Charity regulation review: consultation analysis

Chapter 1: Purpose of a review

This chapter presents the analysis of four questions which asked stakeholders whether there should be a review of charity regulation, what its purpose should be, and whether stakeholders felt they would have the capacity to contribute to the review.

Q1. Should there be a review of charity regulation?

Over four fifths (83%) of those answering Q1 agreed that there should be a review of charity regulation, while 8% disagreed and 9% were unsure. Similarly high levels of agreement were recorded by both individual respondents (80%) and organisations (85%), and by most types of organisations, including 83% of charities.

Q2. Please explain why you think there should or should not be a review of charity regulation.

Over 80% of respondents answered Q2, with the majority of comments indicating support for a review of charity regulation. Most prevalent was a theme that it is time for a review, though other reasons included concerns about charity governance or a need to strengthen regulation or reduce complexity. Reasons supporting a review of regulation are given first, followed by reasons for not supporting a review, for ease of reading.

Yes, a policy review would be timely

Most prevalent was the theme, raised by many respondents, that a review of charity regulation would be timely. Reasons for this included that current legislation had been in place for some time and it would be sensible, therefore, to undertake a review, or that amendments or updates were required to ensure it is fit for purpose moving forward.

Changes in charities' operating environments were highlighted, such as the impact of the pandemic, increasing funding constraints and rising costs, technological advances, the complexity of compliance, and high-profile cases that had impacted public confidence in charities. It was felt that robust regulation could support charities to address these issues.

“The dynamic nature of the charitable sector, with evolving challenges such as digital fundraising, AI and economic issues, necessitates a regulatory framework that remains relevant. A review will also help promote best practices, balancing necessary oversight with the support charities need to operate effectively. Protecting beneficiaries and ensuring financial sustainability are critical aspects of effective regulation. As the sector grows in number and diversity, regulatory adaptations are crucial to manage increasing complexity. Aligning with international standards and addressing technological advances, such as cybersecurity and online transparency, are also important.” – Aberdeenshire Voluntary Action Third Sector Interface (TSI) and Aberdeen Council of Voluntary Organisations TSI

Yes, to address charity governance

Many respondents also advocated for a review due to concerns over how charities are governed, with some illustrating this point based on their personal experience or perspective. The most common concerns were those related to transparency and accountability of charities. Other issues raised included how operational challenges faced by charity boards, such as those noted above, are handled, views that specific charities are accumulating significant wealth, the perceived proliferation of charities, and concerns about the quality of management boards. This latter concern is described in more detail in Q5.

“With many current challenges charities are facing, this review should ensure that charities continue to operate with transparency and accountability.” – Individual

Yes, to address financial aspects

Consideration of finance related aspects of charities was raised by many respondents, with some calling for a review of the audit threshold (see Q9C). Other aspects of finance mentioned by respondents included:

• A call for audit to only be required for income generated by charities, not restricted funding.
• Introducing a duty and right for auditors and independent examiners to report to the regulator.
• Establishing Scottish charity accounting regulations.
• Clarifying who can act as an examiner for charity accounts and if they require specific qualifications.

Q5 also provides further detail on financial aspects that respondents felt should be covered in any review.

Yes, general agreement

Comments generally endorsing the need for a review were given by many respondents. Reasons included to increase confidence in leadership, to ensure organisational structures were correct, to enable provision of clearer guidance, and a need for regular reviews to be conducted (see Q3 for more detail on the final point).

“Regular reviews ensure that charities remain accountable and transparent in their operations. This helps maintain public trust and confidence. Reviewing regulations can help identify and close loopholes that may be exploited for fraudulent activities.” – Stirlingshire Voluntary Enterprise (SVE)

Yes, need to strengthen regulation

Several respondents felt a review should occur to strengthen charity regulation. Respondents often raised this in relation to the need to consider the quality of charity governance. Concerns around current regulations included that they did little to improve transparency over issues such as major influences acting on charities, such as who any key donations are from and how fundraising money is spent. Perceptions of a lack of intervention by OSCR or that it was not effective in cases where concerns were raised were also noted. One respondent referred to a lack of regulation of social enterprises.

“To strengthen and enhance the role of OSCR we think it is important that the charity regulator has sufficient powers to intervene and deal with concerns and, that where required, it uses its powers and has the power to enforce where a charitable organisation is not adhering to its legal obligations.” – LifeCare Edinburgh

Yes, to simplify or reduce bureaucracy

The need for a review to simplify or reduce the burden of regulatory compliance was emphasised by several respondents. The volume of requirements on small charities or groups was highlighted as problematic, particularly where there was an absence of paid employees. Costs associated with regulatory compliance, complex processes, and the need to free up time to focus on delivery were all noted as issues. Respondents highlighted administrative burdens experienced in ensuring compliance; for instance, one respondent felt the requirements on small charities were onerous, particularly if they wished to change their constitutions or wind up. An organisation called Peace and Justice called for simpler, more transparent processes to facilitate compliance. Attendees at the Social Enterprise Scotland event highlighted the number of relevant regulators, such as the Office of the Regulator of Community Interest Companies and the Scottish Housing Regulator, and the potential for overlap between them.

“We are particularly concerned to ensure that any regulatory regime is preventative and proportionate. This is particularly important in a sector where many charities are subject to other regulatory regimes. It is also important to consider the fact that there are a number of very small organisations working in their local communities where regulation could become a burden.” – Children in Scotland

A few respondents suggested priority areas to consider in any review, and these views are incorporated into the analysis of responses to Q5.

No, do not conduct a review

Many respondents left comments to suggest there was no need to conduct a review at this time or that there could be challenges associated with a review. The majority of these respondents selected ‘no’ or ‘don’t know’ in Q1. For instance, the scale of ambitious policies being issued by the Scottish Government was felt to be resulting in an implementation gap, with the third sector “feeling overstretched and fragile”. However, these reasons were also noted by two, Children in Scotland and an individual, who supported a review.

A preference for the status quo was also identified by respondents, with reasons including that the current system was working, that stability was needed, that there were more pressing matters to consider or that the time or public money could be better spent.

“We note that further consultation could add to the burden on the sector, at a time when previous reforms are still bedding in.” – Royal Incorporation of Architects in Scotland

Q3. If a review of charity regulation is undertaken, which of the following should be the purpose of the review (choose one):

Option 1: To assess the effectiveness of current charity regulation in meeting the future needs of the sector.

Option 2: To review the Charities and Trustee Investment (Scotland) Act 2005 - exploring if the Act is doing what it set out to do and if any changes are required.

Other – please specify.

Among respondents answering Q3, Option 1 was the preferred option for the review's purpose: to assess the effectiveness of current charity regulation in meeting the sector's future needs. This was favoured by half of respondents (54%), while Option 2 was supported by 28%, and 12% were unsure. An alternative focus was favoured by 12% of respondents.

Preferences were broadly similar between responses from individuals and organisations, with 56% and 51% respectively supporting Option 1 and 30% and 25% respectively favouring Option 2. However, organisations were more likely than individuals to suggest an alternative approach (15% compared to 10% respectively) or be unsure (10% compared to 4%).

Some differences in opinion were also evident by type of organisation that responded. While 80% of umbrella, infrastructure, and membership bodies and 64% of professional advisors preferred Option 1, preferences among charities were evenly split, with 37% preferring each of Option 1 and Option 2.

Over 40% of all respondents left an open comment to explain their answer to Q3. However, comments were not solely made by those who chose ‘other’ as an option; many respondents who selected Options 1 or 2 in the closed questions elaborated on why they did so. In line with the closed question results, the most prevalent theme in open comments was to explain the reasons why they believed the review should assess the effectiveness of current charity regulation (i.e. Option 1). The next most common theme was a range of reasons for selecting the ‘other’ option, but this included some respondents calling for both Options 1 and 2 to be included.

To assess the effectiveness of current charity regulation

Many respondents left comments to explain why they chose this option. The main reasons given were to ensure regulation is fit for purpose in the future and that it can address current challenges in the sector.

“With increasing demand on charities and inflation eroding the value of the available funding, it is vital that charities are as effective as they can be - socially, financially and in governance terms. The sector is changing and will continue to change, with the demographic shift and changing expectations. Does the current regulation support the changing world they operate in?” – Individual

‘Other’ reasons

Many respondents left comments on why they had chosen ‘other’ as an option. The most prevalent view, expressed by almost half of these respondents, was that both options should be considered as part of a review. A few respondents in this theme had selected Options 1 or 2 at the closed question but then used the ‘other’ comment box to call for both to be included in the review.

“SCVO has long called for a comprehensive, holistic, independent review of charity regulation, with an extensive scope informed by voluntary organisations. With that in mind, we are unsure why any review would focus on either assessing the effectiveness of current charity regulation in meeting the future needs of the sector or reviewing the Charities and Trustee Investment (Scotland) Act 2005 to explore if the Act is doing what it set out to do and if any changes are required. It would be our contention that, if any review is to be truly comprehensive, it should be both considering whether the 2005 Act requires updating, while also assessing current charity regulation and its effectiveness in meeting the sector’s future needs. We do not see these as in opposition but, instead, aspects that should both be included.” – SCVO

“To be honest why is this an either or? Given the stress the charitable sector is under they both should be examined to see they are fit for purpose to get the very best out of the sector.” – Broadford and Strath Community Company

Similarly, some respondents who chose ‘other’ felt the scope of the review would need to be carefully considered. While there were calls for the review to be comprehensive, concerns were also expressed, such as the potential for a review to become time-consuming or costly, for incorrect assumptions to be made about the future needs of charities, or that the review parameters could rule out issues that could only be tackled by primary legislation.

“We think it is important that the parameters of a wider review do not rule out issues which could only be tackled by primary legislation, even if that primary legislation would not be forthcoming in the short term. Equally, it is important that the parameters of the review do not exclude topics which it would be difficult to take forward solely on timing grounds. Even if the review has to capture ideas which can only be taken forward in a later session of the Scottish Parliament, gathering those themes from the sector is likely to be beneficial in the longer term, provided that they are ultimately acted upon.” – Charity Law Association

Some of those who commented felt a review was not needed, though half of the respondents who made this point selected one of the two possible options in Q3. These latter respondents felt the case for a review would need to be made.

To review the 2005 Act

Reasons for selecting this option as the purpose of a review were also given by several respondents. Again, the primary reason was to ensure regulation is fit for purpose, though two respondents also chose this option to identify additional changes needed, such as to NHS charities, and two respondents felt regular policy review was necessary.

Q4. Do you think you or your organisation will have capacity to contribute views to a review process in the next 12 months?

70% of respondents answering Q4 indicated that they or their organisation will have the capacity to contribute views to a review process in the next 12 months. While 9% of respondents felt they would not, 21% were unsure. Three quarters (76%) of organisations felt they would have capacity, with 19% of the remainder unsure. Individuals were slightly less certain about their ability to contribute, with 64% indicating they would, 13% that they would not and 23% unsure.

In line with the quantitative results, comments typically indicated respondents would be able to contribute to a review, though others were not sure or did not feel they would have the capacity to contribute. Several respondents also indicated that they would like to respond as individuals.

Yes, will contribute to a review

Many respondents indicated they would contribute to a review or welcomed the opportunity to do so. All organisations in this theme were on an income of £250,000 per annum or greater, with five being umbrella organisations. An individual also indicated they would ask the 80 plus small, constituted groups that were not registered charities, in their network, though it was unclear which organisation they were linked to.

“As a membership organisation, Social Enterprise Scotland represents a wide diversity of social enterprises, from registered charities to SCIOs, Community Interest Companies (CICs), social housing providers, cooperatives and other business models, as well as public and private sector members. We’re happy to inform a review by providing evidence and information, attending events and stakeholder meetings, consulting our members, hosting webinars, sharing surveys and more.” – Social Enterprise Scotland

While SCVO highlighted there could be capacity issues for smaller charities, it took the view that a review could benefit smaller organisations and therefore should proceed:

“In advance of the 2023 regulations, when the sector was still struggling with the impact of the pandemic, we took the view that it was not the right time for a wider review given capacity in the sector. Since then, however, it has become clear that the difficult situation voluntary organisations find themselves in is likely to continue. There is therefore no perfect time to review charity regulation. Additionally, the potential improvements and positive steps that could result from a comprehensive review of charity regulation could go great lengths to alleviating some of those burdens.” – SCVO

Challenges associated with contributing to a review

Challenges in contributing to a review, or hesitation to contribute, were evident among several respondents. Factors cited as impacting on an ability to contribute included prevailing societal and economic conditions creating capacity issues, as well as resource and time constraints. The size of organisations did not appear to impact such a view; organisations with both small and large income levels raised this point.

“Here the answer is really yes, but. We are a membership organisation and work closely with a much wider sector. We know how important a review could be for our membership, and therefore would contribute. However, one caveat is that we are very overstretched at the moment because of the current economic situation and therefore we would have to ensure that we could use our limited resource in the most strategic way.” – Children in Scotland

However, some respondents did comment that the small size of organisations would likely constrain their ability to contribute. Capacity concerns, or the amount of time needed to input, were most commonly mentioned in this theme. Two respondents felt their organisation may not exist in a year due to funding challenges, while two other organisations indicated the parameters of the review would determine participation. One individual suggested holding the review in stages, with the first asking limited questions and the second allowing for more detailed comments as a way to encourage participation.

“As a small charity, our resources are very limited - we want to focus on the delivery of our outcomes.” – Individual

Would wish to contribute as an individual

Several respondents indicated they would like to contribute as individuals. One respondent indicated they were a trustee of several charities and would like to contribute, while another respondent said they would be happy to take part if changes were implemented following feedback.

“As an individual, I would want to do so myself as well.” – Individual

“I work as part of the Third Sector Interface so I am dealing with topics such as this often. I would be happy to contribute further views if it would be at all helpful.” – Individual