SCVO response to Scottish Government

01 April 2019

Summary

• While SCVO welcomes the opportunity to review Scottish charity law, we think there are some significant missed opportunities in this consultation, which fails to serve as the meaningful discussion piece required 13 years on from the current legislation coming into force.
• A key area of concern for the charitable sector exists around the definition of ‘public benefit’, and a comprehensive review of Scottish charity law should re-define what is meant by this test. We urge the Scottish Government to work with the sector to redefine what public benefit should mean in 2019.
• A clear and relevant definition of ‘public benefit’ will allow us to better define the modern charity and support us in protecting and enhancing public understanding and trust in the collective reputation of charity in Scotland; we call this the ‘charity brand.’ 
• To strengthen and enhance the role of OSCR, we also call on the Scottish Government to widen the discussion to include the structure of OSCR. SCVO believe that OSCR should be independent of government and report to the Scottish Parliament rather than Ministers.
• More detail is required for us to make clear judgements on many of the proposals in the consultation. Simple questions are being asked on complex issues, and further detail is needed to allow for meaningful debate and discussion around what these proposals might mean for charitable organisations in Scotland.

• In summary:

• [Section One] SCVO supports the proposal to publish annual reports and accounts in full for all charities on the Scottish Charity Register, although personal identifying information beyond the name of a Trustee must remain hidden and exceptions will be required.

• [Section Two] SCVO supports the publication of charity trustee names available for public viewing, including in a searchable format. However, we believe that the creation of an internal stand-alone database with key personal information is not the right approach.
• [Section Three] SCVO questions the benefit in aligning criteria for disqualification and the removal of charity trustees with the criteria in England and Wales, as the consultation paper does not go into enough detail to set the parameters.
• [Section Four] SCVO feel that the introduction of powers to offer positive directions need to be managed carefully. More public discussion is required on how the power to positively direct a charity is to be applied.
• [Section Five] SCVO supports the proposal for OSCR to be able to remove charities from the Scottish Charity Register if they have persistently failed to submit annual reports and accounts. However, more clarity is needed in what is meant by ‘persistent.’
• [Section Six] SCVO supports the proposal that all charities in the Scottish Charity Register should have and retain a connection in Scotland, although more clarity is needed around what is meant by the word ‘connection.’
• [Section Seven] SCVO feel that the proposal for OSCR to be able to make inquiries into the former charity trustees of bodies that ceased to exist is too broad. SCVO believe that the power should be for ‘OSCR to seek a court order’ to be able to access information and make inquiries.
• [Section Eight] SCVO agrees with the proposal that former charities must use their remaining charitable assets for public and charitable benefit, although additional restrictions may be required in some cases.
• [Section Nine] SCVO supports the proposal to allow OSCR to request information about former charities and those misrepresenting themselves as charities.
• [Section Ten] SCVO encourages the Scottish Government to listen to the views of those organisations established under Royal Charter to establish whether they are content with continuing to seek approvals for reorganisation from the Privy Council.

Our response

There can be no underestimating the importance of trust in charities, which is already at a high level in Scotland. Public trust in the charity ‘brand’ is one of the most powerful assets our sector holds but gaining and retaining this is not easy in the current context.

The environment that charities now operate in has changed markedly since the Charities and Trustee Investment (Scotland) Act was passed in 2005. An increasingly digitalised world where change is unpredictable finds the public struggling with who and what to have confidence in. 

At the start of 2018, the third sector was rocked by damning headlines about unacceptable charity failures with the Oxfam sexual exploitation scandal. Closer to home, in 2015 the Kiltwalk came under intense scrutiny over concerns over the amount of money reaching charitable partners. Trust is fragile, and the speed of communication and comment exacerbates this and the impact that these scandals can have on the collective reputation of charity; we call this the ‘charity brand’.

We see this as a challenge, rather than a problem for charities. It should focus our minds on the need for good governance within charitable organisations to ensure they are well run, open and transparent. It also forces us to think about whether how we work is fit for purpose, 13 years since charity law was first introduced in Scotland.

That challenge must be addressed by regulation, and while SCVO welcomes the opportunity to review charity law, we think there are some significant missed opportunities in this consultation. While the consultation refers to important issues for OSCR, the Scottish Government and charities in Scotland, it fails to capture some of the most important areas of concern for our sector.

Changes to charity law and regulations will create challenges and uncertainty for the sector. Rather than tinkering around the edges, which is likely to require further changes, we believe that the review should look at broader issues concerning the existing regime of charity regulation, the definition of a modern charity and a renewed definition of public benefit that would enable OSCR to be the best and most effective regulator possible. Simply focusing on specific technical provisions within the current Act that can only take us so far.

13 years on from the current legislation coming into force, we are still struggling with the identity of charity. What does it mean to be a charity in Scotland in 2019, and could confusion be playing a role in harming the public’s trust in Scottish charities? Our sector is diverse and that must be celebrated and protected, but there should be some unifying form of common identity that makes a charity unique in Scotland today. SCVO will be writing to the Cabinet Secretary to outline the need for a comprehensive review of charity law to re-define what is meant by public benefit and re-define the modern charity.

To strengthen and enhance the role of OSCR, we also call on the Scottish Government to widen the discussion to include the structure of the regulator. SCVO feel that OSCR should be independent of government, be legally required to report to the Scottish Parliament rather than Ministers, and be allowed to recruit from a wider pool of candidates with the right skills, knowledge and experience to lead the organisation to be the best and most effective regulator possible.

Response to specific consultation questions

Before progressing our response to the individual consultation sections, SCVO would like to make a general point on the lack of detail provided in the consultation that is needed for us to make clear judgements on many of the proposals. OSCR and the Scottish Government are asking simple questions on complex issues, and further detail is needed to allow for meaningful debate and discussion around what these proposals might mean for charitable organisations in Scotland.

We also see a theme of aligning Scotland’s regulation with England and Wales running throughout the consultation, without clear explanation surrounding the benefit of this. While we recognise the complications that separate regimes can present UK-wide charities, any proposals for aligning regulation should be accompanied with a clear rationale as to why this will add value and benefit Scotland’s charitable sector.  

Section One

The annual reports and accounts of charities are useful tools in demonstrating whether an organisation is adhering to their legal responsibilities. SCVO supports the proposal to publish annual reports and accounts in full for all charities on the Scottish Charity Register. However, personal identifying information beyond the name of a Trustee must remain hidden and exceptions to this requirement will need to be made for charities working in sensitive areas; for example, where trustees are former or current service users. SCVO also recognises that the low level of public knowledge on accounting and charity law requires OSCR to provide more information on how to understand charity accounts if this proposal is to truly increase transparency and accountability among charities on the Scottish Charity Register.  

We also recommend that OSCR separately publishes a searchable list of decisions made about charities that have been removed from the register and/or named individuals that have been disbarred from being trustees. This list should include background context about the decisions in an easy to understand language.

Section Two

SCVO recognises the need for OSCR to be able to access information on current charity trustees and supports the publication of charity trustee names available for public viewing, including in a searchable format. However, the issue of unwelcome exposure for some charity trustees must be considered and exemptions will need to be applied. At a time when charitable organisations are rightly looking to appoint trustees with a variety of experiences, it is essential that any efforts to strengthen transparency and accountability do not put trustees at risk or deter potential candidates from applying.

We believe that the creation of an internal stand-alone database with key personal information is not the right approach. We are concerned with privacy interests that could be at risk with the proposed database, which run contrary to the Scottish Government’s Digital Strategy to develop robust, secure and trustworthy mechanisms for a common public sector approach to online identity assurance. There is currently not enough detail on how personal information will be stored, protected and controlled - especially with GDPR in mind - and SCVO cannot support the proposal as it currently stands.

We strongly recommend that contact is made with Digital Identity Scotland to develop a more nuanced proposal that provides OSCR with the information it needs to demonstrate transparency and increase credibility of the sector, whilst doing so in line with the Scottish Government’s emerging approach to online identity assurance and thereby protecting the personal information – such as addresses, dates of birth and phone numbers – of charity trustees across Scotland.

Section Three

SCVO questions the benefit in aligning criteria for disqualification and the removal of charity trustees with the criteria in England and Wales, as the consultation paper does not go into enough detail to set the parameters of this alignment. For example, charities working with ex-offenders may want to include trustees on their board as part of their rehabilitation, and most convictions may not make an individual unsuitable to be a trustee. We also wish to know whether a change in the law will be retrospective for existing trustees. However, SCVO does see the importance of OSCR having the power to make sure disbarred trustees of one organisation cannot assume leadership positions of another.

These issues also apply to extending the disqualification criteria to those in certain senior management positions, a proposal that does not define ‘certain senior management position’. Scotland has a different charity market compared with England in that it consists of mostly small and medium organisations, some of which are led by volunteers or those not typically described as holding a ‘senior management position.’ SCVO feels that the proposal to extend the criteria provides OSCR with too much say over decisions that should be made by individual charity boards. A more suitable focus of OSCR would be on ensuring charities and trustees have the correct policies and procedures in place and are aware of their responsibilities and well trained to make these decisions independently of the regulator.

Section Four

SCVO supports the view that OSCR should have stronger powers to intervene and enforce where a charitable organisation is not adhering to its legal obligations. We recognise that most of OSCR’s powers are preventative and whilst they can make recommendations, they do not have the power to remedy non-compliance or make improvements.

However, charities should not be subject to external control. Whilst positive directions could provide OSCR with more influence over charities that are not performing well, the introduction of powers to offer positive directions need to be managed carefully to prevent any possible deviation towards the regulator controlling charities by way of becoming a ‘shadow trustee’ by proxy.

More public discussion is required on how the power to positively direct a charity is to be applied; the current explanation and the potential ramifications of a charity failing to comply with a positive direction that OSCR has issued are not well defined and could allow for subjective decisions to be taken. If positive directions are to be allowed, there are ramifications for resourcing (both OSCR and charities), rights to appeal and managing conflicts of interest.

Finally, the proposal to give OSCR the power to issue positive directions to charities highlights the need to look at broader issues concerning the existing regime of charity regulation. What is the role of OSCR, and what relationship should it have with charities that let the sector down and damage the charity brand? The current review does not go far enough to allow for a meaningful debate on these issues.

Section Five

SCVO understands the reasoning behind the proposal for OSCR should be able to remove charities from the Scottish Charity Register if they have persistently failed to submit annual reports and accounts. However, more clarity is needed in what is meant by ‘persistent,’ and where subjective decisions are being made by OSCR the organisation in questions must have the right to appeal the decision.

Section Six

SCVO agrees that all charities in the Scottish Charity Register should have and retain a connection in Scotland, and any body under an act of the Scottish Parliament is restricted by the terms of the Scotland Act to operating within Scotland.

However, more clarity is needed around what is meant by the word ‘connection’ and what would be regarded as enough connection. The focus on land and premises raises concerns about charities which operate on a UK or Great Britain basis, including federated charities where activities might be run by local or Scottish charities rather than the UK/federal charity, charitable trusts giving grants in Scotland or charities whose activity is outside of Scotland but who carry out fundraising.

A ‘connection’ need not be where the charitable activities take place, but if this is not the case e.g. an international charity, then at least part of the governance and operations should be connected to activities in Scotland such as meetings of trustees, or Scotland-specific fundraising. If Scotland-specific fundraising is taking place, it should always be clear to donors where the money is going to spent.

Section Seven

SCVO is acutely aware of the need for OSCR to be able to make inquiries into the former charity trustees of bodies that ceased to exist and bodies which are no longer charities and is supportive of this proposal to close the loophole and make inquiries into those who were trustees. However, the proposal is currently too broad and could give the regulator power to investigate anyone that has been a former charity trustee. SCVO believe that the power should be for ‘OSCR to seek a court order’ to be able to access information and make inquiries, as well as there being clear guidance for when it is appropriate to do this.   

Section Eight

SCVO agrees with the proposal that former charities must use their remaining charitable assets for public benefit, so individuals cannot derive private benefit from assets, such as property or financial assets held in trust by the charity.

However, we would also add that the assets must be applied for both public benefit and charitable purposes at the point of future transfers of these assets, unless it has been sold for cash or converted into another asset. In this case the public benefit and charitable purposes restrictions should then follow the conversion (e.g. the cash received).

In some cases, additional restrictions may be required; for example, some collections held by Trusts – such as accessioned museum collections - should not be regarded as assets capable of being sold for cash even if this is for charitable or public benefit. This will be specified in the charities’ articles and should only be overturned by an appropriate court order or Act of parliament.

A key area of concern for the charitable sector exists around the definition of ‘public benefit’, and we would urge the Scottish Government to work with charitable organisations, OSCR and SCVO to redefine what public benefit should mean in 2019. What does ‘public benefit’ mean in 2019, are some organisations taking their charitable status for granted, and could confusion be playing a role in harming the public’s trust in Scottish charities? Without a clear and relevant definition of ‘public benefit,’ charitable status will continue to be misused, or used in ways that the public and many in the charitable sector would not support.

Section Nine

SCVO supports the proposal to allow OSCR to request information about former charities and those misrepresenting themselves as charities.

Section Ten

SCVO agrees that reorganisation can be a valuable tool for charities and that the process should be a simple as possible. Affording OSCR the ability to approve reorganisation schemes for charities governed by Royal Charter would provide a simpler route for organisations wishing to modernise their aims and objectives.

However, we also recognise that those organisations governed by a Royal Charter have obligations to the Privy Council to seek approvals in certain situations, including amending a Royal Charter. It is important that we do not reach a point where charities established under Royal Charter are in the position of having two regulators in OSCR and the Privy Council.

There may also be challenges in affording OSCR the ability to approve reorganisation in instances where charities established under Royal Charter are governed by various other Acts of Parliament, such as galleries and the National Heritage (Scotland) Act 1985.

We also note the value that organisations place in their Royal Charter status and the history and connection they hold with the Privy Council; we would encourage the Scottish Government to listen to the views outlined in responses to the consultation from those organisations established under Royal Charter to establish whether they are content with continuing to seek approvals from the Privy Council where necessary.

Conclusion

The environment that charities now operate in has changed markedly since the Charities and Trustee Investment (Scotland) Act was passed in 2005; it is for this reason that SCVO welcomes the opportunity to review Scottish charity law. However, the consultation presents a major missed opportunity to protect and enhance public understanding and trust in the collective reputation of charity in Scotland; what we would call the ‘charity brand.’

13 years on from the current legislation coming into force, we believe that the review should look at broader issues concerning the existing regime of charity regulation, the definition of a modern charity and a renewed definition of public benefit that would enable OSCR to be the best and most effective regulator possible and protect the ‘charity brand’ for years to come.

About us

The Scottish Council for Voluntary Organisations (SCVO) is the national body representing the third sector.There are over 45,000 voluntary organisations in Scotland involving around 138,000 paid staff and approximately 1.3 million volunteers. The sector manages an income of £5.3 billion.

SCVO works in partnership with the third sector in Scotland to advance our shared values and interests. We have over 2,000 members who range from individuals and grassroots groups, to Scotland-wide organisations and intermediary bodies.

As the only inclusive representative umbrella organisation for the sector SCVO:

• has the largest Scotland-wide membership from the sector – our 2,000 members include charities, community groups, social enterprises and voluntary organisations of all shapes and sizes
• our governance and membership structures are democratic and accountable - with an elected board and policy committee from the sector, we are managed by the sector, for the sector
• brings together organisations and networks connecting across the whole of Scotland
• SCVO works to support people to take voluntary action to help themselves and others, and to bring about social change.
• Further details about SCVO can be found at www.scvo.scot.

Contact

Paul Bradley

Scottish Council for Voluntary Organisations,

Mansfield Traquair Centre,

15 Mansfield Place, Edinburgh EH3 6BB

Email: politicalengagement@scvo.scot

Tel: 0131 474 8000

Web: www.scvo.scot