities

Children's education/schools

Religon

Hobbies/recreation/arts/social clubs

Sport/exercise

% of respondents

50%

38%

34%

33%

22%

19%

19%

17%

16%

15%

11%

8%

8%

7%

7%

6%


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THE SE CTOR: NOW AND IN THE FUTURE

Contributors:

Ian Allsop Not for profit sector commentator Ian is a freelance editor, writer and commentator on the not-for-profit sector. He is contributing editor to

Charity Finance, editor of the Charity Finance Yearbook and consultant editor of Governance Insight. Ian has over 20 years’ experience of the sector and is editor of trustEnews.

Elizabeth Chamberlain Head of Policy and Public Services NCVO Elizabeth heads NCVO’s work on policy and public services. Over the years she has lead NCVO’s policy

in areas such as charity law and regulation, fundraising, campaigning, transparency and accountability. Before joining NCVO, Elizabeth lived in Brussels where she worked at the European Commission and then for the secretariat of a network of European NGOs.

Andrew O’Brien Head of Policy and Engagement Charity Finance Group Charity Finance Group is a membership organisation promoting best practice in finance management in

the voluntary sector and nearly 1,400 members. Andrew leads on CFG’s policy and engagement work. This involves representing members on a range of charity finance issues and working with government, regulators and other bodies to improve financial leadership in the sector. Andrew joined CFG in January 2015 from NCVO, where he was Senior Policy Officer with responsibility for funding and finance. He has also worked as Senior Parliamentary Researcher for Chris White MP, supporting him in a number of projects including the passage of the Public Services (Social Value) Act 2012.

Karl Wilding Director of Public Policy and Volunteering NCVO Karl leads NCVO’s volunteering and public policy work. He speaks and writes widely on issues facing the

voluntary sector, including public trust, the role of modern charity, and the future of giving and social action. He is an advisor to Charity Bank, a Trustee of US voluntary organisation Creating the Future, and a Trustee of St Albans Centre for Voluntary Service.

In this section:

2017: from shared society to shared ministerial responsibility

Running to stand still? – the changing operating environment for charities

Challenges and opportunities facing the charity sector

The charity sector at a glance


64

2 01 7 : FROM SHARED SOCIE TY TO SHARED

MIN ISTERIAL RE SP ONSIB IL ITY

Ian Allsop, Not for profit sector commentator

After the seismic events of 2016, it was hoped, and not just by charity Trustees, that things might settle down in 2017. A return to, if not normal, at least a sense of not particularly unusual, and we all know how that has worked out. While on one hand, Brexit and Trump seemed to loom large over everything, charities continued doing what they do. Quietly getting on with meeting the ongoing societal challenges they exist to combat, while acutely aware that both the B and T words could very likely exacerbate them, as well as adding new ones just to keep liberal do-gooders on their lentil, knitted, sandaled toes. And that is without even getting started on GDPR, the (possible) millennium bug for the digital transformation era.

Government priorities

Whatever your views on it, you can’t ignore Brexit. And I have tried really, really hard to do so. But perhaps the government’s planning, or otherwise, for withdrawal from the European Union gives an indication of where it currently places the importance of the role of civil society in its vision for the country. Spoiler alert. It isn’t especially high.

( Whatever your views on it, you can’t ignore Brexit )

The charity sector was not one of the 58 sub-sectors theoretically assessed for how impacted by Brexit they would be. Famously these assessments may not even exist, but it is telling that if they don’t, charities weren’t even considered important enough to lie about doing in-depth research into.

Things had started promisingly enough in January, if rhetorical flourish without substance is your idea of optimism, when (at the time of writing) Prime Minister Theresa May outlined her vision for shared society in her keynote address at the Charity Commission’s annual public meeting. She outlined a society that “doesn’t just value our individual rights but focuses rather more on the responsibilities we have to one another; a society that respects the bonds of family, community, citizenship and strong institutions that we share as a union of people and nations; a society with a commitment to fairness at its heart”. It all sounded inspirational and hollow at the same time, and suspiciously like a Big Society reboot. Perhaps there is still some branded stationery piled up in Whitehall that they were hoping to recycle.

In February, another flagship hangover from the Cameron days, the youth volunteering pipedream National Citizen Service (NCS), was hauled over National Audit Office coals in a report that criticised the missing of key targets and strongly recommended that it needed to reduce costs by almost 30 per cent.

In a further unravelling of the government’s commitment to boosting volunteering (definitely not a way of getting people to do stuff it should itself be funding properly on the cheap) the Conservative Party did not include its previous promise to make it easier


65

for people to volunteer in its 2017 snap general election panicfesto. In 2015 it had pledged new rules allowing five million workers to take three days a year as paid volunteering leave. Which would be very shared society (except for the businesses that this would undoubtedly disrupt), even if sort of forcing people to volunteer isn’t really volunteering.

There were just three mentions of charity in the spring Budget document, and sector leaders were divided on whether this was good or bad news, sure, there was obvious disappointment at being such a low priority, but this was tempered by a view welcoming stability and no shock announcements. In the November version charities got very little of what they had asked for, such as funding for the Charity Commission, reform of VAT, and strategic use of dormant assets. But it was ever thus.

After the election in June, Tracey Crouch was announced as Minister for Civil Society following a shake-up at the Department for Culture, Media and Sport, and the constituency defeat of the previous minister. Charity sector umbrella bodies announced a mourning period of two weeks at Rob Wilson’s much lamented passing, though rumours surfaced towards the end of the year that he would be resurrected as Charity Commission Chair, replacing William Shawcross early in 2018.

While I would in no way say that Crouch’s brief further evidenced a lack of government taking charities seriously, the fact that civil society was tacked onto a portfolio comprising gambling, horse racing, sport, the National Lottery and society lotteries, wasn’t encouraging. I don’t doubt Crouch has a serious commitment to the valuable work of charities (after all, she was to tell us this towards the end of the year) but she does appear to be a dedicated sports minister fitting charities in when she has a spare moment on a Tuesday after work and her pilates class. From shared society to shared ministerial responsibility.

Crouch will be leading the implementation of a new civil society strategy, announced in November, which will coordinate and improve how public sector bodies interact with the charity sector. Their words not mine. There was plenty said about what this strategy wouldn’t include - Crouch firmly stated that the project was not about finding new funding for charities but making better use of the resources that government already had available, at which point everyone switched off. Other than that it was textbook government by buzzword.

The ministerial statement accompanying the announcement was 267 words long and not one of

them was used to indicate a single concrete thing that the government will do. “This strategy will provide an opportunity to explore ways to build new partnerships within and between sectors and communities, so that we can better mobilise resources and expertise and find practical new solutions to the problems we face.” Yes, but what does that really mean? “It will reaffirm the value that government places on civil society”. And that is exactly what everyone is worried about.

At the fag-end of the year, as people’s attentions turned to the holiday season, after a lengthy delay the government published its response to the March report from the House of Lords Select Committee on Charities. Naturally, the government welcomed its 43 recommendations. It broadly agreed with many of the points around improving governance and support for charities, while adding either tacit agreement without commitment, or polite refusal, to most of the other proposals.

Familiar themes

While government commitment to the sector may be sketchy at best, perhaps charities should take some consolation in the fact that the same old tropes continued to rear their heads in 2017, as a sign of certainty in uncertain times. CEO pay, fundraising regulation, a basic public misunderstanding of the role of charities, the same old reiteration of calls for charities to have a greater basic understanding about the basic public misunderstanding of the role of charities. Trust and confidence staple ingredients.

2015

(Familiar themes)

2016 2017

NCVO warned of even more pressure on charities in 2017, saying they could expect to see income from donations and government grants continue to be squeezed while demand increases. Charities continued to put the case about being restricted from lobbying government by lobbying government about the contentious Lobbying Act. In September sector leaders were again spitting feathers after the Cabinet Office indicated that there were no plans to pluck it, despite all of this pressure.

When annual overviews of the charity sector are written in 60 years’ time, I am positive that Kids


66

Company will still feature one way or another. It was another good year, in terms of publicity, for everyone’s favourite high profile governance mess-up. Camila finally published her book, which was either an illuminating expose of exactly what happened, or a self-serving exercise in blame deflection depending on how you read it. Which I haven’t.

And in June the Insolvency Service wrote to the former Trustees and Batmanghelidjh, warning of court proceedings to ban them from being company directors.

Regulatory focus

In May the Charity Commission made Helen Stephenson its next chief executive. She succeeded Paula Sussex, after being director of early years and childcare at the Department for Education since 2014, and brings extensive experience of senior leadership across the public and voluntary sectors. She was welcomed as a sensible appointment.

While continuing its annual war against reduced funding (and increased expectations), and William Shawcross’s single-handed crusade against the rich culture of terrorism in the sector (at least, in his head), it also opened a consultation on the questions it plans to ask in the 2018 version of the annual return. Proposed changes include something about senior executive pay, and additions to sections on fundraising and payments to Trustees. The consultation is now closed and while the Commission has since decided not to ask charities if they are claiming rate relief and Gift Aid in the 2018 version, and amended a question relating to overseas funding sources, how the inclusion of the other apparently controversial suggestions pans out will be a point of focus in 2018.

In a year that saw the arrival of a revised Charity Governance Code, the Charity Commission also published a major new blockbuster on Trusteeship, Taken On Trust, full of dinner-party-worthy-titbits.

For example, there are 150,000 missing Trustees, as numbers are less than was previously thought. Where are they? Has anyone alerted the authorities? Are they hiding from the pale (92%), stale (55-64 years old) and male (two-thirds) majority, who are, apparently, hampering diversity?

It also revealed that over 2,000 charities pay their Trustees, or that nearly 99 per cent don’t, depending on which side of this argument you fall. Lack of time rather than pay has long been cited as a key barrier to people becoming Trustees. The average time spent by Trustees on their Trustee duties is an estimated five hours per week, not including hours devoted to operational activities. So obviously what Trustees welcomed was a 92 page report to read in whatever time they have left.

The other major battleground in the PS (post-Shawcross) era will be whether the Commission will be able to charge larger charities to register, which will open up many cans of worms around what an appropriate and effective model of regulation for charities should look like. Consultation is finally expected early this year. Watch this, as they say, space.

Data protection protection

In April the Information Commissioner’s Office (ICO) fined 11 charities, including Cancer Research UK, Macmillan Cancer Support and NSPCC for breaches of data protection law, having previously punished the British Heart Foundation and RSPCA in December 2016. The ICO said that some of the charities had been fined because they had “screened millions of donors so they could target them for additional funds,” while others had “traced and targeted new or lapsed donors by piecing together personal information obtained from other sources. And some traded personal details with other charities creating a large pool of donor data for sale.”

(Data protection)


67

This all sounds dreadful of course, and while all organisations censured have pledged that such malpractice is a thing of the past, it was a salutary reminder of the financial and reputational risk of not complying with data protection legislation, especially with the EU’s General Data Protection Regulation coming into force in May 2018.

For people who have been storing personal data on their awareness of GDPR under a rock, it is a sweeping update of current data protection legislation, imposing greater responsibility on any organisation holding personal data, and with a potential for higher fines for those caught out.

In terms of charities, the focus has been on the effect it will have on fundraising, involving nuanced debates around what constitutes consent, opt-in or opting out and legitimate interest. But consideration also needs to be given to data of beneficiaries and staff. Even the most forward thinking charity’s efforts to be prepared for GDPR-day have been hampered by the fact the ICO only updated its own general guidance in December (though it has now subsequently produced 12 FAQs for charities) and for many I suspect it will be a case of taking a sensible approach and seeing how things pan out. It may all turn out to be a damp squib as long as charities can demonstrate commitment to upholding the principles of data protection. Whatever, an entire industry has sprung up around it with many consultants, advisers and training providers monetising provision of information about GDPR. The ultimate irony being, or course, that GDPR will restrict the degree to which they can further capitalise upon the valuable marketing data they will have captured along the way.

Devolution

Given the knock-on effects Brexit has had on affairs in all parts of the United Kingdom, and the influence wielded by ten MPs in Northern Ireland, it would be remiss not to touch on the fact that in November a court ruled that the staff of the Charity Commission in Northern Ireland did not have the delegated authority to make orders – casting doubt on hundreds of decisions.

(Devolution)And in December the Scottish government stripped Scottish independent schools of their right to claim business rate relief – a move believed to affect 52 charities and cost the independent schools sector £5m. Whether this will have any impact on similar schools in England and Wales remains to be seen, with the charitable status fee-paying schools still one of the more resilient political footballs to be kicked around over the years.


68

RUN N ING TO STAND ST ILL? – THE

CHA N GING OPERATING E N VIRONMENT FOR

CHARIT IES Andrew O’Brien, Charity Finance Group

The past decade has been a difficult one for charities. Although the immediate impact of the financial crash was not as considerable as in the private sector; stagnant income and increased operating costs have slowly squeezed the charity sector. When I spoke with one charity Finance Director, he told me that financially, he felt like his charity was “running just to stand still”.

(The treadmill)

TREADMILL

TREADMILL

THE

THE TREADMILLTHE

Although I don’t go to the gym as much as I should, as soon as I heard his comment, the image of a treadmill sprung to mind. The poor old charity sector on the machine, puffing away merely to stay on, so that it can continue to help its beneficiaries and deliver its charitable objectives. But what are the factors leading the speed of the treadmill to increase?

Inflation is the most obvious culprit. At the time of writing, inflation is around 3%. This is much higher than the Bank of England or Government predicted for 2017 and the highest since March 2012. Although commentators think that inflation will return to 2% in the medium term, this is all prefaced on there being no further currency instability following Brexit. Either way, merely retaining our purchasing power will be tough as a sector. In a pan-charity review of the financial sustainability of the voluntary sector back in 2015, it was calculated that inflation would cost the sector around £3bn by 2020. This means that we have to generate £3bn more income, just to be able to buy the same outputs as we did in 2015.

If this wasn’t hard enough, the government has ratcheted up the pressure a little more. Pensions, the National Living Wage, the Insurance Premium Tax and a reduction in generosity in existing reliefs such as business rates, have added over £700m in costs by 2020. The case of business rates is a classic example of where previous generosity has disappeared. Charities paid £210m in business rates in 2010/11. By 2019/20, this is set to increase to £432m; admittedly some of the increase is related to the growth in new charities and some of this is inflationary increases in rates. However, a significant portion is made up of local authorities reducing their traditional support for the sector.

Increased compliance is also having an impact on the bottom line for charities. GDPR are the four most hated letters of the alphabet for charities, and businesses too, with significant time and effort now being expended on understanding, preparing and adapting systems for the new regulatory environment.

The Charity Commission has also asked for more from the charity sector, both in strategic and operational terms. Strategically, the collapse of Kids Company has put the Commission on alert that charities need to do more to plan for financial difficulties. This has


69

translated into new guidance on charity finance and reserves, which are placing more of a burden on charities to raise additional income so that they can build up higher levels of reserves. Operationally, requirements for annual reports and accounts have also got tougher, with more and more emphasis on reporting impact which can be an expensive process if the charity does not have a track record of collecting these kinds of data.

(The race for income )

THE RACE

THE RACEFOR INCOMEIncreased operating costs are clear, but where is the income to pay for them? Government income is not likely to recover in the foreseeable future. Although contracts and grants haven’t fallen by quite the extreme levels that we predicted at the height of austerity in 2011/12, they aren’t growing either.

To some extent for the largest charities, now termed “Super-Majors” with incomes in the hundreds of millions, times have never been better. More and more Government income is concentrated in the largest charities, because central government programmes which require national charities which are able to deliver at scale, have largely survived. As far as we can tell at the moment, central government income for charities is growing.

For smaller local charities the story is very different. Local authorities have seen significant funding cuts and this in turn has been passed down the line to charities. These organisations also find it harder to fundraise. Sometimes this can be because they are not delivering services to “popular” beneficiary groups, but more often it is because the costs of fundraising are prohibitive.

Fundraising has grown in importance and, as a consequence, competition has increased. Charities have looked at their fellow runners, and decided that they needed to go faster in order to generate the income they need. This has created a “tragedy of the commons.” As everyone has spent more and more on fundraising, the returns for everyone have got lower and lower. When the Institute of Fundraising started calculating returns on fundraising investments in 1999, it calculated that for every £1 spent, £5.31 was

generated. This has fallen in the most recent survey to £3.16 for every £1. Still a good return, but increased costs (both in terms of marketing but also compliance such as data protection) are eroding its value.

(Making money work harder)

MAKING MAKING MONEY

WORK HARDERMONEY

HARDERWORK

The message for charities from all this data is that we need to make our money work harder. This has a direct bearing on the investment strategies that charities will deploy over the coming years.

For operational charities, those charities delivering a service directly, cost pressures are going to put investment funds under pressure. How do charities balance the long term benefits of generating and growing their assets versus the short to medium term operational needs? There are no easy answers.

For grant making charities, some of the cost pressures will be less but not for their beneficiaries whether these are charities or individuals. What is the sustainability of the sectors that you are operating in? Will the charities that you fund be around in a few years’ time if they are not able to get the income that they need to continue to operate? What are the funding pressures which are facing your beneficiary group?

Any successful investment strategy needs to be based on the needs of the charities and beneficiaries. This should drive strategy, rather than investments driving the organisational strategy. By having the right investment manager that understands your charity’s needs and has knowledge of the sector, you will have a useful advisor in helping to make the right decisions.


70

CHA LLENGES AND OPPORTUNIT IES FACING

T H E CHARITY SECTOR Elizabeth Chamberlain and Karl Wilding, NCVO

The challenges and opportunities facing the charity sector are many and varied, not least because the charity sector itself is hugely varied in character. A good reflection of this variety is the National Council for Voluntary Organisations (NCVO), which has a membership of more than 12,500 charities, ranging from big professionally managed household names to small, local organisations staffed entirely by volunteers.

A comprehensive overview of the structure and economy of the UK voluntary sector may be found in the UK Civil Society Almanac, which is the NCVO’s main publication. The Almanac brings together data from charities’ accounts, administrative data and surveys, and is full of information on a range of topics including finance, workforce and volunteering.

The Almanac’s 16th edition — the most recent — covers the year 2014/15 (there is a time lag owing to when charities submit their accounts to the Charity Commission), but it still provides a useful insight into the state of our sector, which:

• plays a vital part of our society, through more than 165,000 organisations, a significant proportion of the over 390,000 civil society organisations (excluding unincorporated organisations)

• makes a sizeable contribution to the UK economy: in 2014/15, the voluntary sector contributed £12.2bn (Gross Value Added) to the UK economy, which is around 0.7% of total GDP. To put this amount in context, it is a little more than the GDP of Cyprus (£12.0bn) in 2015

In 2017, a number of key of findings stood out for us:

Increases in income and spending seen last year have continued in 2014/15. After adjusting for inflation, the voluntary sector’s income increased by just under £1.2bn to £45.5bn and spending stood at £43.3bn in 2014/15, an increase of £0.8bn from 2013/14.

UK voluntary sector total income and spending, 2000/01 to 2014/15 (£bn, 2014/15 prices)

05

1015

20253035404550

200

0/0

120

01/

02

200

2/0

320

03/

04

200

4/0

520

05/

06

200

6/0

720

07/

08

200

8/0

920

09/

1020

10/1

120

11/1

220

12/1

320

13/1

420

14/1

5

Income

Spending

Source: UK Civil Society Almanac 2017

Sources of voluntary income, 2000/01 to 2014/15 (£bn, 2014/15 prices)

0

5

10

15

20

25

Individual

Government

National Lottery

Voluntary sector

Private sector

Investment



71

The sector employs an increasing number of people. The voluntary sector paid workforce rose again to 853,000 in 2016, and has increased by 27% since 2004. This is more than two and a half times the number Tesco employs, and over half the number working for the NHS.

Paid staff of civil society organisations (number of employees)

853000

396000

272000

165000

146000

135000

67000

56000

44000

40000

27000

26000

20000

12000

4000

2000

900

0 500000 1000000

General charities

Universities

Sports clubs

Employee owned businesses

Housing associations

Cooperatives

Independent schools

Community interest companies

Leisure trusts

Building societies

Religious bodies

Friendly societies and mutual insurers

Trade associations and professional bodies

Trade unions

Benevolent societies

Credit unions

Political parties


Levels of both regular and less regular volunteering remain stable. In 2015/16, one in four people formally volunteered at least once a month, and two in five people formally volunteered at least once a year.

The big picture is that the sector is stable, resilient. But behind the headline figures the situation is a lot more nuanced. Larger organisations have experienced the biggest increases in income. The sector’s economy is dominated by larger charities: organisations with an income of £1m or more account for 80% of the sector’s total income, yet make up only 3% of the total number of charities.

In the meantime, small and mid-sized organisations are losing local government grant and contract funding. They make up the majority of the sector and are facing huge challenges in relation to their financial sustainability.

Looking ahead, we see other challenges, and would identify some key drivers for change and their implications for our sector.

Changing demographics

In the UK, as well as in the rest of the world, the population is ageing, this has implications for all society, including of course charities.

Virtually every country in the world is experiencing growth in the number

and proportion of older persons in their population, which is leading

to one of the most significant social transformations of the 21st century.”

The United Nations

The fact that our population is ageing puts additional pressure on public services. As we are better able to address acute health issues, we are living longer, but potentially living with more chronic – and expensive – conditions. For example, people on average visit their GP six times a year; that compares with roughly three times a year 20 years ago.

Our population is also more diverse and more atomised. There are more single person households, while the increase in social mobility that some of us have benefited from means that we are more likely to be geographically distant from our families. This is building in a greater propensity to use public services, while we also are becoming more demanding of the services we use: public services have become more transactional, with users behaving more like consumers.

This is all placing huge and rapidly rising demand upon our public services. And it is a key challenge for charities, as they deliver public services and plan for their future.

Changing nature of volunteering

Levels of volunteering have so far remained stable. But the challenge is to maintain this while we transition to a world where the way people give time and money is changing: they are time-precious, and they don’t necessarily care in which sector they do good.


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Proportion of people volunteering formally, 2001 to 2015/16 (% of respondents)

05

1015

20253035404550

At least once a month

At least once in last year


Contrary to the altruism that is often associated with traditional volunteering, the data suggest that the overriding factor driving this new generation of volunteers is a self-orientated motive to occupy a short period of time. This arguably results in spontaneous and fleeting involvement, as these volunteers are more concerned about activity itself, than the cause or the wider outcomes of their actions.

All this is happening in a context where charities now find themselves sharing a stage with others who also want to focus on doing ‘social good’.

Digital

Digital has changed everything. Not just how people communicate but also their relationships and values. It is a cultural change as well as a technological one, with huge implications for our organisations: we need to think about how to adapt our activities and our relationships with our stakeholders, and decide whether we are campaigning or delivering public services.

The House of Lords Select Committee on Charities recently heard from top executives of Google and Twitter that although some charities had successfully used technology to fulfil their goals, many are still failing to see the relevance of technology for their own organisation.

There is a clear need to spread digital skills and literacy across the sector, and charities are going to need to draw in Trustees and volunteers who can contribute specialist skills and expertise. But this can be challenging for organisations, particularly small and medium ones that are already struggling with funding and with recruiting and maintaining Trustees.

New breed of social investors

A new breed of social investors points to a new style of charitable activity based on making a difference:

• shift from altruism to reciprocity and return

• demand evidence of impact (if they don’t think that we are using their resources effectively, we won’t keep them engaged)

• comfortable with technology and (big) data

• want scale and replication

Scrutiny

Once considered beyond reproach, the charity sector has been facing an unprecedented amount of scrutiny, as a result of a number of stories that have appeared in the media, including ones on chief executive salaries, fundraising methods, corporate partnerships, Kids Company and campaigning and lobbying. These issues demonstrate the importance of being open to scrutiny, and being able to respond to the public’s expectations and demonstrate our transparency and accountability.

But scrutiny and the negative media stories it has generated has had an impact on public trust and confidence. We have seen public trust and confidence in our charities declining - the most substantive study in this area is undertaken by the Charity Commission for England and Wales, which last year identified a 10% drop in the overall level of trust and confidence in charities. Amongst those who say their trust and confidence has decreased, many attributed this to general media stories about a charity or charities. Pleasingly the 2017 survey showed that some trust has returned. Below we show the rating out of ten:

Public trust and confidence in charities

6.3

6.6 6.6 6.7 6.7

5.7

6.3

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

6.8

2005 2008 2010 2012 2014 2016 2017

Source: Charity Commission for England & Wales


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However charities remain well-trusted compared to other industries:

For each of the following UK industries, how much trust and confidence do you have in the industry as a whole?* (0-10 scale, mean scores)

7.0

6.9

6.7

6.4

6.3

6.1

5.8

4.7

4.3

Colleges and further education

Healthcare

Schooling and childcare

Food and drnk

Charities

Radio and television

Fundraising

Financial markets

A�ordable housing

Source: Charity Commission for England & Wales

Governance

Beyond the headlines and the immediately visible problems, poor or inadequate governance can be singled out as the common thread linking the recent events that have brought non-profits under the spotlight. From the fundraising scandals to the collapse of Kids Company, ultimately it is Trustees that have been singled out for having failed to meet their responsibilities.

A spotlight has been shone on governance, so the challenge now for charities and their Trustees is to ensure they are more vigilant about what their organisation does and how it does it. As guardians of their charity’s reputation they are ultimately responsible for every aspect of their charity’s activity.

Brexit

The immediate political impact of Brexit was hugely significant, ending David Cameron’s political career. Longer term, however, the Brexit negotiations will likely monopolise the attention of decision makers, so the interests of the charity sector will take a back seat, making it more difficult for charities to influence decisions that will affect their beneficiaries and their causes.

So, where next?

To respond to these and any other challenges, we need to show that we are responding to public concerns. We need to work harder to ensure the public know and value our work.

• Fundraising – need to respond to the public’s changing expectations. Operate to higher values than just legal or regulatory requirements.

• New Code of Good Governance.

• Campaigning responsibly – be confident in speaking up on behalf of your beneficiaries and about your cause, but be aware of the rules.

• New volunteering opportunities – need to think about how trends shape how people want to give their time, and how we should respond to that by adapting our strategy and approaches to involving volunteers (e.g. how does volunteering fit into new and busier lifestyles).

• Focus on showing we have an impact. We need to get better at telling our story.

• Show the world how modern charity works.

Charities and volunteering are among our society’s greatest assets, and they can play a huge part in the future of our society and economy. As politicians confront the disparities that exist across different sectors of society, charities will have an important role to play. The unique aspects of how charities work are likely to be an attraction both to the politicians who are trying to engage with communities and to the communities themselves that now see there are opportunities to be involved and listened to.


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T H E CHARITY SECTOR AT A GLANCE

UK Civil Society Almanac 2017 Fast Facts:

165,801

£45.5bn ORGANISATIONSVOLUNTARY

TOTAL INCOMEVoluntary organisations with an annual income of £1m or more account for 80% of the

sector’s total income yet make up only 3% of the total number of charities

£1M = 80% OF SECTORS TOTAL INCOME

3% TOTAL NUMBER OF CHARITIES

The most common charitable activity of voluntary organisations by both number of charities and spending was social service provision, followed by culture and recreation.


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SCOTLANDThe Scottish charity sector includes:

Registered charities, including 163 housing associations 23,700

Grassroots community groups,sports and arts clubs 20,000

Social enterprises 3,500 +

Grant making trusts, funding activitiesin Scotland and abroad 4,000

Community interest companies 432

Credit unions 107 SCOTLAND’S THIRDSECTOR TOTAL INCOME

£4.9BN

Source: SCVO Scottish Third Sector Statistics

There are more charities per head of population in Scotland than any other UK nation.

CHARITIES PER 1000 PEOPLE

0

0.5

1

1.5

2

2.5

3

3.5

4

England Wales Scotland Northern Ireland

2.4 2.3

3.4

2.1

Source: NCVO Almanac


76

CHA RITY BR IEF INGS

01

CHARITY BRIEFING: COMMON REPORTING STANDARD

FEBRUARY 2017

BACKGROUND

The Common Reporting Standard (CRS) is a global legal

framework for the automatic exchange of information

between multiple jurisdictions. Based on the United States

FATCA legislation, the goal of CRS is to allow tax authorities

to obtain details of financial assets held abroad by their

residents.

CRS affects charities differently depending on whether

or not the charity falls into the definition of a “financial

institution” (FI). If a charity is an FI, it needs to comply with

the CRS in two stages: firstly, by gathering the necessary

information relating to defined “account holders”; and

secondly by reporting relevant information to HMRC.

If a charity is not a financial institution, it will be an “active

non-financial entity” (ANFE) and will not be subject to any

due diligence or reporting requirements.

IS YOUR CHARITY A FINANCIAL INSTITUTION?

Broadly speaking, if a charity gets most of its income

from donations and grants, it is unlikely to be a financial

institution and will be considered an ANFE with no further

action required.

At the other end of the spectrum, endowed charities which

receive the majority of their income from investments

managed on a discretionary basis by a professional

investment manager are more likely to be a financial

institution.

Generally, a charity will be categorised as a financial

institution if 50% or more of its income derives from

investments in financial assets and all or part of its financial

assets are professionally managed. The definition of

professionally managed would include assets managed by

Quilter Cheviot under a discretionary mandate.

WHAT ARE THE REPORTING REQUIREMENTS?

Charities who are FIs need to provide information to

HMRC on “reportable account holders” on an annual

basis. Reportable account holders are likely to include

beneficiaries; for more information please refer to the guides

listed at the end of this briefing. Charities are required to

gather certain information on account holders, including

the account holder’s name, address, tax residence, tax

identification number and, for individuals, date of birth. If the

account holder is an entity rather than an individual, then

the entity will also need to specify whether it is a financial

institution itself.

An account holder will be reportable if they are tax resident

in a country which has signed up to CRS (there are 101 in

total, including the UK).

The first reporting deadline for CRS is 31 May 2017, by which

time reporting charities will need to report information on any

individuals and entities who were ‘account holders’ in 2016.

NEXT STEPS FOR CHARITIES

Charities should ensure that they understand their

categorisation under CRS, and reporting charities (FIs)

should check that they are gathering the relevant information

that they will need to report to HMRC by 31 May 2017.

Reporting charities may also wish to consider the data

protection law implications of holding personal data relating

to account holders, and confirm that they have taken all

necessary practical steps to ensure they are compliant.

We are not tax advisors and this guidance is provided on

a best endeavours basis. If there is any remaining doubt

concerning the charity’s reporting responsibilities, further

advice should be taken from a suitably qualified tax

professional.

MIFID II – HOW WILL IT IMPACT YOU?

For Trusts, Corporates and Charities

Transaction Reporting

As part of the global push by regulators to reduce market abuse, MiFID II will

require us to use unique codes to identify and track anyone associated with

financial transactions. Broadly, for an individual we need a ‘Natural Person

Identifier’ (NPI). The NPI code is based on the person’s nationality, and a

specific set of identifiers. For UK nationals, the NPI will be derived from a

person’s National Insurance number. We will also require an individual’s first

and last name, as well as date of birth. For other nationalities, we will also

require details such as a passport number, or a tax identifier, together with

name and country of residence. We hold the required data for most clients,

however we may get in touch if we are missing any information. There is no

charge for an NPI.

Legal Entity Identifier

For other entities, such as trusts, corporates or charities, we need a Legal

Entity Identifier (LEI).

An LEI will be required for charities, corporates (public and private), trusts

(but not bare trusts), pension funds (but not self-invested personal pensions)

and unincorporated bodies. Financial services firms will be required to quote

the LEI on almost every security transaction they undertake on behalf of

these entities. Without an LEI, the entity will not be permitted to deal or

transact on stockmarkets. It is essential therefore that LEIs are put in place

where applicable.

From 3rd January 2018, the

services we provide you will

become subject to regulatory

changes brought about by

the Markets in Financial

Instruments Directive II (MiFID

II), an overhaul of European

legislation that governs firms

providing investment services

within the European Union

(EU) and more widely in the

European Economic Area.

Although the UK has decided

to leave the EU, MiFID II will

come into force before the UK’s

withdrawal and in all likelihood

will be maintained on the

statute book.

The new rules are designed

to improve the functioning

of financial markets, reduce

market abuse through

improved information and

improve the information that

you receive on the costs and

charges of financial products

and services.

As part of the global push by regulators to reduce market abuse,

MiFID II will require us to use unique codes to identify and track

anyone associated with financial transactions.”

GENERAL DATA PROTECTION REGULATION

CHARITY BRIEFING

As if charities did not face enough challenges, next year heralds more regulatory changes. Following on from

the recent changes to the Fundraising Code of Practice, on 25 May 2018 the European General Data Protection

Regulation will replace the existing UK Data Protection Act 1998.

The European General Data Protection Regulation (GDPR)

was designed to harmonise data privacy laws across

Europe, to protect and empower all EU citizens’ data

privacy and to reshape the way organisations across the

region approach data privacy. Given the complexity and

the comprehensive nature of the GDPR regulations — and

the size of the fines incurred for not meeting them —

you should start planning for this now. However, you will

already have met the bulk of the GDPR rules, if you are

already subject to and comply with the Data Protection

Act (DPA).

Though very similar to the DPA, the GDPR enhances the

rules in some ways and introduces some new elements too.

Arguably the biggest change to the regulatory landscape

of data privacy comes with the extended jurisdiction of

the GDPR, as it applies to all companies processing the

personal data of EU residents, regardless of whether the

processing takes place in the EU or not. Another change

is that GDPR now extends to manual filing systems as well

as automated personal data. Personal data that has been

anonymised also comes under the GDPR, depending on

how difficult it is to attribute the pseudonym to a particular

individual.

For more information and to read the full articles, visit www.quiltercheviot.com or email: [email protected]

http://www.quiltercheviot.com



77

trustEnews is an online news and information service aimed at Trustees. We will be highlighting the key issues and news affecting the charity sector, with the aim of helping Trustees to make informed decisions. The email will be sent out monthly. If you are a Trustee or if you are just interested in the charity sector, subscribe to trustEnews.

t r us tEnews

This is one of the best newsletters of this kind I have ever seen. Well written and informative on topics

of genuine interest. I will certainly share it with my Board.”

Fabian French CEO of UK Community Foundation

If you would like to subscribe, visit www.quiltercheviot.com

or email: [email protected]




78

TE ST IMONIALS

Quilter Cheviot has the best online client information systems I have

ever seen, and the directors and staff have all provided excellent advice

and service.”International Students House

In addition to their technical expertise, the efficient administration

and personal attention, Quilter Cheviot keeps us well informed,

ensuring that we are able to fulfil our responsibility to the charity.”

Alzheimer’s Research Trust UK

We have been impressed by Quilter Cheviot’s skill in both understanding

and constructing a portfolio that conforms to our ethical policy, whilst also delivering performance usefully

ahead of our agreed benchmark.”Nottingham Roman Catholic Diocesan Trustees

As well as overall investment performance I would like to recommend Quilter Cheviot

for the following reasons; ability to manage individual portfolios within the Diocese upon a strict ethical mandate,

which is far more transparent and evident than our previous investment managers; the level of service is also of a high level

with all information being requested being met in a timely manner. I am also pleased

to be able to speak directly to the team managing the portfolios and to be able to meet with the team regularly for ad-hoc or

Trustee meetings.”Diocese of Dunkeld

We recently conducted a review of our investment requirements. The

experienced team at Quilter Cheviot helped us to identify demanding

targets for our portfolio, and subsequently to exceed them.”

The Royal Medical Foundationof Epsom College

The Trust has had a long and successful association with its investment fund manager. The Trustees appreciate his understanding of the particular

requirements of a grant-making trust in seeking to maintain and/or increase its income streams while achieving a measure of capital appreciation. The freedom of the fund manager to offer a tailored approach is of particular

importance to the Trust.”The Beatrice Laing Trust


79

WORKING WITH YOU

If you would like to speak to one of our charity specialists, contact us on: t: +44 (0)20 7150 4200 e: [email protected] w: www.quiltercheviot.com


77

WORKI NG WITH YOU

QCS122 (02/2018)




80

quiltercheviot.com

The value of investments, and the income from them, can go down as well as up and pastperformance is no guarantee of future returns. Investors may not receive back the amount originally

invested. Investments and investment services referred to may not be suitable for all recipients.

Quilter Cheviot Limited is a private limited company registered in England with number 01923571, registered office at One Kingsway, London WC2B 6AN. Quilter Cheviot Limited has established a branch in Dublin, Ireland with number 904906, is a member of the London Stock Exchange, is

authorised and regulated by the UK Financial Conduct Authority, is regulated by the Central Bank ofIreland for conduct of business rules, under the Financial Services (Jersey) Law 1998 by the Jersey

Financial Services Commission for the conduct of investment business in Jersey and by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 to

carry on investment business in the Bailiwick of Guernsey. Accordingly, in somerespects the regulatory system that applies will be different from that of the United Kingdom.

annual review for charities · 2020-04-15 · annual review for charities 2017 3 we are, as ever,...

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