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Mandatory Public Benefit Reporting as a Basis for Charity Accountability: Findings from England and Wales

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Abstract

Charitable status is inherently linked in many jurisdictions with the requirement that an entity must be established for public benefit. But, until recently the public benefit principle had relatively little impact on the operations of most established charities. However, in England and Wales, reforms linked to the «Charities Act 2006» led to a new requirement for public benefit reporting in the trustees’ annual report (TAR) of every registered charity. This new narrative reporting requirement had the potential to affect the understanding of accountability by charities. The paper investigates the impact of that requirement through a study of over 1,400 sets of charity reports and accounts and subsequent qualitative work with trustees and others involved in preparing TARs.

Résumé

Dans de nombreuses juridictions, le statut d’organisation caritative requiert que l’entité siot établir pour l’avantage publique. Mais, jusqu’à récemment, le principe d’avantage publique avait relativement peu d’impact sur les opérations de la plupart des organisations caritatives déjà établies. Cependant, en Angleterre et au Pays de Galles, des réformes lieés a la loi «Charities Act 2006» ont requis l’inclusion d’un rapport d’avantage public au sein du rapport annuel d’administration (RAA) de toutes les organisations caritatives déclarées. Cette nouveau obligation d’inclure un compte-rendu pouvait transformer la conception que les organisations caritatives se faisaient de leur responsabilité. L’article cherche à établir l’impact de cette nouvelle obligation sur la base d’une étude de plus de 1 400 rapports et comptes d’organisations caritatives d’une part et du travail qualitatif des administrateurs et autres intervenants dans la préparation des RAA

Zusammenfassung

In vielen Jurisdiktionen geht der gemeinnützige Status automatisch mit der Bedingung einher, dass eine Einrichtung zum öffentlichen Nutzen bestehen muss. Doch bis vor kurzem wirkte sich der Grundsatz des öffentlichen Nutzens nur relativ gering auf die Geschäftstätigkeiten der meisten Wohltätigkeitsorganisationen aus. In England und Wales führten Reformen in Verbindung mit dem Charities Act 2006 (Gesetz über die Wohltätigkeitsorganisationen) jedoch dazu, dass eine jede eingetragene Wohltätigkeitsorganisation in ihrem jährlichen Treuhänderbericht über den öffentlichen Nutzen berichten muss. Durch diese neue Berichterstattungspflicht konnte das Verständnis der Wohltätigkeitsorganisationen in Bezug auf die Rechenschaftspflicht beeinflusst werden. In dem Beitrag werden die Auswirkungen dieser Berichterstattungspflicht anhand einer Studie von über 1400 Geschäftsberichten von Wohltätigkeitsorganisationen und mit Hilfe anschließender qualitativer Arbeit mit den Treuhändern und weiteren Personen, die an der Erstellung der Treuhänderberichte beteiligt waren, untersucht.

Resumen

El estatus de organización benéfica está vinculado inherentemente en muchas jurisdicciones al requisito de que una entidad debe estar constituida para el interés público. Pero, hasta hace poco, el principio del interés público tenía relativamente poco impacto sobre las operaciones de la mayoría de las organizaciones benéficas establecidas. Sin embargo, en Inglaterra y Gales, las reformas vinculadas a la Ley de Organizaciones Benéficas de 2006 (Charities Act 2006) llevaron a un nuevo requisito de notificación del interés público en el informe anual de los administradores (TAR, del inglés trustee’s annual report) de cada organización benéfica inscrita. Este nuevo requisito de notificación narrativa tenía el potencial de afectar la comprensión de la obligación de rendir cuentas por parte de las organizaciones benéficas. El documento investiga el impacto de dicho requisito a través de un estudio de más de 1.400 conjuntos de informes y cuentas de organizaciones benéficas y el posterior trabajo cualitativo con los administradores y otros implicados en la preparación de los informes anuales de los administradores (TAR).

摘要

在许多司法管辖区,慈善资格与实体必须针对公共利益创办的要求内在关联。但是,公共利益原则直到最近仍对大部分现有慈善组织的运营产生相对很小的影响。然而,在英格兰和威尔士,2006年《慈善法》相关改革的新要求使得每个注册慈善组织应在受托人年报(TAR)中披露公共利益。本全新叙述报告要求会潜在影响慈善组织的可说明性理解。通过对超过1400套慈善组织报告和帐户,以及与受托人和其他参与准备TAR的随后定性工作进行研究,本论文调查了该要求的影响。

ملخص

وضع الأعمال الخيرية يرتبط بطبيعته بالعديد من السلطات القضائية لتطبيق القانون مع مطلب أن يتم إنشاء كيان للمنفعة العامة. لكن، حتى وقت قريب كان مبدأ المنفعة العامة له أثر ضئيل نسبيا˝ على عمليات الأعمال الخيرية الأكثر رسوخا˝. مع ذلك، في إنجلترا وويلز، إرتباط الإصلاحات بقانون الأعمال الخيرية لسنة 2006 أدى إلى متطلبات جديدة للإبلاغ عن المصلحة العامة في تقرير الأمناء السنوي (TAR) لكل أعمال خيرية مسجلة. كان لهذا المطلب للإبلاغ بالتفاصيل الجديد القدرة على التأثير في فهم المساءلة من قبل الأعمال الخيرية. البحث يفحص أثر هذا المطلب من خلال دراسة لأكثر من 1400 مجموعات من تقارير و حسابات الأعمال الخيرية والعمل النوعي اللاحق مع الأمناء وغيرهم من المشاركين في إعداد تقرير الأمناء السنوي (TARs).

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Notes

  1. The term ‘charity trustees’ is used in UK legislation to refer to those who serve on the board of a charity, whatever the charity’s legal structure (trust, association, company, etc.)

  2. Charities Act 2011, s162 (previously Charities Act 1993, s45).

  3. SI 2008/629—regs 40(2)(b) and 40(2)(c)(ii).

  4. Charities Act 2006, ss.1–5 (now consolidated in Charities Act 2011 ss.1–6—so subsequent legal references are given to the 2011 Act).

  5. The first substantive case was Jones v Williams (1769) 2 Am 651.

  6. Charities Act 2011, s.4(3).

  7. Independent Schools Council and Charity Commission and others [2011] UKUT 421 (TCC)—hereafter ‘the ISC case’ and HM Attorney General and Charity Commission and others—Upper Tribunal (Tax and Chancery) case FTC/84/2011.

  8. Charities Act 2011, s.4(2). Previously it had been widely understood in case law that charitable purposes under the former first three heads (poverty, education, religion) were for the public benefit.

  9. Charities Act 2011, s.14.

  10. Charities Act 2011, s.17.

  11. Charities Act 2011, s.17(5).

  12. Now in Charities Act 2011 s.162.

  13. The Charities (Accounts and Reports) Regulations 2008 SI 2008/629.

  14. See note 7.

  15. The upper income limit for R&P accounting was later increased to £250,000—see note 20. The provision is now in Charities Act 2011, s.133.

  16. The requirements—under the Charities (Accounts and Reports) Regulations 1995—took effect for financial years starting on or after 1 March 1996—i.e. years ending February 1997 onwards. The law allows 10 months after year end for accounts to be filed with the Charity Commission so the impact was from 1998 onwards.

  17. SSI 2006/218.

  18. At the time of the study the thresholds were in the Charities Act 1993 as amended by the Charities Act 2006—they are now consolidated in the Charities Act 2011, s.30(2)(d), s.145(1), s.133 & s.144(1)(a).

  19. The abbreviation £K denotes multiples of £1,000.

  20. A higher registration threshold of £100K applies to charities in certain sectors which were formerly excepted from registration: this includes many churches and also armed forces charities.

  21. This R&P upper limit was increased from £100 to £250K income for financial years ending April 2009 onwards, but many of the AR&As in this study were for the financial year 1.4.2008—31.3.2009 and were thus subject to the earlier limit. So it was felt £100K was a suitable boundary for this study.

  22. The aggregation is only used for illustrative purposes—it is not representative of all registered charities because in the overall sample larger charities were represented proportionately more often than smaller ones. However, as the larger charities show higher levels of compliance, this has the effect of overstating rather than understating the overall compliance.

  23. Evidence of Sam Younger (Chief Executive of the Charity Commission)—House of Commons Public Administration Select Committee, 25 October 2011: answer to Q110 indicates that the Commission had not to date been conducting random reviews of accounts filed.

  24. Charities (Accounts and Reports) Regulations 2008, regs 24(g)(iii), 25(h)(iii), 31(j)(iii).

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Acknowledgments

The authors acknowledge financial support from the Charity Commission for England & Wales for the both phases of the study reported. However, the conclusions are drawn from the authors’ analysis and do not necessarily reflect the views of the Commission. The authors also acknowledge the helpful comments of various colleagues and conference participants on earlier drafts, and the suggestions of the Voluntas referees.

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  1. Centre for Voluntary Sector Research, Sheffield Hallam University, Stoddart Building, City Campus, Sheffield, S1 1WB, UK

    Gareth G. Morgan & Neil J. Fletcher

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  1. Gareth G. Morgan
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Correspondence to Gareth G. Morgan.

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Morgan, G.G., Fletcher, N.J. Mandatory Public Benefit Reporting as a Basis for Charity Accountability: Findings from England and Wales. Voluntas 24, 805–830 (2013). https://doi.org/10.1007/s11266-013-9372-7

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