News / Consolidation no threat to NHS charities’ status

Consolidation of NHS charitable funds into the accounts of their host NHS trust or foundation trust should not of itself affect charities’ registration, provided that Charity Commission rules on independence are met.

This was the message delivered last month by the Department of Health in a letter to NHS finance directors. The issue has arisen because of the move to international financial reporting standards. International accounting standard IAS 27 requires the consolidation of subsidiaries where control tests are met. Auditors, the Department and regulator the Charity Commission have been discussing the implications of the standard for over a year and at the start of 2009 the Treasury agreed to defer introduction until 2010/11 to allow these discussions to continue.

Auditors have insisted that strict interpretation of the standard requires the consolidation of charitable funds, where material, in cases where the charities are governed by corporate trustee arrangements (the trust board acts on behalf of the corporate trustee in the administration of funds).

But the Charity Commission, which registers and regulates charities including NHS charities, has been a vocal opponent to consolidation, arguing that the implication of control was in direct conflict with charities’ defining independence. The fear had been that consolidation could therefore threaten NHS charitable funds’ charitable status. This could have left NHS charities needing to change governance arrangements, requiring secondary legislation.

The Department’s October letter appears to have ruled out the need for such drastic action. The letter, from Department of Health NHS financial controller Janet Perry (pictured), states: ‘To avoid any confusion, organisations should be aware the corporate trustees of an NHS charity may meet the requirements of independence as set out by the Charity Commission, but still be deemed to have “power to control” as per IAS 27 and therefore be required to consolidate the relevant charitable funds into their organisation’s main accounts, where material.’

This does not mean there is agreement over the need to consolidate under IAS27. A commission spokesman told Healthcare Finance: ‘We have not changed our view on consolidation since we published our guidance, Maintaining independence, in the summer. We don’t agree with the interpretation in the Department of Health’s letter.’ The Department acknowledged the letter had not intended to imply that the Charity Commission agreed with the requirement to consolidate.

But there is agreement that consolidation is not itself a direct threat to a charity’s status.

The commission’s Maintaining independence guidance made it clear that, while it disagreed with consolidation, if consolidation went ahead ‘the trustee does not need to contact the commission unless the NHS body then seeks to direct  the charity for its own benefit’.

Decisions over the need for consolidation will be on a case-by-case basis, but if trusts and auditors do decide to consolidate, then as long as the charity is meeting Charity Commission guidance on independence charitable status should not be in doubt. With materiality also a consideration, consolidation is in any case only expected to be an issue for 30 of the 280 NHS charities with corporate trustee arrangements.