30 March 2016

The Office of the Scottish Charity Regulator (OSCR) is moving to Targeted Regulation of charities – what does this mean?

• Annual Returns will follow a new format. The supplementary monitoring return is no more. Instead, some questions need only be answered if the charity has an income of £25,000 or more, and further questions apply if the income is £250,000 or more.
  
  
  
• Charity Accounts submitted after 1 April 2016 will be published by OSCR, redacting personal information prior to publication. Currently, this only affects Scottish charitable incorporated organisations (SCIOs) and charities with an income of £25,000 or more.
  
  

• Notifiable Events should be reported to OSCR. Unless you are a registered social landlord, reporting to the Scottish Housing Regulator, or a charity registered with and reporting to the Charity Commission, OSCR wants you to report any event that threatens to have a significant impact on the charity or its assets.
  
  It is for the charity trustees to decide if an event is notifiable, taking account of the size and nature of the charity – reporting to OSCR as soon as practicable:
  
  
• The event and how that has (or will) impact on the charity
  
• Action, if any, that has been taken
• Further actions in place to address the event
• Plans to mitigate or prevent similar events
  

The events that OSCR considers notifiable are:

• Fraud or theft – including the relevant police report 
• Substantial financial loss – as a guide, 20% or more of the charity’s income is suggested to be “substantial”
• Incidents of abuse or mistreatment of vulnerable beneficiaries – this could include allegations of such incidents 
• Not enough charity trustees to make a legal decision – where a charity has too few trustees to form a quorum
• The charity has been subject to criminal investigation or investigation by another regulator or agency; sanctions have been imposed or concerns raised
• Significant donation (money or other property) received from an unknown or unverified source – as a guide, a donation worth £25,000 or more is suggested as “significant” 
• Suspicions that the charity or its assets are being used to fund criminal activity 
• A charity trustee acting while disqualified

Clearly, the trustees may wish to investigate such an event initially, and in various cases report matters to the police, prior to reporting to OSCR – so as to be able to explain their actions to date and plans for the future in the context.

OSCR will not follow up all reports of notifiable events because, if the trustees are addressing the issue appropriately, then there may be no action for OSCR to take. However, further information may be requested by OSCR once a report has been made and it should be remembered that OSCR has a general power to make inquiries which might be triggered by a notifiable event report. This links to the new focussed approach to regulation – see below.
 

• A focussed approach will be taken to regulation, with OSCR focussing on “the most important issues that affect the Scottish charity sector and on those that have the potential to undermine public confidence about charities.” Therefore, OSCR intends to prioritise its activities to address issues they identify as significant – currently these are:

• People acting as charity trustees while disqualified
• Charity trustees acting improperly and adversely impacting the charity’s assets or beneficiaries
• A charity being used for, or being the victim of, criminal activity
• A charity operating in a fragile territory
• Repeated failure by a charity to meet the requirements for reporting to OSCR
• Charities taking actions without seeking prior OSCR consent 
• Charities that do not provide public benefit
• Individuals or organisations who inappropriately benefit from charity status
• Charities at the margins of the charity test or who have complex and/or novel structures
• Bodies or individuals who misrepresent themselves as charities
   

• Further changes are likely as OSCR continues to pursue its targeted regulation goals. For example, looking further at a trustee database to be held internally at OSCR (not published on the register) and tackling those charities that persistently fail to submit annual returns and accounts to OSCR.
   

From our experience of other regulators who require serious incident reports, it is perhaps to be expected that notifiable event reports will inform the focussed approach that OSCR takes. It is to be hoped that charities who report appropriately are not penalised for doing so. However, a charity that repeatedly requires to report events may find itself the subject of closer scrutiny.

It is important that charity trustees are alert to the changes and, in particular, keep track of potential notifiable events so that they can address such issues promptly, meeting their statutory duties to their charity, as well as OSCR’s requirements.

If you require further information or assistance with regulatory compliance, please do not hesitate to contact Marion Davis.

Marion Davis
Senior Associate
Accredited Specialist in Charity Law
T: 0141 221 8012
E: mda@bto.co.uk