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NHS charities governed by corporate trustees which are
themselves NHS bodies (e.g. NHS Trusts, Primary Care Trusts etc.)
are set to be affected by the International Accounting Standards 27
(IAS 27). IAS 27 will require the consolidated financial statements
for a group of entities under the control of a parent body.
Corporate trustees have been deemed by the Department of Health to
have such 'control' over their underlying charities. To
date, NHS charities have been exempt from the effect of IAS 27, but
this is soon due to change highlighting serious governance issues
concerning the administration of NHS charities.
The Implementation of IAS 27
The application of IAS 27 to NHS charities was due to take
effect in 2009/10 financial year but, after considerable media and
lobby group pressure, it was delayed by the Treasury for twelve
months to allow time for a review of the government accounting
framework.
Having met with relevant stakeholders, the Treasury have still not
been persuaded to exclude NHS charities from the new regime going
forward, although an eleventh hour postponement may yet be
agreed.
Who will be affected?
The Department of Health has interpreted the consolidation
implications of IAS 27 to apply to NHS charitable trusts governed
by a corporate trustee on the basis that this amounts to sufficient
control for the purposes of the measure.
The Charity Commission (along with many other commentators) has
argued from the outset that the definition of "control"
used for the purposes of IAS 27 is not applicable to NHS charities.
"Control" in relation to this provision is defined as
"the power to govern the financial and operating policies of
an entity so as to obtain benefit from its services". It is
the Charity Commission's view that the defining characteristics
of charities (comprising independence, public benefit and being
established exclusively for charitable purposes) would be
undermined by IAS 27 to the extent that the charitable status of
NHS charities caught by this provision could potentially be
threatened.
In response to the Commission's concerns, Phil Hope, then
Minister of Health, emphasised in a House of Commons debate that
NHS charity trustees will continue to have full responsibility for
charitable funds, stating that the Department of Health's
interpretation of the definition of "control" and its
subsequent application of IAS 27 will not threaten the independence
of NHS charities in any way.
What will be the effect of IAS 27?
IAS 27 will require those bodies acting as corporate trustees to
consolidate the accounts of NHS charities with their own annual
report.
Much of the debate surrounding the effect of IAS 27 has
concerned precisely what consolidation of accounts will entail. In
an effort to reassure the public, the then Third Sector Minister,
Angela Smith, emphasised in the House of Commons on the 27th
January 2010 that, should consolidation occur "The funds of an
NHS charity are, and will continue to be, controlled by the
charity's trustees for charitable purposes" and further
that, "this is purely a technical accounting matter".
In contrast, the Charity Commission, Monitor, charity lawyers
and accountants have all expressed concern that this accounting
measure represents the thin end of the wedge, tantamount to a form
of nationalisation of the gifts and donations of the public, which
could lead to a decline in public trust arising from a perceived
lack of State independence.
What Next?
Converting from an NHS corporate trustee to a trustee body
composed of independents (whether natural or corporate) is the most
straightforward way to avoid consolidation and secure independence.
Indeed, a number of charities caught by IAS 27 are already
exploring this option.
Whilst Charity Commission best practice dictated that changes to
trustee arrangements should occur only where the independence of a
charity is threatened and not simply to avoid consolidation, it
would seem that the two are inextricably linked.
The Department of Health have stated that, if independence is
not threatened, NHS charities should simply consolidate their
accounts with those of the public body of their corporate trustee
once IAS 27 comes into force.
This seems to miss the point that, although technically possible
for charities to implement governance policies which mitigate
conflicts and secure independence, this will make administration
complex, costly and unwieldy. More importantly, it will do little
to reassure a nervous public already cynical about the implications
of the Big Society that measures of this kind simply blur the lines
between charity and Exchequer fund responsibilities to conceal
health spending cuts.
With the overall value of donations to hospital charities
equating to around £330 million a year, it is vital that the
application of IAS 27 will not damage public confidence.
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