Anyone can set up a charity in Ireland and collect money - and charities don't have to register or file annual reports. Last week's call by the LawSociety for reform of charity law is only the latest of such recommendations. Yet nothing has been done, writes Paul Cullen

Almost 90 per cent of the population donates to charity, but few of us know very much about the organisations that get our money. The glossy advertisements tell us about the good work the charity is doing in Ireland or around the world, but we learn little about the financial details.

For instance, how much of our money gets to those for whom it is intended? How much is spent on overheads, marketing and other expenses? Are professional fundraisers involved, and how much do they pocket? How much does the boss of the organisation earn? Like most companies, charities prefer not to dwell on such matters. Yet the charity business is like any other these days - highly competitive, constantly changing and always on the lookout for the latest marketing and money-raising techniques.

While this reality of cut-throat competition hardly accords with the public's perception of "do-gooders", both aspects form part of the make-up of most charities.

What marks the sector out from the rest of the business world is the virtual absence of any regulation. Anyone can set up a charity, collect money by various means, and use it for whatever they wish. Charities don't have to register, and they don't have to file annual reports. They shouldn't break the law, but the regulations governing this area are so scant and neglected that there is little chance of the law ever catching up with them.

No wonder, then, that Justice Minister Michael McDowell last year compared the situation, and the potential for loss of funds to fraud or embezzlement, to "a time-bomb ticking away". McDowell, who was then the Attorney General, said there was a high risk of a "black hole" emerging at a charity unless regulation was introduced.

Yet, despite numerous calls for reforms; the publication of high-powered reports in 1990, 1995 and 2000, and the general support of the established charities, nothing has happened.

"It has never been far enough up the political agenda. In addition, responsibility for the area has been hopped from one Government department to another," says Liam Flynn, chief executive of Action Aid.

The Department of Justice once looked after the policing of the charity sector, but this responsibility was then handed over to the Department of Social, Community and Family Affairs. Now, with the new Government, it's on the move once more, to Eamon O Cuiv's Department of Community, Rural and Gaeltacht Affairs.

There's a commitment in the Programme for Government to "a comprehensive reform of the law of charities" to ensure "accountability and to protect against abuse of charitable status and fraud". For the moment, though, all that's promised is yet another period of consultation before any action is taken.

Perhaps because of the lack of regulation, public trust in charities seems to be on the wane. A 1999 survey found that only 50 per cent of respondents perceived charities as honest, and almost one-third was concerned about their accountability. Half of those asked said they were tired of being asked to contribute to one or other charity.

Ironically, in the absence of registration, we have no idea how many charities are operating in Ireland today. Some 5,545 bodies receive charitable tax exemption from the Revenue Commissioners, but this list includes many organisations people don't usuallly consider as charities, such as universities, museums and schools.

Research carried out in 1998 put a figure of €382 million on the total value of money raised that year by charities.

As the Law Society's report on charity law noted earlier this month, fundraising is where the public is brought into contact with charities, and where unease at the ways in which money may be spent is most immediate.

At present, collections require the approval of the local Garda superintendent. In practice, few applications are refused and the penalties for offences are small. There are no requirements to disclose the payment, if any, going to the collector, or the percentage going to the charity.

But even these scant regulations have been side-stepped by the development of casual street trading by charities. No permit is required of collectors who fundraise by selling a token - such as a daffodil or happy heart pin - provided they are not paid a fee.

"This has the effect of saturating certain areas such as Grafton Street with collectors in competition with permit holders for that area. It also means that these fundraising activities, which represent a large proportion of street collections, are currently unregulated," the Law Society report comments.

Neither are permits required for the collection of promises of money, such as standing orders. This kind of "face-to-face" canvassing of potential donors has been enormously successful for some agencies in recent years. While many citygoers find the pitch of the clipboard-bearing collectors intrusive, the technique pays off for the charities by offering the possibility of regular monthly payments instead of a one-off contribution.

The Celtic Tiger is attractive to foreign charities. Sight Savers International, from Britain, raised more than €500,000 in Ireland using face-to-face marketing and direct mail before it even established a base here. The Tear Fund, another large Third World agency from Britain, is coming here, and the French agency, Médicins sans Frontières, is considering establishing an Irish base.

"The result of this growing intensity in competition is that it is getting more difficult to raise money, although the public remain generous," says Liam Flynn.

In response, charities have become more professional in their fundraising. Some now employ professional fundraising companies, such as Personal Fundraising Partnership or Caring Together. Typically, the charity will pay a set fee to the company, as well as, in some cases, passing on the first three months of a standing order contribution.

The Internet is another area where no specific charity regulations apply. Many Irish charities, such as Amnesty Ireland, Trocaire and Focus Ireland, already accept online donations; 10 per cent of those signing up for Concern's 24-hour fast in 2000 did so over the Internet. These days, you can donate by telephone, telethon and SMS. "But there's only so much you can do with marketing techniques; if there isn't a ground swell of generosity there, you can market away till you're blue in the face, without success," says Paddy McGuinness of Concern.

Fortunately for charities, donations have generally increased in pace with the economic boom of recent years. Concern's current appeal for Southern Africa has raised €3 million, so far.

Many of the established charities are set up as companies limited by guarantee, and are therefore subject to the requirements of company law, such as publishing annual reports. "So it's not strictly true to say there's no regulation in the sector," says Sheila Norden of the company Irish Charities Tax Research.

Finance Minister Charlie McCreevy introduced a tax-relief scheme for all charities last year, but the payment of VAT remains an issue in the sector. "They're not required to charge VAT but, unlike companies, they can't claim it on the goods they buy. So, for example, if a hospice needs to buy specialist beds, it has to pay VAT and this ultimately goes to the Government. Yet the Government is more than likely funding the hospice, so this make little sense," says Norden.

Paddy McGuinness suspects money might be behind the Government's failure to legislate. "A regulatory body doesn't come cheap, and it brings with it new and possibly costly responsibilities."

"But there isn't any other way; it's the only thing that make sense," says Liam Flynn. "We don't want an Enron here."

Goal: The Department of Foreign Affairs suspended its funding of GOAL in July 1997 after an investigation by the EU fraud unit identified possible irregularities in the agency's accounts. GOAL denied there was anything wrong and blamed the Department's decision on annoyance with its opposition to government aid policy. EU funding was also suspended.

A report commissioned by the Department later recommended stricter financial controls at the agency, but found no evidence that funds were improperly diverted for purposes other than development. Funding was resumed in 1998.

Concern: Last November, a number of donors to Concern complained about receiving mailings from a financial institution, GE Capital, which appeared to be aware of their donations. It transpired Concern had agreed an "affinity arrangement" with a separate direct marketing company. The Data Commissioner determined that the agency had not used its database legitimately by facilitating direct marketing by a financial institution.

The agency stopped the practice immediately and apologised.

Messiah: The company which produced Messiah XXI for the Millennium celebrations pledged to give a percentage of any profits to charity. But the production, which received grant aid of almost €900,000, was a flop - and no profits were generated.