Strengthening Scottish charity law: analysis of engagement responses

7. Proposal 5

Context

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

7.2 Proposal summary: All charities in Scotland are under a legal duty to prepare annual reports and accounts, and submit these to OSCR. Failure to do so can be regarded as misconduct. There are currently a number of charities where OSCR does not have up-to-date reports and accounts - some of which have never submitted accounts. It is thought that some charities no longer exist but have failed to notify OSCR to be removed from the Register.

7.3 OSCR endeavours to understand and pursue defaulting charities, but with limited return. While OSCR has a legal power to appoint someone to prepare accounts for a charity, and has the power to make inquiries into charities, it can only use these powers if it has current information on where the charity trustees or principal office is.

7.4 2019 Consultation response summary: The vast majority of respondents reported that OSCR should be able to remove charities from the Scottish Charity Register if they have persistently failed to submit annual reports and accounts (87%). Almost three-quarters of respondents reported that if a charity failed to comply with a positive direction to prepare annual reports and accounts, that this should be classed as trustee misconduct.

Question 12

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

7.5 Around 90% of online survey respondents answered Question 12.

7.6 There was support expressed across the online survey responses for OSCR to assess the failure to submit annual reports and accounts on a case-by-case basis. This would be with a view to understanding whether there were any legitimate reasons a charity might have for non-submission or late submission.

Range of factors to be considered

7.7 In terms of factors that would need to be considered to define "persistent" failure to submit annual reports and accounts, these were most commonly framed as:

• Failure to respond to, engage with, or act on OSCR's communication (i.e. reminders, adequate prior warning, offer of support).
• Failure to comply with a positive direction (e.g. compelling trustees to prepare a trustees' annual report and accounts but no report or accounts were forthcoming).
• Previous negative regulatory history with OSCR or another regulator.

Two main viewpoints

7.8 Where made explicit in the response, two main views were provided on how to define "persistent", with a few noting both situations as relevant:

• A single year's report and accounts which were not lodged despite reminders or formal warnings being issued by OSCR (i.e. it does not need repeated failure to file accounts over more than one financial year before sanctions should arise) – over one-quarter of respondents.
• Multiple occasions where annual reports and accounts have not been submitted and/or have been submitted very late. This was typically framed in terms of two or three consecutive years, or a pattern of submission of inadequate documents and/or no reports and accounts submitted over an extended time period (e.g. a timeframe of five years was most frequently mentioned) – over one-third of respondents.

Wider themes

7.9 Wider common themes that emerged were around:

• The need for OSCR to better understand whether there were any mitigating circumstances or factors that it would consider reasonable to extend a degree of flexibility and an extended deadline to charities.
• The need for OSCR to be satisfied that there has been misconduct. Here, the feedback highlighted the importance of regular dialogue between OSCR and charities that were experiencing difficulties in lodging annual reports and accounts.

Question 13

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

Two main steps for OSCR to take

7.10 The general consensus among online survey respondents was that the following steps should be taken by OSCR:

1. The first step should be for OSCR to make reasonable attempts to establish contact with the charity (i.e. to engage with the main contact as well as other trustees/senior managers as appropriate).

In order to: engage and ascertain the reason for non-submission (e.g. administrative oversight, any mitigating factors); to issue standard reminders prior to the deadline to encourage compliance; and to issue informal warnings; and to offer/signpost to support, advice and guidance before sanction. It was considered important that OSCR was able to determine whether the "failing is a charity's capacity and capability or an actual contempt for the law".

2. If the first step resulted in a failure of the charity to engage or respond to contact from OSCR, then the vast majority of online respondents reported that OSCR should have the power to issue a positive direction to the charity to prepare and submit annual reports and accounts within a fair and reasonable revised timescale (circa 75% - this percentage is based on the total number of respondents that provided an explicit "yes", "no" or "it depends" as part of their response to the sub-questions within Question 13 i.e. N=68).

This would allow charities to be able to remedy the situation. These respondents were clear/explicit in their responses that a positive direction to provide accounts and reports should always be required before progressing to the removal of charities from the Scottish Charity Register.

7.11 The main message was that failure to comply with the positive direction should result in a charity being removed from the Scottish Charity Register (e.g. following the issue of a formal warning/notice that a charity is "in danger in committing an offence" and to "understand the gravity of the situation"). Failure of a charity to fulfil its legal duty to prepare an annual report and accounts was not viewed positively for the sector as a whole – "This information is important both in terms of transparency and public trust and OSCR's regulatory function".

7.12 In order to be able to undertake the aforementioned steps, the importance of OSCR having access to up-to-date contact information for charities was considered crucial. OSCR would need to exhaust all possible options to establish contact (e.g. through internet searches, engagement with others such as other regulators, TSIs, local government).

Main themes expressed by those who felt that a positive direction to provide accounts was not always required first

1.13 Around one-fifth of online survey respondents explicitly stated "no" - a positive direction to provide accounts would not always be required before a charity was removed from the Scottish Charity Register. The main feedback was that:

• Charities know they have to submit accounts when they register – it should not need a positive direction to remind charities of their mandatory/legal obligations/duties. Some noted that the issue of reminders might be sufficient.
• That OSCR could use existing powers under Section 45 of the 2005 Act.
• That there would be no purpose served in a positive direction if OSCR does not have access to up-to-date contact information for charities.

"Where we cannot, through internet searches, find the current address of the charity or contact details for current trustees we would be unable to engage with the charity and there would be no purpose served in issuing a positive direction to prepare and submit accounts on the out of date address. In such cases, taking all factors into account, we would remove the charity without first issuing a positive direction". OSCR

Wider point raised

7.14 Finally, a wider point raised by some respondents was that where it was suspected that a charity no longer exists, that there were grounds for removal from the Scottish Charity Register (based on efforts made to locate and contact trustees of that charity prior to removing them).