Arm’s Length External Organisations

Arm’s Length External Organisations
February 2015


Executive summary


An ALEO is an Arm’s Length External Organisation – a body which is formally separate from a local authority but subject to its control and influence. ALEOs can register as charities if they have charitable purposes and undertake activities in furtherance of these purposes.


The Office of the Scottish Charity Regulator (OSCR) has undertaken a detailed review into the ALEOs which are registered as charities in Scotland. This involved desk based work and then further detailed analysis of a sample of 11 charities. The sample was selected based on indicators of risk within these charities. Previous inquiry cases show that there are risks attached when charities operate within the control of another body. There is the potential that trustees’ decisions are inhibited by the other party and therefore that they cannot act in the interests of the charity. We therefore looked particularly at the charities where there was the potential for greater control by the Local Authority.


The key findings were:


There are 64 ALEOs registered as charitiesin Scotland. These vary in their size, structure and type of activity. The smallest has an income of £15,000 with the largest over £110 million. The majority operate leisure and culture trusts, but they are also used to undertake activities such as community safety, employability and regeneration.


Ten of the 11 ALEOs reviewed were governed adequately with well managed boards consisting of people with a range of skills.
One of the 11 had issues around governance and charitable purposes and we are working with this charity further.


ALEOs work in partnership with the local authority to provide services. Funding agreements ensure that funds are monitored, but there is flexibility to negotiate the amount of funds and how funds are used.


Independent trustees are appointed to ALEOs based on their skills and suitability for the role. This selection process is not consistently applied to Councillor Trustees and this could be improved. Trustees receive training for their roles and in many cases there are robust induction procedures.


Although the structure allows it, control is not routinely exercised by the local authority – in general the charities are operating with sufficient independence. Where the local authority has exercised powers, this has been in exceptional circumstances.


There are areas where improvements can be made within the governance of these charities and consequently we have made a number of recommendations.


See full document here.