Charity accounts
Section 10 – Preservation of and access to charity accounts and independent reports on accounts
63.Section 44(1)(b) of the 2005 Act requires all charities to prepare a statement of account for each financial year, and section 44(1)(d) requires a copy of the statement to be sent to OSCR. While there is a requirement under section 44(1)(c) for that statement to be independently examined or audited, the rules about submitting the statement of account to OSCR did not originally extend to the report on that statement that is prepared by the independent examiner or auditor under (as applicable) regulation 10(4) or 11(3) of the Charities Accounts (Scotland) Regulations 2006 (SSI 2006/218) (the “
64.Subsection (2)(a)(i) of this section of the Act moves the requirement to obtain a report into the 2005 Act itself. The details of what the report must cover will continue to be specified in regulations. Subsection (2)(a)(ii) of this section of the Act then expands the rule about submitting the statement of account to OSCR so that it also now covers this report.
65.Section 23(1)(b) of the 2005 Act provides that a charity must provide a copy of its latest statement of account to anyone who reasonably requests it. This is expanded by section 11(3) of the Act to also cover the independent report. However, there was originally no requirement for OSCR to retain the statements of account submitted to it under section 44 or to make them publicly available.
66.Subsection (3) of this section of the Act changes that by inserting a new section 45B (public access to charity accounts kept by OSCR). It imposes a duty on OSCR to keep any copy of a statement of account and independent report sent to it under section 44(1)(d) for at least 5 years from the end of the financial year to which the document relates. It further requires OSCR to make such statements of account and independent reports available for public inspection. It is expected that OSCR will make such statements publicly available in the same manner as it does in relation to the Scottish Charity Register, by using its website to make the accounts widely and freely available and that it will publicise those arrangements as it does in relation to the Register. However, the accounts and independent reports will also be available, free, at OSCR’s offices and might also be made available otherwise as OSCR thinks fit.
67.Subsection (2)(b) of this section also inserts a new subsection (4A) into section 44 of the 2005 Act which provides that any regulations made under section 44(4) must be framed so that a charity is not required to include any information in its statement of account that is excluded from its entry in the Register under section 3(4). This is intended to work in harmony with the dispensation mechanism under that section as amended by section 2 (see paragraphs 12 and 13 for further explanation). As at the time of publication of these notes (August 2023), the rules about a charity’s preparation of accounts are contained in the 2006 Regulations, which are made in exercise of the powers conferred by section 44(4). The 2006 Regulations already provide that certain information is not required to be included if the charity is entitled to have that same information excluded from its entry in the Scottish Charity Register. However, some consequential changes and minor adjustments may be needed in order for those regulations to comply fully with the new section 44(4A). This can be achieved under the existing power in section 44(4).
Section 11 – Independent reports: minor and consequential modifications
68.This section of the Act makes a number of consequential changes to the 2005 Act as a result of the change made by section 10(2)(a)(i) of the Act under which the core requirement for an independent examiner’s or auditor’s report is now moved into primary legislation (see paragraph 64 above).
69.Specifically—
Section 4 is adjusted to clarify that any accounts submitted by an applicant wishing to become a charity should also be accompanied (where relevant) by any associated report. This will not be an “
independent report on accounts ” as defined in the Act because that is relevant only to charities, but would cover (for example) an audited report which a company has had to submit to Companies House under section 441 of the Companies Act 2006 but which does not form part of its statement of account.Section 23 is adjusted so that the existing right to a copy of a charity’s latest statement of account (where that request is reasonable) now also extends to the independent report.
Section 44(4) is adjusted to confirm that the ability to make further provision by regulations under that section includes the ability to make further provision about the independent report. While this was already within the breadth of the power, now that the core requirement for the report is included within the section itself, it is considered appropriate to include mention of it for clarity.
Section 106 is adjusted to include an Act-wide definition of the term “independent report on accounts”.
Section 12 – Removal of non-responsive charities for failure to submit accounts
70.Under section 44(1)(d) of the 2005 Act, all charities on the Register are under an obligation to provide a statement of account to OSCR each year. This must first be independently examined or audited. A deadline for submission of charity accounts has been imposed by the 2006 Regulations and, other than in the case of charities that are removed from the Register, is set at 9 months after the end of the charity’s financial year end.
71.Where a charity fails to provide accounts as required, there is a power under section 45 of the 2005 Act for OSCR to appoint a suitably qualified person to prepare the accounts on the charity’s behalf. However, the appointed person would need access to the charity’s records to be able to prepare meaningful accounts, and therefore this power cannot be used where OSCR is unable to make contact with the charity.
72.This section of the Act therefore introduces a new power for OSCR. It applies where a charity has not submitted its accounts, the deadline for submission has passed, the charity has not responded to communications from OSCR in respect of the failure, and accounts have not been prepared (and are not in the process of being prepared) by a suitably qualified person under section 45. In such a case, OSCR can decide that the charity should be removed from the Register. If OSCR concludes that this is appropriate, OSCR must give the charity notice of this intention to remove it.
73.Once a charity is given notice of OSCR’s intended removal, the charity is given 3 months to act. If it makes contact with OSCR in that period, no further action can proceed under this section. There is no stipulation as to the form that the contact must take or what it must include. As such, a phone call would serve to prevent further proceedings just as much as a letter or email would.
74.Where no contact from the charity is forthcoming, OSCR may decide to proceed with removal of the charity from the Register. This is a power rather than something that will happen automatically though: as such, if the charity fails to get in touch but OSCR receives information from a third party which prompts it to reconsider the appropriateness of proceeding, the process can be halted.
75.Under section 71 of the 2005 Act, any decision to proceed with the removal of a charity is one against which there will be review and appeal rights in line with the normal process of the 2005 Act. Further, under section 73(2) of the 2005 Act, the effect of the decision to remove the charity will be automatically suspended until the notice has been served and either the period within which OSCR can be required to carry out a review (i.e. within 21 days of the notice being given) has expired without a review being requested or, if a review is requested, the appeal process has been exhausted.
76.This section of the Act also makes provision for a number of points of detail about how information regarding potential removals is communicated—
Firstly, any notice of intention to remove a charity must set out certain things: specifically, that the criteria in subsection (1) of this section have been met and that the charity risks being removed from the Register unless it makes contact with OSCR within the specified 3 month period.
Secondly, OSCR is required to publish on its website a list of charities which are subject to the risk of removal following the issuing of a notice of intended removal. If, for example, it was determined on appeal that it would be inappropriate to proceed with the removal, that notice would no longer remain in effect and the charity would cease to appear on that list.
Finally, OSCR is also empowered to take any further steps it considers appropriate to draw the notice to the attention of those likely to be affected by it.
77.For most charities, removal from the Register means that the body ceases to be a charity, but it does not cease to exist as an organisation (for example, as a company, a trust or an unincorporated association). The assets that it held as a charity would continue to be protected under section 19 of the 2005 Act, but the organisation itself could otherwise operate as a non-charity. However, in the case of a charity which takes the legal form of a SCIO, section 55(7) of the 2005 Act provides that upon ceasing to be a charity, it ceases to be a SCIO. As such, it cannot simply be struck off the Register without its assets first being dealt with appropriately. Accordingly, in the application of this section of the Act to SCIOs, the power to remove is, instead, a power to take steps to first secure the SCIO’s dissolution and only once that has occurred is there a power to remove it from the Register.
