The Charity Commission has pressed the government to drop plans for imposing further regulations on large charities.
The Commission said that new financial reporting rules, currently being considered by ministers, are ill-suited to charities and would impose an “extensive additional regulatory burden and financial cost on the sector”.
In its official response to a consultation on the reforms, seen by Civil Society News, the Commission urged the government to rethink the plans, which would be applied to charities with incomes over £100m a year.
The Department for Business, Energy and Industrial Strategy (BEIS) proposed a series of reforms earlier this year in a white paper, Restoring Trust in Audit and Corporate Governance, aimed primarily at identifying and preventing financial problems at large private companies.
One proposal would make senior staff at charities with annual incomes over £100m personally liable for errors in the accuracy of financial reporting, and potentially face bans or fines.
Those charities would be classed as “public interest entities” (PIEs) and regulated by a new body, the Audit, Reporting and Governance Authority (ARGA). ARGA would have powers to act against chief executives or senior staff suspected of making misleading statements about company finances.
Risks ‘simply do not apply’ to charities
The Charity Commission said that the proposals are not relevant to the voluntary sector.
Its consultation response said: “The Commission supports the government’s objective to improve the UK’s audit and corporate governance framework.
“However, in terms of the charitable sector the Commission’s position is that it does not support extending a framework designed with the interests of shareholders and for-profit commerce in mind to the charity sector where these imperatives simply do not apply.
“We therefore recommend that charities are not included within the definition of Public Interest Entities and associated corporate reforms.”
Questions over thresholds
The Commission argued that the government was “not clear” on why it had set the threshold at £100m income.
It said: “In respect of the suggested £100m incoming resources threshold, it is not clear from the consultation why the incoming resources threshold for charities of £100m has been suggested.
“This is a much lower threshold than the thresholds suggested for larger companies and does not take into account the balance sheet or employee numbers like the options for larger companies do.
“If the reforms are intended to mitigate economic impact, then the case for a lower threshold for charities was not made in the consultation.”
The Commission also raised concerns that the government’s consultation did not mention current charity regulations, even while it recommended tighter rules for some large voluntary bodies.
The white paper “did not refer to the existing regulatory framework and mechanisms that are in place and have been designed for the not-for-profit sector”, the Commission said.
It suggested that, instead of making charities subject to ARGA, the Commission could work with the government to “establish the extent to which the existing mechanisms that are already in place for the charitable sector could be enhanced to meet the desired outcome of the government of improved corporate governance and oversight”.
The consultation response added that the Commission's powers are already “far reaching and effective and are used to deal with wrongdoing and harm”, and that ARGA “would introduce dual regulation and would be confusing for the sector and stakeholders”.
The BEIS consultation closed two weeks ago. BEIS is now analysing the consultation responses and says it will respond at a later date.