30 Oct 2020

Getting on OSCR’s ‘Wick’? Inquiry Report into charity

An OSCR Inquiry Report on a charity raises points on fundraising/grantmaking plans and beyond from which the wider sector can benefit.

OSCR has issued an Inquiry Report into Wick Academy Development Fund (“WADF”). WADF was set up as a charity in 2002. It aimed to raise funds, it is understood, for sporting facilities in Wick. WADF raised funds through a lottery (called “Lucky Letters”). Lucky Letters proved successful. Over £100,000 was raised and the charity currently holds over £140,000. However, WADF has apparently failed to apply funds to further its charitable purposes and provide public benefit. It is case of non-spending of raised funds.

The situation with WADF raises a few points, including:-

OSCR has determined that the charity is not providing public benefit and in the event WADF be removed from the charity register it would (still) not apply it funds for its charitable purposes. Charities removed from the register still have statutory duties to apply their funds for their charitable purposes. Although, as noted in the Scottish charity law review consultation, there is no statutory requirement to provide public benefit after removal from the register.

OSCR’s approach to WADF has been to issue a direction to prohibit the charity distributing or otherwise parting with any funds without OSCR’s consent. It is a negative direction to stop action. Again, the review consultation has highlighted that OSCR has only negative directions at its disposal and cannot positively direct a charity to take particular action. The result in WADF is OSCR’s intention to apply to the court for a ‘judicial factor’ to be appointed to take full control of the charity.

As blogged on beforegrant-making plans are just as important as fundraising drives. It seems an issue in WADF (from the OSCR Inquiry Report and recent press reporting) has been settling on an agreed project for spending the money raised. WADF successfully and quickly raised its funds. It has perhaps stumbled to then spend the cash.

While the OSCR report does not reveal detail, a situation such as WADF underlines the importance of trustee decision-making. Should trustees be called to explain decision-making (including non-spending of funds), they will wish to be able to show a proper consideration process. A process that must be rooted in trying to further the charity’s purposes and provide public benefit. While trustee decision-making is ordinarily a private matter, should there be public or regulatory scrutiny, a robust and documented process will help trustees meet any such scrutiny. There can be good reasons for not spending funds, but there needs to be considered reasons for taking such an approach.

Engagement with OSCR is important. OSCR is required to be a proportionate regulator. We would suggest that few would disagree that OSCR works with that principle at heart. The Inquiry Report notes that an issue with WADF has been OSCR having “engaged repeatedly” with charity and not receiving satisfactory responses.

If a charity cannot spend it funds, it might need to look for a new home for the funds. Dissolution clauses can provide rejuvenation. Many (and all new) charity constitutions will include a clause that provides that a proposed dissolution of the charity must pass funds to another charity with similar purposes. This requires OSCR consent. Finding a new home for funds when they are proving difficult to spend by a charity could provide an answer in some cases and give those funds a new lease of life. Of course, before embarking on such a course of action, trustees must be assured that the funds are not restricted to purposes and conditions attached to how those funds were raised. Without going into detail here, there is an OSCR process for applying to unlock ‘restricted funds’ should that be an issue.

For guidance and help with charity law and governance matters, get in touch with Alan Eccles alaneccles@bkf.co.uk