Why charities should act ahead of regulation

Opinion: Throwing light on charity bosses’ salaries

Thu, Apr 10, 2014, 00:01

The controversy surrounding the salaries of senior charity executives goes to the heart of issues central to the operation of charities in Ireland: the quality of their governance, the transparency of their finances, and the role of the State in regulating the sector.

By long-standing convention, soon to be reinforced by regulation, the senior executives of charities do not have places on their boards. This means charities are governed exclusively by non-executive directors or trustees, and perhaps this explains why most of them have preferred to allow their paid executives to defend their policies.

However, the remuneration of senior executives is an important reserved function of a board, and by forgoing the opportunity to defend their remuneration policies, charity directors have done a disservice to themselves and to the reputation of charities generally.

This is perhaps one reason why former Rehab chief executive Angela Kerins didn’t get any traction when she tried to make the case in the Public Accounts Committee and elsewhere that senior charity jobs are subject to competitive norms, and should be subject to the same kind of external evaluation as comparable jobs in the private or public sectors.

Another reason could be that we know almost nothing about the norms of senior executive remuneration in Irish charities, because they’re not disclosed.

In Ireland, companies limited by guarantee – such as Rehab Group and its charitable subsidiaries – are required to file audited accounts with the Companies Registration Office (CRO). However, unlike registered charities in the UK, they are not obliged to follow the special reporting standards devised by the Accounting Standards Board for charities.

This charity reporting standard – currently used on a voluntary basis by only a tiny minority of Irish charities – provides for the disclosure of the numbers of staff being paid in excess of €70,000 in bands of €10,000, as well as the publication of governance and fundraising costs as a percentage of annual expenditure.

Lost opportunity
By taking an ad minimus approach to financial reporting, the directors of charitable companies are passing up the opportunity presented by another of their key functions, which is to provide an annual report and audited financial statements to their members.

It is widely assumed that reporting standards will soon change, because charity regulation heralds a new dawn for financial disclosure by charities in Ireland. Unfortunately, this is not the case.

Sections 47 and 48 of the Charities Act, 2009 provide in detail for the Minister for Justice to regulate for the kind of information that is to be reported in charities’ annual statements of accounts. The majority of Irish charities which employ people are incorporated under the Companies Acts and are explicitly exempted from filing accounts under a provision that was intended to avoid the burden of double regulation. It is sufficient that they lodge their audited financial statements, as before, with the Companies Registration Office whose registrar already makes them public, but who is now also obliged to forward a copy to her opposite number in the Charities Regulatory Authority.

This means the non-executive directors of Irish charities may continue to produce accounts as though they were commercial entities, although (as with the decision on how to remunerate their senior staff) they could elect to follow a standard more in keeping with what their most important stakeholder – the public – wants.

The appointment of an interim regulator of charities has been taken by many to indicate that new standards of transparency are just around the corner. But the civil servant in question has been careful in various public presentations to depress expectations.


Legislation
Úna Ní­ Dhubhghaill was until recently head of the small charities regulation unit in the Department of Justice, a team that has been in place continuously since the 2009 legislation began to be prepared nearly 10 years ago. These officials, together with those in the Commissioners of Charitable Donations and Bequests, will presumably form the administrative core of the new authority, the members of which have yet to be appointed by the Minister for Justice.

According to a presentation which she gave recently in Dublin, the interim regulator’s first priorities will be: the establishment of a new office, liaison with Revenue to develop an initial Register of Charities; making contact with charities that already enjoy charitable tax relief, to verify or supplement register data; creating and publishing a register; registering new charities; developing and introducing reporting requirements; and developing delivery programmes for other statutory functions.


Charitable purpose
The register is required only to provide the public with the name and registered number of each charity, its charitable purpose, the names of its trustees, and the addresses in the State where it is registered and carries on its business.

This modest plan should surprise no one. The Minister for Justice until very recently was of the view that charity regulation was a luxury unaffordable in current economic circumstances, and he is reported as having provided a budget of just €960,000 for the operation of the authority until it becomes self-financing from the registration fees to be paid annually by charities.

Smart charities are not waiting for regulation: they recognise that transparency is at the heart of their relationship with the public, which in turn is the source of their greatest asset, trust.


Patricia Quinn is an adviser on non-profit governance. She was the founder and chief executive of Irish Nonprofits Knowledge Exchange

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