By Keith Aitken in Edinburgh | 3 September 2013
Leaders of the Scottish voluntary sector are to launch an inquiry into local authority arm’s-length external organisations (Aleos), following claims that their charitable status is draining money away from ‘real’ charities.
The investigation, being undertaken by the Scottish Council for Voluntary Organisations, is expected to begin in the autumn. It will use Freedom of Information requests to build up information on the governance, role and finances of a selected sample of Scottish bodies, and specifically on whether they are siphoning off funding intended for the charity sector.
Critics claim Aleos – which are often council-dominated bodies providing arts, sport, regeneration and other services – use their legal right to register as charities in order to reduce tax liability and shift accountability from councils.
‘We will be looking at a sample of governance models and whether they are getting funds from third sector sources, such as the Big Lottery, trust funds or Scottish government funding for charities,’ John Downie, public affairs director for the SCVO, told Public Finance
‘I would also be interested in knowing the tax perspective – have we got organisations being set up as Aleos because local authorities are then able to avoid tax?’
But Downie’s suspicions were dismissed by the Convention of Scottish Local Authorities. ‘SCVO want the best of both worlds for themselves. The sad, ironic truth is that
SCVO is home to some of the largest businesses in Scotland, who all benefit from charitable status,’ a spokesman claimed.
‘When will they realise that we see through this, and that everyone knows they are not disinterested observers and, indeed, that they have a real vested interest?’
Downie pointed to critical reports on two prominent Scottish Aleos. A consultant’s report on the Greenock regeneration body, Riverside Inverclyde, which is predominantly funded by Inverclyde Council, suggested that, midway through its projected lifespan, it had met only 7% of job-creation targets and 5% of target housebuilds.
This followed criticism in January by the Office of the Scottish Charity Regulator of another Aleo, the Glasgow East Regeneration Agency, over a severance deal for its chief executive.
OSCR’s report on the Glasgow agency stated: ‘A very considerable sum of the charity’s assets, which should have been used to further the charity’s purposes, was removed from the charitable sector by the charity trustees for the private benefit of a former employee.’
The Accounts Commission for Scotland has also voiced unease about Aleos. A 2011 report, while acknowledging efficiencies, identified concerns about accountability, governance and ill-defined boundaries with council functions.
Downie added: ‘The public has a perception of what a charity is, and if you were to ask them, I’m sure large regeneration companies controlled by local authorities would not be what they had in mind.’
In recent years there has been some blurring between local authorities and the third sector. Many voluntary bodies are increasingly reliant for funding on council contracts, and there is pressure from Scottish Government ministers for closer co-operation.
Downie thinks the time is ripe for a review by Holyrood of charity law, which last underwent major reform in 2005.
