When public benefit testing of charities in England and Wales finally commenced, only one quarter of the tested charities passed the assessment without further comment or recommendation from the Charity Commission. If you are a Scottish charity more focused on OSCR’s approach, what lessons can you learn from this?

The scores on the doors

OSCR commenced its Rolling Review of charities in Scotland in 2007 with a review of 30 charities, the results of which were published in October 2008.

In Scotland, four out of 30 charities (all independent schools) failed the charity test because they were deemed not to provide public benefit. Each of these charities was issued with a Direction to produce a plan on how they intended to increase public benefit. A further seven charities were issued with Directions to amend their Constitutions. At the end of 2009 OSCR confirmed that all charities that had been issued with Directions had met their requirements to date and that the four charities who failed the public benefit test had until October 2011 when OSCR would make a final decision and their progress would be monitored until then.

Copies of the OSCR findings are available at www.oscr.org.uk/therollingreview.stm.

The lessons from failure

The charities that failed in England and Wales did so primarily because they were unable to meet the following sub-principles:

• ‘the opportunity to benefit must not be unreasonably restricted by ability to pay any fees charged’ and
• ‘people in poverty must not be excluded from the opportunity to benefit’.

In the context of the independent schools and fee charging charities, the sub-plot here seems to be a lack of means-tested bursaries/fee discounts. The Commission describes this as follows:

• "accessibility to benefits needs to be more extensive and targeted"
• "the totality of benefits (provided for those unable to afford the fees) is not sufficient."

In Scotland the reasons cited for failure of the public benefit test were similar, with the conclusions for the four schools that failed all stating that public benefit is not provided ‘due to the fees and charges that are in place, the absence of sufficient mitigation of the impact of these fees and little other benefit being provided in furtherance of its charitable purposes, for which there is no fee or charge’.

This suggests that the key factors to demonstrate when offering subsidies for services are sufficiency and accessibility.

Key steps

Here are a number of steps to consider to help ensure you are prepared for any future challenges and in line with best practice. This public benefit mnemonic may help:

Publish – Publicise your public benefit activities in your Trustees’ Annual Report by considering the inclusion of recent, relevant and real examples. Advertise as widely as possible the availability of bursaries or fee discounts. Circulate positive findings about your charity from independent third parties such as the Independent Schools Inspectorate (ISI) or the Care Quality Commission (CQC).  Consider public benefit in all communications, including newsletters and your website.

Unauthorised and unchecked private benefits and conflicts of interest can threaten charitable status. Ensure that your policies are reviewed, updated where necessary, and monitored regularly.

Benefit – Can you demonstrate better the impact you make on your beneficiaries?  Explore concepts such as outcome evaluation and methodologies such as Social Return on Investment.

Legal principles – Trustees are required to have ‘due regard’ to the public benefit guidance. The Charity Commission has now published a great deal of guidance and its interpretation of the law.  Why not review one of the checklists available in the Commission’s guidance to see how your charity measures up?

Investigate – Are there wider public benefit activities that your charity is undertaking that help to demonstrate that you are meeting the requirements? Public benefit can be a useful prompt to consider your charity’s future strategic direction.

Constitution – Regularly check your charity’s constitution to determine what objects/powers exist, as these establish what the charity can and cannot do.  Beware mission drift or inadvertently undertaking unauthorised activities.

Looking ahead

What to expect

The Charity Commission does not have the resources to undertake periodic public benefit test visits of charities – therefore charities in England and Wales – don’t panic!

However in Scotland OSCR is undertaking a 'rolling review' of its register and is currently halfway through Phase 1b. OSCR expects to complete Phase 1b in January 2011 and so we can expect an announcement from OSCR soon after in relation to the next Phase and the charities that will be involved in this.

The Charity Commission recently announced that, given the current economic recession, charities would be allowed an extended period of five years to demonstrate public benefit.  The reminder in this context that prudent financial management is an essential responsibility of charity trustees was very welcome. In Scotland, OSCR allows charities three years to demonstrate public benefit if they are issued with Directions.