Strengthening Scottish charity law: analysis of engagement responses

Executive Summary

1. This Executive Summary presents an overview of the main themes arising from the follow-up engagement on proposals to Strengthen Scottish Charity Law. The engagement process ran from 20 December 2020 to 19 February 2021.

2. During early 2019, the Scottish Government launched a three-month public consultation on proposed changes to Scottish Charity Law. That consultation focused on 10 proposals for modernising charity law put forward by the Office of the Scottish Charity Regulator (OSCR) based on its experience of regulating charities since legislation was introduced in 2005. The proposals broadly focused on improvements to charity law that would increase transparency and accountability in order to maintain public trust and confidence in charities and OSCR.

3. The Scottish charity law: consultation analysis report was published in July 2019. Over 300 consultation responses were received to the consultation, and the majority of respondents supported all 10 proposals. However, the responses also highlighted areas where greater consideration and discussion was needed before the Scottish Government could decide on the next steps.

4. A follow-up engagement process was undertaken to further develop and refine the proposals consulted on in 2019. This was with a view to providing stakeholders, including the charity sector, with a further opportunity to help the Scottish Government formulate a position on the way forward with regards to Scottish Charity Law. The latest engagement did not seek to repeat the earlier consultation process progressed by the Scottish Government. Rather, it sought wide-ranging views and feedback on specific issues raised under six of the proposals, to inform the Scottish Government approach. The engagement process included the following strands of activity:

• An online survey hosted on Citizen Space – this attracted 100 responses.
• Roundtable discussions hosted by Scottish Council for Voluntary Organisations (SCVO) and Association of Chief Officers of Scottish Voluntary Organisations (ACOSVO).
• A roundtable discussion with members of OSCR's Charities Reference Group.
• Third Sector Interfaces (TSI) in Scotland were invited to host discussions with their members. Nine responses were received, including a joint response from three TSIs.

5. The findings of the survey and wider engagement process will be used by the Scottish Government to finalise and publish its proposals for the review of Scottish Charity Law.

Strand A: Enhancing transparency and accountability in Scottish charities

Proposal 1 – Publishing annual reports and accounts in full for all charities on the Scottish Charity Register

Q1: In what circumstances should there be a dispensation to full annual reports and accounts publication?

• Mixed views were provided to Question 1. Just over half reported that there should be no dispensation to full annual reports and accounts publication, while the remainder reported that there could be circumstances that necessitate a dispensation.
• A key theme was that no dispensations would improve transparency and accountability across the charity sector, and increase public trust and confidence in the governance of charities.
• An alternative viewpoint was that dispensations could be granted in exceptional circumstances but that full publication should be the default position. Individual/personal safety and the security of premises were the main circumstances identified for dispensation. Guidance on dispensation was considered key, including a non-exhaustive list of examples. The process for requesting dispensation should be widely publicised, transparent and clear.

Q2: If dispensations are made, should some form of annual reports and accounts always be published, for example in a redacted or abbreviated form?

• A majority agreed that some form of annual reports and accounts should always be published. Similar to points raised above, the main argument put forward was that this would strengthen openness and transparency of the charity sector (circa 72%).
• Any personal or sensitive information should be redacted to mitigate risk and uphold rights to privacy and safety. Ensuring redacted or abbreviated reports and accounts were meaningful for the reader and aided understanding was considered crucial. A wider concern raised was around the extent to which redaction might cause additional work for charities.

Proposal 2 – An internal database and external register of charity trustees

Q3: What information should be included in an internal database?

• There should be a clear purpose for collecting and using the information held on an internal OSCR database. It would also be important to identify the type of information deemed "essential" to allow OSCR to fulfil its duties effectively.
• There was broad support that an internal database should contain information such as name, date of birth, home address, email address, and the names of any person removed as a trustee following an inquiry by OSCR under the 2005 Act or preceding legislation (circa 68%). Wider suggestions were also put forward for consideration.
• Ensuring information in an internal database was relevant, accurate and up-to-date, as well as appropriately stored, protected and controlled was viewed as critical.

Q4: How should the internal database information be kept up to date?

• Keeping information in an internal database up-to-date was considered vital, and the process should be manageable for OSCR, the charity sector, and for smaller organisations in particular.
• The main theme was that the best and most effective way for information in an internal database to be kept up-to-date was through Trustee Annual Return updates (circa 57%).
• Having a mix of options was, however, also viewed as helpful (circa 34%). For example, allowing charities to provide updated information throughout the year (i.e. through OSCR's online system), and/or where appropriate within a certain timeframe of the change happening.
• It was reiterated that OSCR should make it clear how the information provided would be used (and how long it would be retained for).

Q5: What information should be included in a public list of charity trustees?

• A majority expressed strong support for a reduced external register for public use (i.e. less information than held in an internal database), 75%. There was broad support for the proposal that the public list should include trustee names (including removed trustees) and principal office or trustee contact address against each charity.
• A relatively large proportion of respondents went on to make wider suggestions for information a public list of charity trustees could contain. For example: date of birth, designation, charity email address, list of other charitable appointments were mentioned to varying degrees.
• Wider points raised noted that: appropriate safeguards would be required to protect the privacy of trustees and prevent any data breaches or fraud; and the level/type of information included in a public list might act as a barrier to trustee recruitment.

Q6: In what circumstances should there be an exception to being included in a public list?

• A majority reported that there might be circumstances where there should be an exception to being included in a public list of charity trustees (almost two-thirds). The points raised were largely the same as those raised at Question 1 above.
• The process for requesting an exception to being included in a public list should be widely publicised, transparent and clear.
• More general points raised included the importance of: clearly defining the grounds on which a dispensation might be granted; the development of appropriate training and guidance for the sector, including examples of what would constitute a successful request for an exception; outlining how long the exception was likely to last; and putting in place a mechanism for regular review.

Proposal 2 – List of disqualified trustees (removed by OSCR)

Q7: How long should a disqualified trustee remain on the list?

• Views were relatively mixed on the length of time a disqualified trustee should remain on the list, albeit there was a leaning towards this being time-limited.
• Indeed, the most common response was that it should be time-limited. This ranged from a period of six months to 25 years, and everything in between. The average length of time a disqualified trustee should remain on the list was reported as around eight years. This was followed by those that reported it should be for the term of their disqualification/until conviction is spent.
• A "scale" could be used to guide how long a disqualified trustee should remain on the list. The length of time could be dependent on the nature of the disqualification (i.e. proportionate to the misdemeanor).

Q8: What information should be available in the disqualified trustee list?

• The most common suggestions were a mix of the following: name of trustee; date of birth (i.e. month and year); charity details; other charity/company the trustee was involved in prior to disqualification; date of disqualification order; reason for disqualification; and period of disqualification.
• Some support was expressed for the list to contain the minimum level of information needed to avoid the risk of confusion between different people with the same name.

Some support was also expressed for a "search" facility on OSCR's website.

Proposal 3 – Criteria for automatic disqualification of charity trustees and individuals in senior management positions in charities

Q9: What factors should be considered in defining a 'senior manager'?

• There was recognition of the inherent difficulty in defining a senior manager. Some organisations might find this more difficult than others, and the term could be "open to interpretation". That being said, a clear definition was considered crucial.
• The function of the position was generally considered to be of most relevance rather than the job title. It was largely considered appropriate to identify the person(s) in operational roles and positions of power/influence/decision-making within an organisation. This was typically framed in terms of functions and activities such as finance, HR, strategic and operational control and oversight, subject to the direction of trustees, etc.

Strand B: Increased regulatory powers for OSCR

Proposal 4 – A power to issue positive directions to charities

Q10: If a positive power of direction were to be specific, what areas should be subject to the power, or are there any areas that should not fall within the power?

• The main suggestions of areas that should be subject to the power to issue positive directions to charities were governance, finance and financial controls, health and safety, and safeguarding.
• The general consensus was that more operational matters of charities should not fall within the power. Where specific examples were provided, this included delivery of a charity's operational activities, policy development, HR, staffing arrangements/employment.
• Further, it was noted that OSCR should not become involved when the area is relevant to trustee duties, unless there is an issue of non-compliance with trustee duties (e.g. submitting accounts, updating annual database, responding to legitimate queries).

Q11: How long should a charity have to comply? What should be the consequences of non-compliance with a positive direction?

• OSCR should have sufficient flexibility in the application of its powers. The length of time a charity should have to comply with a positive power of direction could depend on the context and factors such as: the nature, scale and severity of the issue(s) facing a charity; and the size and capacity of a charity (i.e. staffing level).
• There was reference to various timescales – however, the main point was that the timescale should be realistic and proportionate to the actions required (with milestones identified).

Proposal 5 – Removal of Charities from the Scottish Register that are persistently failing to submit annual reports and accounts and may no longer exist

Q12: What factors need to be considered to define 'persistent' failure to submit annual reports and accounts?

• Persistent failure should be investigated in the first instance. It was noted that this highlighted the importance of OSCR having access to an up-to-date internal database of charity trustees.
• There might be valid mitigating factors and circumstances behind why a charity has not submitted its annual report and accounts. This is considered a different scenario to a charity/trustee that are failing to acknowledge/engage with OSCR.
• There was general support for a "strikes" out approach following repeat offences (e.g. two or three years of failing to submit accounts); failing to reply to any direction by OSCR; and failing to get in touch with OSCR to explain any mitigating circumstances.

Q13: What steps should OSCR take prior to a decision to remove? Should a positive direction to provide accounts always be required first?

• There was broad support for a positive direction to provide accounts prior to a decision to remove a charity from the Scottish Register (75%).
• There is clear and strong support for charities to be given a chance to rectify the issue. There could therefore be steps alongside issuing a positive direction – for example, giving charities the opportunity to seek help from a finance professional and/or from a TSI.

Proposal 6 – All charities in the Scottish Charity Register to have and retain a connection in Scotland

Q14: What factors should be considered when defining what 'have and retain a connection to Scotland' means? Does this have to require a physical presence in Scotland, such as an office address or trustee address?

• There was strong support expressed for charities to require a physical presence in Scotland, such as an office address or trustee address (88%).
• However, some others noted that a physical link might not be the best measurement of connection with Scotland given the shift towards more home-working resulting from the coronavirus pandemic (COVID-19). Further, there was feedback that a quota/percentage of trustees might be a better indicator.
• There was general agreement that activities, beneficiaries and fundraising would all be appropriate, and that management and control could be another useful indicator of a connection in Scotland – particularly for organisations whose operations are outwith Scotland (e.g. International Development).