the charity sector in 2017: review and insights

CHARITIES UPDATE SEMINAR 17 JANUARY 2017

WELCOME

I N T R O D U C T I O N

• IBB as a firm• West London’s leading law firm• a “regional heavyweight in the South East of England”• focus on practical commercial advice, making the law work for our clients

• Our charities practice• Governance and regulation• Mergers and restructuring• Dispute resolution• Employment and HR law• Property – acquisitions, disposals, mortgages, development and

construction

• Our clients:• Household names, e.g. CLIC Sargent, Help Musicians UK• Religious: Union of Sisters of Mercy, Daughters of Jesus CIO• Medical/health: Arthritis Research UK, Academy of Medical Sciences

2 0 1 7 : L E S S O N S F R O M T H E P A S T , T H O U G H T S A B O U T T H E F U T U R E

PAU L R I D O U T PART N E R , C HAR I T I E S , I B B S O L I C I T O RS

S U M M A RY • How is the charity sector feeling?

- Attitudes- Economic and other pressures- Uncertainty ahead

• Fundraising- A new regulator- Regulatory action- Data protection for charities

• Charity Commission- Regulatory functions and powers- The Commission’s priorities- Case studies

H O W I S T H E C H A R I T Y S E C T O R F E E L I N G ?

• Attitudes to charities:- Media- Donors- Wider public

• Attitudes to donors

E C O N O M I C A N D O T H E R P R E S S U R E S

• Legacies• Relationship with the state:

- Public service commissioning- The “sock puppet” argument

• Reputational problems- Working with businesses- Working with fundraisers

U N C E RTA I N T Y A H E A D

• Exchange rates• Interest rates and effect on investment

income/pensions• Drop in disposable income/corporate profits• More public funding cuts• Increased demand for services• Recruitment• EU funding• Taxation – charity tax relief and VAT

F U N D RA I S I N G AN D DATA P R O T E C T IO N

RO S I E B RAS S S E N I O R S O L I C I T O R , C HAR I T I ES , I B B S O L I C I T O RS

F U N D RA I S I N G – A N E W R E G U L AT O R

• Launched: 7th July 2016• Purpose: To restore public trust in fundraising• Funded by: Voluntary levy based on ‘spend on generating

voluntaryincome’ - Large charities = levy payers: - Annual payment under 10 banded thresholds - Small charities and third parties = non-levy payers: - Annual registration fee

• Future changes to the Code of Fundraising Practice

F U N D RA I S I N G – A N E W F U N D RA I S I N G P R E F E R E N C E S E RV I C E

• Expected: Spring/Summer 2017• ‘Small reset button’: Will allow users

to block communications from individual named charities

• Apply to: All communications channels (e-mail, text, telephone and post)

• Automated process: Charities will be notified of people opting-out

• Time limited: 24 months • Concerns?

- Apply to all charity communications• - No opportunity to check back with

supporters

F U N D RA I S I N G – N E W R E Q U I R E M E N T S F O R F U N D RA I S I N G A G R E E M E N T S

• Charities (Protection & Social Investment) Act 2016: Agreements with professional fundraisers and commercial participators must include:- How the fundraiser is to protect vulnerable people and others from ‘unreasonable behaviour’- Any voluntary fundraising scheme or standard that the fundraiser undertakes to be bound by- Arrangements enabling the charity to monitor compliance

• In force: 1st November 2016• Comply by: 31st March 2017

F U N D RA I S I N G – R E G U L AT O RY A C T I O N – N E E T F E E T• Fundraising Regulator’s first adjudication decision:

- Fundraising agency breached six sections of the Code of Fundraising Practice- 7 charities criticised for not using “all reasonable efforts to ensure” agency’s work was in compliance with the Code

• Charities responsible for actions of third party fundraisers:- Agreements must underline the importance of compliance with the Code and provide for adequate oversight arrangements - Review fundraiser’s compliance training materials- Regularly monitor how campaigns are delivered in practice

F U N D RA I S I N G – R E G U L AT O RY A C T I O N – R S P C A & B H F

• ICO fined RSPCA £25,000 and BHF £18,000 for data protection breaches: - Wealth screening - Data and tele-matching - Data sharing

• Donors were not informed of practices and so unable to consent

• Charity Commission’s response: compliance cases opened • Compliance with data protection law now an urgent

priority: - Data analytics for fundraising no longer tolerated without consent - Need to identify legal justification for all data processing

F U N D RA I S I N G – R N L I – A N E W F U N D RA I S I N G S T RAT E GY

• Pioneering move: opt-in only communications• Aim: to give control back to supporters

• Cost: - £36million drop in income expected over 5 years - £3million spent on opt-in project

• Positive results: - More ‘warm and engaged’ supporters opted-in than predicted - Average donations increased - New support attracted

D A T A P R O T E C T I O N – G E N E R A L D A T A P R O T E C T I O N R E G U L A T I O N

• Comply by: 25th May 2018

• What are the key changes? - Registration: Removal of requirement to register with ICO - Data processors: Direct obligations for the first time - Personal data: Expanded definition. - Consent: Higher standard requiring “affirmative” action - Data breach notification: New mandatory requirement - Data subjects’ rights: Strengthened - Enforcement powers: Fines increased from £500,000 to EU20million

D A T A P R O T E C T I O N – G E N E R A L D A T A P R O T E C T I O N R E G U L A T I O N

• Less than 1.5 years to become GDPR compliant!

• What steps should you take now?- Ensure key people know data protection law is changing- Consider appointing a data protection officer- Conduct a personal data audit- Identify legal justification for all data processing- Review how you are seeking consent and update privacy notices - Check procedures to ensure they cover data subjects’ rights- Implement processes to detect, report and investigate breaches - Prepare training materials to raise staff awareness of new rules

DATA P R O T E C T I O N – DATA & CY B E R S E C U R I T Y

• Charities are not immune!

• How should you protect your charity’s data?- Staff awareness and training- Awareness of email scams- Data minimisation: delete or anonymise data - Do the IT basics: safe password policy, frequent back-ups, software security controls/updates and encryption- Access advice: keep updated of ICO’s guidance and consider changing your IT service provider- Implement crisis management response plan

T H E C H A R IT Y C O M M I S S IO N

M O I RA P R O TAN I CO N S U LTAN T , CH AR I T I E S , I B B S O L I C I T O R S

T H E C H A R I T Y C O M M I S S I O N

• Role

• Functions

• Policies


Main Functions • To decide whether a body is or is not a charity – the

registration function

• To encourage and facilitate better administration of charities – Charity Commission guidance, orders and schemes

• To identify and investigate misconduct or mismanagement and take remedial or protective action – the regulatory function

T H E C H A R I T Y C O M M I S S I O NThe Regulatory Function • Statutory inquiries

- Regulatory powers

• Non-inquiry case work

- Few regulatory powers


Regulatory Powers • Appoint and remove trustees and members• Freeze bank accounts• Appoint an interim manager• Order a bank to disclose bank accounts and transactions• Require trustees to respond to questions concerned with the Inquiry• Formal warning to trustees• Publication of the warning Right of appeal to First-Tier Tribunal and/or the court


Risk Framework – updated in February 2016 • The priorities• Fraud and financial abuse• Safeguarding• Terrorism• Other, e.g. lack of independence, political

activity, abuse of charitable status, inadequate reserves and poor governance

T H E C H A R I T Y C O M M I S S I O NMotivations• Bad publicity for the charitable sector • Unwelcome press attention• Criticism directed at the Charity

Commission by MPs and Parliamentary committees – remember the Cup Trust saga

• Announcing the opening of a statutory inquiry (Ampleforth Abbey) – a quick win for the Charity Commission but is it an abuse of power or defamatory?

• Commission’s compliance case work – financial abuse, mismanagement and governance failures still prevalent


Published inquiry reports• Class inquiries – breach of filing requirements• Phase 1 - Annual income >£500,000• Phase 2 – Annual income >£250,000• The Commission obtains bank records and directs

trustees to comply• No excuses acceptable!


Published inquiry reports – The Badger Trust • Political activity

• Breach of trust

• Required to remove offending material from website and disassociate charity from unlawful activities

•

T H E C H A R I T Y C O M M I S S I O NPublished inquiry reports – Islamic Network • Extremist material found on website but hidden from view• Acts of previous trustees• Inappropriate comments of public speakers at charity hosted events• Governance failures • Charity Commission action plan• Additional trustees and guidelines for speakers• Preparation of an operations’ manual, financial policies and due diligence

of partner organisations


Published inquiry reports – Bietec Learning and Development Training Centre • To advance the education of the public, in particular by the provision of

vocational training• Income and expenditure not declared in accounts• Inappropriate mixing of funds – mismanagement • Concern of abuse of charitable status to secure private benefits to connected

company• No charitable activity within the objects but payment of rent to connected

company – repaid by trustees• Failure to manage conflicts of interest


Application to register the Temple of the Jedi Order • “to advance the religion of Jediism, for the public benefit worldwide, in

accordance with the Jedi Doctrine, and to advance such other charitable purposes….as the trustees see fit from time to time”.

• Commission decision – it would not be established for exclusively charitable purposes

• The Commission considered the meaning of the advancement of religion and the promotion of moral and ethical improvement – established charitable purposes


Application to register the Temple of the Jedi Order • The meaning of religion for the purposes of charity law

includes (a) a religion which involves belief in more than one god; and (b) a religion which does not involve a belief in a god

• The Commission considered Lord Tolson’s review of case

law in Hodkin v Registrar General of Births, Deaths and Marriages [2013]


Application to register the Temple of the Jedi Order

• Moral or ethical improvement?

• Insufficient body of case law

• Does not share characteristics with beliefs protected by Article 9 of the European Convention of Human Rights

• Public benefit lacking

T H E C H A R I T Y C O M M I S S I O NA Religion you are not!

Q U E S T I O N S & A N S W E R S

C O N TAC T USPaul Ridout, Partner T: 01895 207862E: [email protected]

Rosie Brass, Senior Solicitor T: 01895 207290E: [email protected]

Moira Protani, ConsultantT: 01895 207893E: [email protected]

IBB Solicitors Capital Court 30 Windsor Street UxbridgeUB8 1AB

Mahmood RamjiPartner, Not for Profit, Kingston Smith

17 January 2017

Charities update 2017 – Lessons from the past, thoughts about the future

2016 – The year of the SORP!

Lessons from the past – SORP SORP FRS 102 FRSSE SORP allowed for

2016 FRSSE SORP withdrawn

for 2017 Update Bulletin 1

- Audit threshold raised to £1m- Consolidation £1m

Lessons from the past – SORP Main areas of change:- Trustees report changes – risks, reserves, key management personnel, designated funds, volunteers, impact reporting etc- Accounting – holiday pay, financial instruments, income recognition, fixed assets, pensions etc- Disclosures – format of the SOFA, accounting policies, estimates, going concern, operating leases, related parties and comparatives.

Thoughts for the future – SORP SORP Consultation

already issued and now closed

15 questions, closed for response 11 December 2016

Also included some suggestions from the Committee

Thoughts for the future – SORP Some suggestions of the

Committee– Extra layer of reporting for very large

charities e.g. third tier– Key facts summary– Scrapping support cost category– Any additions or removals

Await the outcome of the consultation – will be fed into FRS 102 triennial and then new SORP.

Thoughts for the future – SORP Six themes for making changes

– Making a difference– Risk management– Going concerns– Enhanced analysis of expenditure– Disclosure of who funds a charity– Disclosure of big facts

OTHER ACCOUNTING DEVELOPMENTS

Lessons from the past – Accounting Trading subsidiaries of Charities,

Gift Aid and negative reserves Guidance issued from the ICAEW in 2016 Ensure this is considered where

subsidiaries have negative reserves Previous gift aid payments could be

“ultra vires” Group planning required going forward

Thoughts for the future – Accounting Reporting matters of material

significance by Auditors- Consultation in 2016, now closed.- 2017 will see the responses and actions

Controversial areas:- Reporting on non-standard audit reports (modified audit opinion)- Management letters to the Charity Commission

Thoughts for the future – Accounting Consultation on Independent

Examination Directions- Consultation in 2016, now closed.- 2017 will see the responses and actions

Significant changes:- Increase IE threshold to £1m alongside Bulletin- Core directions and then directions for larger charities- 3 new directions – Going concern, related parties and conflicts of interest

Thoughts for the future – Accounting Common Reporting Standard - Global exchange of information (tax avoidance etc)- Any charity >50% gross income from professional managed investments (any part managed even 1%)- 50% threshold is calculated using a 3yr average- Financial institution- Potentially report on its grantees/beneficiaries- Need information on beneficiaries tax number

Thoughts for the future – Accounting Common Reporting Standard (cont)- Data protection – need to inform beneficiaries- First report by 31/5/17 for 2016 year- Company Limited by Guarantee – likely no reporting Consequences of those charities

caught by CRS- Administrative cost of going back - Grant T&Cs update and data protection policies- Fine for non compliance £300 first offence then escalate (initial soft landing)

Luke HoltPartner, Not for Profit, Kingston Smith

17 January 2017


Fundraising in 2016 and looking to 2017

Lessons from the past – Fundraising Timeline of what happened on

fundraising in 2016- A number of improper practices uncovered- Sector given “one last chance” to self regulate- The Fundraising Standards Board (FRSB) replaced by a new Fundraising Regulator. PRFA and IOF merged and relinquished code to the Regulator.

Thoughts for the future– Fundraising Where we are now- Fundraising Regulator now live – voluntary registration, funded by a levy system on largest fundraising charities- It has already issued adjudications – Neet Feet etc- Working closely with the Commission and ICO- Opt in, “unambiguous consent” to contact- FPS - “Big Red Button” idea has been scrapped

Thoughts for the future– Fundraising Thresholds……….

£10,000 £25,000

£250,000 £500,000

£1,000,000

£5,100,000

£10,200,000

£Nil

£100,000

Thoughts for the future– CC20 Charity Fundraising – Trustee duties

Three trustee activities– Set the right approach – Monitor compliance with that

approach– Maintain your charity’s

values in all things Three legal duties

– Act in best interests of your charity

– Manage charity’s resources responsibly

– Act with reasonable care and skill

Thoughts for the future– CC20 CC20 – Charity fundraising: a guide

to trustee duties Charities (Protection and Social

Investment) Act 2016 S13 has inserted a new section into C.A 2011- New terms required in third party agreements– 162A re: fundraising information required to be added to annual reports from 1 November 2016 (so years ending 31 October 2017 onwards)

Thoughts for the future – Fundraising Fundraising – Financial statement

disclosures: Approach by charity in connection with

fundraising activities Whether the fundraising activities follow

a regulated scheme or standard Any failure to comply with scheme and

standard operated Steps taken to protect vulnerable people

and public from unacceptable fundraising practices

Thoughts for the future – Fundraising Fundraising – Financial statement

disclosures (cont) Explanation of how fundraising activities

are monitored Complaints received CONCLUSION – SYSTEMS AND

PROCESSES THEN DISCLOSURE AND MORE DISCLOSURE……!

2017 – HORIZON SCANNING..

Lessons from the past – Other Some recent excuses sent to the Charity

Commission:

Computers are satanic

I’m not involved with this charity’s requirements, I am a trustee

I don’t have internet access [sent by email]

Deadline day falls on a religious holiday

I’m not involved with these charity requirements, I am a Trustee

Computers are satanic

Thoughts for the future – Other 2016 saw Charity

Commission investigation into “double defaulters”

Will continue into 2017 Many of these

investigations found more than just non filing issues – governance, conflicts of interest, related parties issues.Don’t let your charity be next ……!

Know your filing deadline

Thoughts for the future – Other Charity Commission to consult on

charging- expected to be in early 2017 to raise £5m / 2 yrs

1 April 2017 – soft landing approach on changes to fundraising contracts “ends”

May 2017 – first reporting deadline under CRS

ICO and FR warned more high profile cases in 2017

Responses and results of the SORP consultation

AND…..

Thoughts for the future – The triple threat?

Thoughts for the future – Other BREXIT Funding - EU programmes funded till

2020, then…? Laws – VAT/employment/data protection Immigration Social issues – could mean certain

charities see a spike in service requirements/beneficiaries.

Sterling £/Investments/Single market? DExEU created and will provide

information in 2017

Contact details:Luke Holt

NFP [email protected]

0207 566 363607791 809 379

Mahmood RamjiNFP Partner

[email protected] 848 550007342 055 265

mailto:[email protected]

mailto:[email protected]

Any questions?


Thank you for coming – please join us for refreshments and networking


Mahmood RamjiPartner, Not for Profit, Kingston Smith

17 January 2017
