Charities found wanting in resistance to regulation

Reform of Irish charities legislation will finally come into force next year – more than five years after the enabling legislation passed through the Oireachtas and was enacted.

It's badly needed. As of now, the most recent specific legislation governing the activities of charities in Ireland dates back 40 years to the Charities Act of 1973 and, prior to that, 1961. In the same period, there have been 13 separate Companies Acts.

Notably, neither of the Acts which provide the legal framework for the sector includes provision for regulation of an “industry” that has expanded beyond the wildest imaginings of that legislation. For example, there are no rules governing the collection of non-cash donations – direct debits and the like – which are a central platform for many charities these days and also a loophole allowing for on-street “chuggers” and door-to-door solicitation.

The focus of regulatory oversight will be to improve governance, transparency and accountability for the State's 8,000-plus charitable groups, largely through the introduction of a Charities Regulatory Authority, which will have responsibility for ensuring compliance with the legislation, including the establishment of a register of charities. But legislation is only as good as compliance it secures.

Back in 2011, addressing the Irish Charities Tax Research (ICTR) group, Minister for Justice Alan Shatter explained his decision not to implement new law because of budgetary constraints and troika priorities: “Just by way of comparison, the Scottish Charities Regulator, which is perhaps the closest comparator to this jurisdiction, has almost 50 staff to fulfil its statutory functions . . . In our current circumstances, there is no real likelihood of us matching the Scottish model.”

Now apparently, the Minister has determined it is possible to establish the new structure with a staff of 20 – charged also with fulfilling the functions of the outgoing Commissioners of Charitable Donations and Bequests, which will be subsumed into the new body.

While austerity has encouraged a challenging of benchmarks for spending and staffing requirements, it will be important that the long-delayed introduction of this pivotal legislation is not undermined from the outset.

Charities are under pressure. A recent survey from the Wheel, a support body for the sector, said almost two-thirds of respondents had seen their income fall, with one-third having had to cut back services in the first half of the year - at a time when two-thirds reported increased demand for those services.

Ripe for consolidation
But they haven't always helped themselves. The level of overlap between organisations is inevitably wasteful of resources. Complementary groups compete for funding and for headlines in a way that is confusing for donors. In a climate where the Wheel warns that many may be forced to close, there is surely plenty of capacity for logical consolidation.

Also, in that 2011 speech, the Minister stressed the need for greater “buy-in” by charities for codes of practice, including “Guiding Principles for Fundraising” put in place by the ICTR.

“Despite the considerable efforts and groundwork undertaken by the ICTR, and the substantial investment to date from the exchequer, the number of charities that have actually signed up so far for the codes is disappointing . . . the overall level of take-up thus far does not demonstrate the genuine hunger for regulation that representatives of the sector have always asserted exists.”

Two surveys – by accountants Grant Thornton and Russell Brennan Keane – last year showed that little had changed. RBK noted that four in 10 respondents were unaware of the ICTR code, and only a small number had signed up to it.

The Grant Thornton survey of 990 charities reported a “buy-in” level of just 12 per cent, with 42 per cent of respondents refusing to do so. On codes of governance, 52 per cent said they had yet to sign up for one of two available – of which four in 10 said they were unaware of any code.

In relation to financial reporting, the picture is no better. Charities in the UK are obliged to file financial statements in compliance with the Statement of Recommended Practice (Sorp) for Accounting and Reporting by Charities laid down in 2005 by the Accounting Standards Board. This was responsible for setting accounting standards in Britain and Ireland until last year when its functions were assumed by the new Financial Reporting Council.

While Irish charities will not be obliged to publish financial statements until the new authority is established next year, according to the Grant Thornton report just 20 per cent have adopted the sector-specific Sorp. Sixty per cent had no plan to do so – of which 45 per cent were unaware of their existence seven years after they were introduced. As Grant Thornton put it in its annual Not for Profit survey: "Thus financial reporting by the sector in Ireland is very inconsistent which makes it very difficult for users of the financial statements to make proper comparisons between charities."

In a climate where the State is still the largest single donor – accounting for about 60 per cent of funding to groups with charitable status and about €6 billion in exchequer funds each year – it is incumbent on charities to up their game.