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NCVO response

Annual return for 2015 - information collected from charities


Introduction

This response is submitted by the National Council for Voluntary Organisations (NCVO Registered
Charity Number 225922).
NCVO champions and strengthens the voluntary sector and volunteering. We have 11,000 members, from
the largest charities to the smallest community organisations.
NCVO is committed to increased transparency and effective regulation. Our general approach is therefore
in favour of the Commission collecting information that ensures it performs its role as regulator
effectively. However, it is important that the amount and quality of information required from charities
are proportionate and appropriate. In particular, the administrative burden on charities completing the
Annual Return must be kept to a minimum.
Our approach to this consultation has therefore been based on the principle that any proposal needs to be
linked with a clear regulatory need for the specific type of information requested, and must not
substantially increase the administrative burden on charities.
There are also a number of critical questions which many of the proposals raise, namely:
1) what is the purpose of the Annual Return and its relation to the Statement of Recommended
Practice (SORP), considering that many issues of public policy related to the current proposals
have been - or should have been - discussed by the SORP Committee;
2) how each additional question has the potential of stripping the Annual Return of its overall
efficiency and watering down accuracy of information provided;
3) what should be a matter of regulation and what should instead be good practice driven by the
sector.
To discuss the content of this response in further detail, please contact Elizabeth Chamberlain, Policy
Manager:
- tel.: 0207 250 2559
- email: Elizabeth.Chamberlain@ncvo.org.uk
- address: NCVO, Society Building, Regents Wharf, 8 All Saints Street, London N1 9RL
Response to proposals for the annual return for 2015

Recommendations made by the Public Administration Select Committee and accepted by
Government on expenditure on campaigning activity and income received from i. public
service delivery and ii. private donations

Q1 Do you agree with the proposal to introduce a question into the annual return to ask how much
of a charitys total expenditure has been on campaigning activities?
No, NCVO strongly opposes this proposal.
NCVO is committed to the principle of transparency and believes that charities should communicate
clearly with the public about their activities. However, how much charities spend on campaigning is not a
regulatory matter, and we are concerned to see the proposal for mandatory disclosure in the annual
return.
There are also a number of practical reasons why such a requirement would be problematic:
- charities do not currently account for campaigning costs separately in this way, as accounting
standards are set up to comply with the SORP, so this new requirement would entail a
considerable change in current practices and would likely cause undue burden on charities;
- the consultation document provides no definition of campaigning activities and there are
different views of what counts as campaigning, with many elements of spending that may be
considered as campaigning costs. This could not only create considerable difficulties for charities
trying to calculate which costs to account for, but could also produce meaningless data as
different charities will interpret the term differently and therefore include different activities
within the reported expenditure.
Even if a definition of campaigning activities were created, it is unlikely that it would be suitable and
allow organisations to easily separate and cost specific actions from the rest of their charitable activities,
which in most cases will achieve multiple goals.
For example, current Charity Commission guidance defines campaigning activities very broadly, as
encompassing all campaigning, advocacy and political activity and therefore includes awareness-raising
and efforts to educate or involve the public by mobilising their support on a particular issue, or to
influence or change public attitudes as well as activity by a charity which is aimed at securing, or
opposing, any change in the law or in the policy or decisions of central government, local authorities or
other public bodies.
If such a definition were used for the purposes of the Annual Return, the total expenditure could easily
reach what some may perceive as high figures. This amount would then be reported without any context
and displayed in isolation on the Charity Commission website, so there is considerable scope for
misinterpretation by the public.

Q2 Do you agree with the proposal to introduce a question to the annual return to ask how much
of a charitys income was received from:
public service delivery
private donations?
No, NCVO strongly opposes this proposal.
This question has already been considered by the SORP Committee, which rightly concluded that the
current differentiation of grant income should remain unchanged.
Currently SORP directs that income from grants has to be classified either as a component of 'income
from donations and legacies' if general grants, or as a component of 'income from charitable activities' if
performance related grants. The Committee noted that although income from government was topical,
arguably others might be interested in corporate donations or other sources of funding. The Committee
noted that it had previously considered and rejected requiring charities to report by the source of income
in the Statement of Financial Activities (SoFA) rather than by the nature of the income. To require a
parallel analysis by funder would be burdensome.
The Committee further noted that funders, including government funders, can always ask for additional
information relevant to awarding or monitoring their grants. Consequently the Committee rejected the
Secretariat's recommendation to require larger charities to report in the notes to the accounts on the
total income received from government sources.
We believe that the same arguments apply to the Annual Return and that therefore there should be no
additional requirement about income received from public service delivery and private donations.
If this issue is of interest to policy makers, it should be the responsibility of government funders to
provide information on which organisations they grant money to and how much. Such an approach would
not only create a level playing field where all recipients of government money would be reported over the
same financial year, but in turn it would also ensure more accurate and comparable data.

Q3 If we did introduce the questions set out above is it feasible for charities to provide this
information for the annual return for 2015, or should we wait to introduce the question in the
annual return for 2016?
On the basis that the questions propose asking for information that is not a regulatory matter, we do not
think it is appropriate to introduce them in the annual return, until a persuasive case is made
demonstrating that this information is in the public interest and enables the Charity Commission to
perform its regulatory role more effectively.
In the meantime, we believe that it is the responsibility of the sector to ensure transparency for the
public, donors and beneficiaries on their different types of activities and related income and expenditure.
This is essential to ensure the public understands what our organisations do, and confidence in our sector
is kept at a high level.


Proposals asking for additional information to help improve good practice and the
accountability and transparency of charities

Q4 Do you agree with the proposal to ask whether a charity has a written policy on remuneration
of executive staff?
Yes, we agree with this proposal subject to the change that the remuneration policy should cover all staff,
rather than focusing only on executive staff.
We believe that it is good practice for all charities that employ staff to have a remuneration policy setting
out the principles followed by trustees when deciding salary levels for staff. This addition to the annual
return is intended to encourage charities to think about whether they should develop such a policy if they
do not already have one in place, and therefore promote good practice in governance.
The Annual Return should make clear that the question on whether the charity has a remuneration policy
is a matter of good practice, and is not a regulatory requirement.

Q5 Do you agree with the proposal to introduce a question into the annual return for 2015 to ask if
a charity has carried out a review of its financial controls during the reporting year?
Yes.
We recognise that there is merit in asking a question about reviews of financial controls: the lack of such a
review could be seen as one among a number of risk-factors indicating vulnerability to fraud or illegal
activity. We therefore agree with the Annual Return asking this question for the purposes of encouraging
good practice.
However, there are a number of issues to carefully consider if such an addition were made:
- an annual review of financial systems is not always appropriate for all organisations, particularly
smaller organisations or those where staff turnover may not be so frequent;
- smaller charities may also lack the staff with the necessary expertise required to carry out a financial
review, leading to additional professional costs to employ someone on a consultancy basis;
- the public may misinterpret the fact that a review has been carried out as an indication that
something has gone wrong;
- clear guidance on what financial controls are and what counts as a review will be necessary.

Requiring charities with incomes between 10,000 and 500,000 to provide key financial
information through the annual return

Q6 Do you agree with the proposal to ask charities with incomes of between 10,000 and
500,000 to provide some key financial information through the annual return?
This proposal is where the struggle between appetite for information and ensuring the bureaucratic
burden is kept to a minimum is felt most strongly. For charities with income of less than 500,000 there is
currently little information shown on the charitys register entry and available publicly on the
Commissions website. This lack of information could have a negative impact of public trust, so it is
important to address the situation. But the change would considerably affect smaller charities, which
dont have the systems in place to provide such a broad range of new and detailed financial information.
We therefore believe that the right balance can be achieved by setting the cut-off point at a higher level,
and suggest setting the mark at 250,000. Charities with a gross income exceeding 250,000 already have
to use the Charity Commissions accruals accounts packs, and therefore are likely to have the necessary
systems in place to record and report the additional information required.
Further comment
There are some additional requests for information that NCVO believes would be useful for charities to
provide, and which could be met in a straightforward tick-box approach in order to not cause any
increase in the administrative burden when completing the Annual Return. These are:
- whether the charity is also registered with HMRC;
- whether the charity is also registered with Companies House.
Such information would allow better information sharing between regulators, and could be an initial step
to progress discussions between the Charity Commission and Companies House on joint filing of annual
accounts and a joint annual return. For many years NCVO has been advocating for a more joined up
system, in order to lessen the reporting burden that charities currently experience.