The ICAEW have responded to a consultation on Charity Sector Annual Returns

You may recall a recent Charity Commission (‘CC’) consultation where they sought views on the expansion of the data required to be entered into the Annual Return that charities are required to complete each year, when submitting their annual accounts.

The CC was proposing more detailed information to be submitted in order to ‘better identify risks and understand the sector’.?However ICAEW have responded to the CC’s consultation raising concerns about unnecessary red tape, data reliability and confusion about the information being sought.

The ICAEW was concerned that proposals for charities to submit more detailed information in their Annual Returns could disproportionately add to their workload and may not serve the CC’s ambition to better identify risks in the sector as effectively as possible.

What is the current position?

Currently, all charities with yearly incomes of ￡10,000 or more must complete an online Annual Return, a process largely unchanged since 2018, within 10 months of the end of their financial reporting period.?A formal consultation ?launched in June 2022 was proposing to update the question set that charities will need to complete from 2023 onwards as part of its ambition to become a more data-driven regulator.?

Proposals

The Charity Commission says its objective is to ensure that the data it gathers allows it to better identify risks and problems in the sector, helps the public make informed and confident choices about charities, and provides a greater understanding of the sector to broader stakeholders including policymakers, researchers and the public.

As part of the proposed overhaul, charities would be required to answer a greater number of questions, including their reliance on certain types of income, although the Commission maintains that in many cases these have been simplified and clarified, aided by an interactive glossary.?

The Annual Return will also ask for more information on roles and responsibilities, governance, controls and different organisational structures in charities, as part of a proposed beefing up of controls. Details of staffing numbers and payroll costs will, the Commission believes, allow the public and others to consider charities’ use of resources and their capability to deliver certain types of activity. The new return is due to be launched in 2023.

What is the additional benefit being sought?

The Commission says the data will also help policymakers and grant-givers identify geographic areas that are comparatively underserved by charitable work and allow funders to make decisions that help ‘level-up’ such ‘charity deserts’.

Helen Stephenson, Chief Executive of the Charity Commission, said the Annual Return is a crucial tool that helps charities account for their work. “It’s important we get the questions right, but also that we keep the burden on charities completing the return proportionate.”

At the consultation launch, Stephenson said: “It will allow us to make more detailed, richer information about the sector available, which in turn can inform the public and funders in making better informed decisions about which charities to support.”?

What concerns did the ICAEW have?

The ICAEW questioned the proposal that the Commission should be able to add a question in response to specific events and have flexibility to remove questions each year. [ICAEW] “We do not believe an annual return is a logical tool to use for obtaining information on an urgent basis, for obvious reasons.?

“We believe that it is an appropriate tool for obtaining formal information, and that a high degree of stability is important, so that information can be compared over a period of years and that users know what to expect and can use systems that may have been adapted for the purpose.”

The Directory of Social Change (DSC)? noted that, while it supports more flexibility, “the cost-benefit of additional questions should be justified, and new questions only added if there is a clear benefit and proportionate burden on preparers.”

In addition to publishing details in advance of which questions have been selected in that year and the rationale, DSC is also calling for clear guidance about ‘what’s new for 2023’ to explain to preparers whenever substantial changes are made, to minimise confusion.

ICAEW is also calling on the Commission to iron out inconsistencies with terminology and suggests that the purpose of the questions needs to be explained. “Improved clarity may lead to more complex definitions that could result in more analysis and work being required by charities,” ICAEW warns. “Is what the Commission needs to know sufficiently important to merit this, or could there be a simpler way?

“A distinction needs to be made between information that could help the Commission better understand trends in the sector and information that may be used for regulatory/enforcement purposes. In the first case, it may not be necessary for charities to resolve every potential ambiguity/uncertainty or to gather concrete evidence to verify answers, whereas the onus is higher in the second case,” ICAEW says.

ICAEW’s response includes comments on several specific questions raised in the proposed annual return, including on questions relating to spending outside England and Wales.

The National Council for Voluntary Organisations (NCVO), meanwhile, has raised questions about the reliability of data, potential duplication between the proposed new questions and the trustee annual report and the risk of confusion about the information being sought.?

“We recognise the value of transparency in driving trust in our sector, however, every additional question would increase workload for data gathering and accuracy checking. This consultation comes at a time when the sector faces significant challenges and demands on capacity.”