healthcare update - issue 10
NHS charities given temporary stay of execution
The Treasury has announced that controversial plans to apply
International Accounting Standard 27 (ISA 27) to NHS Trusts and
Foundation Trusts has been delayed for a second year in order to
allow a review team to measure the impact the change will have upon
NHS charities. The review will report to Ministers by September
2010.
There are almost 300 NHS charities where an NHS Trust or
Foundation Trust acts as the sole trustee of the charity, of which
the Department of Health estimates approximately 30 have an income
above a set threshold and therefore are affected by the proposed
change.
The Treasury claims that, where a trust has control over another
entity and obtains a benefit from that entity’s activities, ISA 27
requires the accounts of the two bodies to be consolidated. This
would mean that the charity’s assets would appear on the balance
sheet for the NHS Trust, an interpretation which has been heavily
criticised by the Charity Commission and the Association of NHS
Charities (ANHSC) for threatening the independence of the
charities.
In their Parliamentary Briefing prepared on this issue, the
Commission states that:
“Independence is at the heart of what it means to be a
charity. Charity trustees must act solely in the interests of the
charity and not its beneficiaries. The intended beneficiaries of
NHS charities are the patients of the NHS, not the NHS bodies
themselves.”
Where the NHS Trust is the sole trustee of an NHS charity, the
trust must ensure that the charity remains independent of the trust
and that decisions are made based on the needs of the beneficiaries
and not the needs of the trust.
The Commission and ANHSC claim that consolidating the accounts
of NHS bodies and the charities would blur the line between public
and charitable funds and increase the risk that charitable funds
would be accidentally misapplied for non-charitable purposes. This
in turn could lead to a decline in the public’s confidence in NHS
charities and a reduction in donations.
The Charity Commission argues that ISA 27 is intended to apply
to commercial, not public, bodies and suggests an alternative
standard issued by the International Public Sector Accounting
Standards Board which the Commission suggests would not require the
consolidation of accounts. This alternative standard recognises
that a public body may act as a trustee of a charity but, that this
role does not mean that the body controls the charity or, that it
automatically derives a benefit from the work of the charity.
Whichever accounting standard is eventually chosen, the
controversy has highlighted the problems regarding independence of
an NHS charity where an NHS Trust is the sole trustee. Trusts in
this position should consider appointing independent individuals or
organisations to act as trustees alongside the Trust in order to
demonstrate the independence of the charity, bolster public
confidence and hopefully avoid the impact of ISA 27 if it is
applied in the future.
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