CHARITIES (AMENDMENT) BILL

CHARITIES (AMENDMENT) BILL: Order for Second Reading read.

The Minister for Community Development, Youth and Sports (Dr Vivian Balakrishnan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Charities Act was last amended in 2006 and brought into effect on 1st March 2007.

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Key aims of amendments

The Bill before this House today has three objectives:

First, to facilitate charities and charity board members in their work by providing clarity on their roles and responsibilities and to protect them from personal liability if they have acted honestly and in good faith. We hope this will encourage more good people to come forward and to contribute their time and resources to do good work for society.

Second, to enhance the accountability and governance in the charity sector. This will include establishing the legislative framework for putting in place accounting standards for charities and Institutes of Public Character (IPCs).

Third, and perhaps most important of all, to strengthen charity regulation to better protect donors and to maintain public confidence in the charity sector.

Sir, I would now like to draw the attention of the House to the main clauses in the Bill.

Protecting governing board members from personal liability

Our charity board members are doing beneficial work for society, and many of them are doing so without any remuneration. These board members should enjoy some degree of legal protection if they have acted honestly and responsibly in their charitable work.

The current Charities Act already provides a layer of protection. Proceedings against a charity or charity board members involving issues related to breaches of trust would require the Commissioner’s authorisation. In general, these proceedings will not be authorised if a case can be dealt with using the powers

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under the Charities Act. This helps avoid the need for the charity and its board members to become embroiled in Court proceedings if there is a better, less expensive and more practical alternative. In addition, the Courts have broad powers to strike out frivolous or vexatious cases, including those made against charities and their board members.

To provide another layer of protection, clause 15 inserts a new section 32A to apply protection currently available under various other Acts to all charity board members under the Charities Act. If the Court finds that a charity board member has acted honestly and reasonably and, having regard to all the circumstances of the case, that he should fairly be excused for negligence, default or a breach of duty, then the Court may relieve him either wholly or partly from his liability on such terms as the Court thinks fit.

These existing provisions in the Charities Act, along with the new section 32A, will help provide greater assurance to existing board members, so that they will continue to serve in the charity sector without impediment or reservation. It will also send a positive signal to potential board members and, hopefully, encourage capable and well-meaning individuals to step forth and serve on charity boards.

Clarifying roles and responsibilities of charity board members

We also intend to clarify some of the terms used in the Charities Act. Currently, some of the terms used may not be easily understood by the charity sector. For example, the existing Act defines the term "charity trustees" as persons having the general control and management of the administration of a charity. This term includes volunteers serving on the charity board as well as key officers and employees of the charity, which is different from the definition of

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"trustees" used under the Trustees Act. In addition, under the Charities Act, the term "trusts" means the provisions that establish and regulate the purpose and administration of a charity. Again, the same term has different meanings under the Trustees Act. To reduce the possibility of confusion, various clauses of the Bill, including clauses 2, 9 to 14 and 23, replace the term "charity trustees" with "governing board members", and the term "trusts" is replaced with "governing instruments". The term "key officers" is also included where applicable, to clarify the roles and responsibilities of board members and key officers.

We also want to streamline our administrative requirements to facilitate the charities’ operations. Currently, most charities have a provision in their governing instruments stating that the Commissioner’s approval is required before amendments are made to their governing instruments. In the event that the Commissioner chooses to delegate this power to the Sector Administrator, clause 3 aligns the governing instrument provision with the delegation so as to allow the Sector Administrator to approve these amendments. This allows charities to approach a single agency, which will usually be their Sector Administrator, for their general charity administrative needs.

Accounting standards and audit requirements

We will also be establishing the legislative framework on accounting standards for charities. The Accounting Standards Council (ASC) was established in 2007 under the Accounting Standards Act to issue accounting standards for companies, charities, co-operatives and societies. The ASC has developed the Charities Accounting Standard which is tailored specifically for the charity sector. While the Singapore Financial Reporting Standards (SFRS) remain relevant for some of the bigger charities, the Charities

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Accounting Standard will simplify the accounting needs of smaller charities. Over the longer term, it will also increase the level of transparency, comparability and accountability in the financial reporting of charities in Singapore.

Clause 6 of the Bill allows us to put in place the regulatory framework on accounting standards for charities and IPCs, so that we can be ready when the Charities Accounting Standard is launched next year. This clause will also allow us to coordinate the requirements under the Charities Act and the Companies Act. For instance, while charities which are registered as companies will be allowed to choose between the Charities Accounting Standard and the SFRS in future, the penalty for non-compliance with the accounting standards will be similar to that under both the Companies Act and the Charities Act.

At this juncture, I should also mention that I will be moving a Notice of Amendment shortly after this in the Committee stage. The Amendment will allow us to align our penalty with the Companies Act, specifically for offences relating to non-compliance with accounting standards and which are committed with intent to defraud.

Here, I would like to assure Members that we have no intention of introducing overly stringent requirements that will unduly inconvenience charities. As a start, only the larger IPCs and charities which are registered as companies will be affected. Today, these IPCs and charities already have to comply with an established accounting standard. In fact, they will be able to enjoy greater flexibility by being able to choose between the Charities Accounting Standard and the SFRS depending on which is more relevant.

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Imposing basic requirements on exempt charities

Sir, under clauses 6 and 7, we will require exempt charities to keep their accounting records for at least five years, and to submit their annual reports and statements of accounts to the Commissioner every year. There are currently about 140 exempt charities. These are mainly educational institutions, hospitals or religious bodies established by an Act of Parliament or institutions that have been declared to be exempt charities under a Notification Order. These exempt charities enjoy the same income and property tax exemption as registered charities. The changes mentioned above will bring them in line with the other registered charities and encourage greater transparency and public accountability in the charity sector.

Protecting donors and the public

At the same time, we will enhance protection to donors and the public, so as to maintain a high level of public confidence in the charity sector.

Sir, Part VII of the Charities Act on "Control of Fund-raising for Charitable Institutions" was not brought into force previously as it was deemed that the phenomenon of commercial fund-raisers and commercial participators was rare. However, over the past few years, the Office of the Commissioner has seen an increase in the number of complaints on the conduct of fund-raising appeals by commercial fund-raisers. Clause 16 will repeal Part VII, which is based on the 1992 UK Charities Act. We will, instead, be incorporating its provisions into our regulations in order to strengthen our existing protection for charities and donors, and to give us more flexibility in updating them as and when necessary, according to the considerations and requirements of the charity sector and the demands of the donating public. These

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provisions will require the commercial fund-raiser or commercial participator to sign an agreement with a charity before embarking on the fund-raising exercise. The agreement has to spell out arrangements such as the fund-raiser’s remuneration and the time period within which collected donations have to be handed over to the charity. The provisions will also, under certain specified conditions, allow donors to cancel their payments to commercial fund-raisers or participators.

In addition, clause 19 will empower the Commissioner to require fund-raisers to furnish information required for investigations, which are conducted, for example, in response to public complaints. At the moment, the Commissioner’s powers to call for documents and search records under section 9 of the Charities Act can only be exercised on documents or records that relate specifically to a charity.

Holding out as registered charity or IPC

We also want to deter the unscrupulous from using the good name of charities and IPCs to gain credibility and support from the public. Clause 21 inserts a new section to penalise institutions which mis-represent themselves as registered charities or IPCs, or persons acting or purporting to act for the institutions, such as their fund-raisers. This will deter them from attempting to mislead the public by pretending to be a charity or IPC.

Sir, let me conclude by stating that the charity sector is an integral part of our Government’s "Many Helping Hands" approach. The charity sector plays a very important role in serving the beneficial interest of the community at large. And the Government is therefore fully committed to promoting the growth of the charity sector and we will do so by adopting a facilitative and balanced

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regulatory framework, which enhances public confidence without stifling volunteerism and the good work that is already being performed by the charity sector. The amendments we are making to the Act will improve the transparency of the sector and above all, ensure that donors, volunteers and the general public are protected, so that they can continue to donate and to support the charity sector with confidence.

Sir, I beg to move.

Question proposed.

4.11 pm

Assoc. Prof. Fatimah Lateef (Marine Parade): ( In Malay ): [For vernacular speech, please refer to Appendix A.] Mr Speaker, Sir, firstly, let me say that the clarification and alteration of certain terms used is indeed a welcome change. It will certainly reduce the misinterpretation of definitions within this Bill.

Out of the 140 charitable bodies that were mentioned by the Minister, I would like to ask, Sir, if many of these organisations are large charities and what is the definition of "exempt charities".

Clause 15 inserts a new section 32A where board members are granted relief from personal liability after the proper investigations have been carried out – I am sure many will welcome this.

Many people are invited to sit on the boards of organisations related to the charity sector because of their commitment, track record and capabilities. Board members may not necessarily be involved in the day-to-day operations of the charities which they join. Hence, this is an appropriate change.

This is also in line with the Trustees Act (under the Companies Act) and the Business Trust Act. This Act should send

*Cols. 1623-1624.

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a message to everyone that even though we implement measures to tighten the regulations but, at the same time, some flexibility with a light touch approach is still required in certain situations.

Sir, can I suggest that there be a roving panel of financial advisers? Charities can call and ask them for advice if they run into issues, especially financial issues. Maybe these financial advisers can be tapped upon for help before problems arise in areas of finance or accounting. This will build a solid defensive barrier for the welfare bodies and, furthermore, the charity sector in its own may lack sufficient trained personnel to perform such duties professionally.

In all, Mr Speaker, I support this Bill.

4.14 pm

Mr Teo Siong Seng (Nominated Member): Mr Speaker, Sir, firstly, I would like to declare my interest as the Chairman of the Singapore Chinese Chamber of Commerce Foundation.

Given the few high profile charity mismanagement in the last few years, this is indeed a timely reminder of the fallibility of humans and the temptations in the handling of public funds. I realise that there will never be a perfect solution as the system can always be outsmarted. However, having the necessary safeguards in place will go a long way towards restoring the trust and confidence of the public. The survival of charities is dependent on public generosity.

There is now an increased support in charitable giving. This is clearly shown in the latest annual report by the Commissioner of Charities. Despite the downturn last year, the report revealed an increase in individual donations in the charity sector.

As the fund-raising field

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shapes up to be more competitive, it is inevitable that organisers will seek ways to boost exposure, which include television extravaganzas and mass participation events, so as to capture a slice of the growing pie.

Given the expected increase in the flow of funds to charities, the measures introduced to deliver more teeth to the Charities Act will send a strong signal that systemic weakness will not be condoned while lifting corporate governance in this sector. Greater transparency will also go a long way towards assuring the public that donations, both in cash and kind, are properly accounted for. However, I would like to recommend two areas that could further improve the internal financial controls of charities.

Take as an example financial supervision for Board of Directors of Charities. The current Code of Governance for Charities states that the positions of Treasurer and Audit/Finance Committee Chairmen on the Board of Directors should preferably possess recognised accounting qualifications and appropriate practical experience. As a Best Practice Guideline, the Code of Governance is not for legal compliance. Charities are encouraged to adopt the guidelines. As such, not all charities may adopt this guideline. Such guidelines are probably even more crucial for large charities.

Perhaps, the Charities Act or the Code of Governance could be more explicit to ensure that more charities, especially the larger ones, adopt these guidelines. Given their knowledge, experience and skills, accounting and finance professionals can assist the Board to oversee the financial management and internal control systems of the charity unit.

Another suggestion is on the financial management in large charities and IPCs. Should there be a requirement under the

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Charities Act, or a guideline under the Code of Governance, that a Financial Director or Manager has to be a qualified Certified Public Accountant (CPA), or someone with similar recognised academic and professional qualifications, to be employed by large-sized charities? This will ensure that a suitably qualified professional can formulate and implement the necessary financial and accounting policies as well as establish internal control systems for the charity unit.

A large-sized charity unit could also be encouraged to set up an internal audit department to regularly review the policies and internal control systems. Small charities, however, may find this difficult due to their limited resources and maybe some form of assistance could be offered to them.

The newly introduced measures in this Bill, coupled with the current enhanced tax deduction incentives for donations, will contribute towards the Government's vision of developing Singapore as a philanthropy hub.

In conclusion, I support the Bill.

Dr Vivian Balakrishnan: Mr Speaker, Sir, I would like to thank Assoc. Prof. Fatimah Lateef and Mr Teo for their support of the Bill and, perhaps even more important, for their very astute observations on the necessity for greater professionalism and greater supervision, and oversight of the charity sector.

We have 2,000 registered charities in Singapore, and the number is growing. And these 2,000 charities are also a very heterogeneous group – there are some very large and very capable charities, and also some very small charities. So I am sure that the two Members would appreciate that in our legislative and regulatory framework, we have to take into account this very diverse landscape.

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Mr Teo suggested making it compulsory for the positions of the Treasurer and, I believe, the Audit and Finance Chairmen on the Board of Directors to preferably possess recognised accounting qualifications and appropriate practical experience. I think this is ideal in an ideal world. He also suggested requiring the larger-sized charities to employ a Financial Director or Manager who is a qualified Certified Public Accountant (CPA), or has similar professional academic qualifications. I agree that these are important considerations and it would indeed be helpful if we had people like these available in order to help exercise appropriate control over the financial matters of charities, particularly the larger ones and those which have been granted IPC (Institution of a Public Character) status, which allows them to issue tax-deductible receipts for donations made to them. The accounts of such charities and IPCs are currently already required by current Statutes to be audited externally by a public accountant. In addition, the IPCs are also required to post their financial statements online. And this provides some level of assurance in the financial management and the transparency of the charities and IPCs concerned.

Charities will also have to ensure that they have suitably qualified board members, particularly those who are holding key appointments, as Mr Teo has suggested, like Treasurers and Chairmen of Finance and Audit Committees. Whilst the Code of Governance is not mandatory, across the board for everyone, the system is one in which charities and IPCs will have to explain if they are unable to comply with the Code of Governance. This creates a situation where certainly the larger charities and those with larger income streams will find it almost impossible to justify why they do not have qualified staff or qualified board members serving in the management of the committees. On the other hand, we

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also have to make room for smaller charities or start-up charities, for whom access to such highly qualified and, if I may add, sometimes expensive management staff will not be available to them. So for the smaller charities, where smaller amounts of money have been raised and, in a sense, there is a lower level of risks, we will allow them to deviate sometimes from the Code of Governance but to explain and to be transparent about these deviations. So this provides for a more flexible regulatory framework, a more risk-based and more stratified regulatory environment.

Ultimately what we are trying to do is to create a situation which there is more self-regulation. And as a regulator, we have to be very mindful not to overload the charities with such onerous demands that the cost of compliance becomes very high. The cost of compliance for a large charity, if you spread out the cost of getting professionals, may be a tiny fraction – a small percentage of their overall revenues. But in a small charity, this will become a not-insignificant proportion of their expenditures. And I am sure Members of this House and, indeed, members of the public who donate to charities will not want to see a significant proportion of their donations expended on administrative costs. So I need to persuade Members that we cannot have one-size-fits-all, and we need instead to have the flexibility to regulate different size charities with different risk profiles in an appropriate manner.

We acknowledge also the fact that even small charities should have access to professional manpower, and that is why we have launched the programme in which the smaller charities can outsource and seek shared services from professionals. In this way, we will ensure first that there are independent outsiders who are managing and auditing and

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overseeing the accounts. Secondly, by having shared services you reduce the unit cost of having such qualified people. In that way, we are trying to create a win-win situation where you can have greater confidence in the veracity and integrity of the accounts of even a small charity without unnecessarily inflating the cost of compliance.

Sir, in conclusion, I would like to reiterate our commitment to promoting the growth of the charity sector. We will do so by adopting a facilitative and balanced and flexible regulatory framework, which will enhance public confidence without stifling the spirit of volunteerism, charity and philanthropy, which is really the lifeblood of this sector.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Dr Vivian Balakrishnan].

Bill considered in Committee.

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Dr Vivian Balakrishnan: Clauses 1 to 5 inclusive ordered to stand part of the Bill.

Clause 6 –

The Chairman: Clause 6. Dr Balakrishnan.

Dr Vivian Balakrishnan: My Speaker, Sir, I beg to move,

In page 5, line 5: after "204(1)", to insert "or (3)(a), as the case may be,".

As I alluded to in my speech earlier, this amendment will allow us to align our penalty with the Companies Act, specifically for offences relating to non-

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compliance with accounting standards and which are committed with the intent to defraud.

Amendment agreed to.

Clause 6 , as amended, ordered to stand part of the Bill.

Clauses 7 to 25 inclusive ordered to stand part of the Bill.

Bill reported with an amendment, read a Third time and passed.