ICAS calls for comprehensive review of Scottish charity regulation
We have called for a comprehensive review in our response to the Scottish government’s recent consultation on Scottish charity regulation.
Scoping the future review
In a public consultation, which closed on 22 July, the Scottish government asked the charity sector and sector stakeholders for their opinions on whether a review of charity regulation is needed. It also asked for views on what topics should be covered by the review.
The review is expected to introduce further changes to the way Scottish charities are regulated. We also expect that it will build upon the changes made to Scottish charity law by the Charities (Regulation and Administration) Act 2023, which are still being rolled out.
ICAS responds
We have responded to the consultation, stating that a comprehensive review is required. We feel that it’s important to build on the reforms arising from the more limited review (focused on OSCR’s powers) that led to the 2023 Act.
Charities are operating in a world that has changed significantly since the implementation of the Charities and Trustees Investment (Scotland) Act 2005, and the pace of change is only expected to increase.
The 2005 Act established OSCR as a new statutory regulator, along with initiating a more formal and robust regulatory framework for Scottish charities. However, given the time that has passed since then, we believe that a future review of charity regulation should be both comprehensive and forward-looking.
It should consider what changes are needed to ensure that charity regulation will be effective in meeting the future needs of the charity sector, service users and beneficiaries; and in maintaining public trust and confidence in the sector.
Key areas for reform
Within the consultation, the Scottish government asked if the charity test (including the public benefit test) and charity trustee duties, should be covered by the review. We are supportive of these fundamental principles of the 2005 Act being included.
The Scottish government has already committed to looking at the following technical areas:
- The reorganisation of statutory and Royal Charter charities
- Incorporation into a Scottish Charitable Incorporated Organisation (SCIO)
- Audit income threshold
We are pleased that these areas have been selected for review, particularly the audit threshold in the Charities Accounts (Scotland) Regulations 2006. We have played a key role in highlighting the range of challenges charities requiring an audit are experiencing and the need for threshold modernisation.
We are also calling for other aspects of the 2006 Accounting Regulations to be included within the scope of the review. There should be a strategic approach to reviewing the external scrutiny requirements for Scottish charities, encompassing both the independent examination and audit regimes.
The reorganisation of statutory and Royal Charter charities
The trustees of charities who are not able to use the consents regime to make structural and other changes, can apply to OSCR for permission to reorganise under the 2005 Act. However, for statutory and Royal Charter charities unable to reorganise under the 2005 Act reorganising is a more complex, lengthy and costly process.
Further information on the consent’s regime and reorganisations under the 2005 Act is available in our guidance for ICAS members acting for Scottish charities.
Incorporation into a Scottish Charitable Incorporated Organisation (SCIO)
Reform is needed to make incorporation into a SCIO by charitable trusts and charitable unincorporated associations (who don’t have their own legal personality) more straightforward. Difficulties can arise where the trust or unincorporated association has property assets because the title to those assets sits with the charity’s trustees.
Audit income threshold
A Scottish charity, or a group headed by a Scottish charity, must have its accounts audited if it has a gross income of £500,000 or more in any financial year. An audit will also be required if the aggregate value of assets (before deduction of liabilities) at the end of the financial year exceeds £3,260,000, or the charity or charitable parent’s constitution requires one.
We have been campaigning for the audit threshold to be reformed, including increasing the financial criteria and introducing a year’s grace where there is a ‘one of breach’ of either size criterion.
Charities that require an audit today are less sophisticated organisations than they were in 2006, when the charity accounts regulations were first implemented. Consideration therefore needs to be given as to whether an audit is the appropriate level of scrutiny for all charities that meet the financial criteria for audit.
Coupled with increasingly complex auditing standards (designed for much larger entities) and a competitive audit market making it challenging to appoint an auditor, reform is much needed.
Read our full Scottish charity regulation consultation response for more detail.
