After many months of continuous bad press concerning the management of a few charitable organisations, all charities may feel themselves tarnished with the same brush. The revelations of how some charities have been managed and how the funds they raised were used have caused huge alarm among the public. In the absence of full implementation of the Charities Act 2009, the absence of a strong and ethical board, poor internal corporate governance policies and the lack of a uniform framework of how best to disclose their financial stewardship, some charities are left struggling to achieve “Best Practice for Charities”.
The Charities Act 2009 was enacted on 28 February 2009 but to date has not been fully implemented and the aim is to undertake it in stages.
The purpose of the Charities Act 2009 is to reform the law relating to charities in order to:
- ensure greater accountability
- protect against abuse of charitable status and fraud
- enhance public trust and confidence in charities and increase transparency in the charity sector
Important parts of the Act will provide for:
- a definition of charitable purposes for the first time in primary legislation
- the creation of a new Charities Regulatory Authority to secure compliance by charities with their legal obligations and also to encourage better administration of charities, (a CEO has been appointed to the office, with operation of the office to hopefully begin later this year)
- a Register of Charities in which all charities operating in the State must register
- the submission of annual activity reports by charities to the new Authority
- updating the law relating to fund-raising, particularly in relation to collections by way of direct debits and similar non-cash methods
- the creation of a Charity Appeals Tribunal
- the provision of consultative panels to assist the Authority in its work and to ensure effective consultation with stakeholders.
Review of the Board, Management & Corporate Governance Procedures
All charities need to review their boards, their management and their corporate governance procedures to identify that they have the personnel, policies and procedures in place that will ensure the proper management of the charity and that they will also achieve the objectives of the charity. The personnel need to be adequately experienced for their roles and have the correct moral and ethical beliefs for the proper management of the charity.
Good corporate governance is achievable, however it has to form part of the culture of the organisation and all charities should implement a programme to communicate and raise awareness amongst all participants within the charity of its policies and procedures.
Accountability and Financial Reporting
The Charities Act 2009 has not yet prescribed the financial reporting format which charities are to use when presenting their financial information for a period, but it is widely expected that it will be similar in nature to what is currently used in the UK by the Charities Commission. In 2005 the UK Charities Commission issued a Statement of Recommended Practice (SORP) in connection with the preparation of financial statements by charities, which some of the larger charities in Ireland have used in the preparation of their financial statements.
Charities may well be advised in preparation for the new regulations and reporting requirements to review their day to day operations and internal workings on matters such as how they raise their money, who is involved in raising their funds, what are the charity’s costs and how the funds raised are used. This exercise should bring to light any costs and practices which the public would deem to be both wasteful and ethically questionable and that also may fall foul of the new legislation. Any problems arising should be addressed and rectified immediately.
Most charities will welcome the regulation and requirements of the Charities Act 2009, to prove how they have been compliant and to show how they have been conducting the charities’ operations. They will want to present the information publicly, so that the charity and its’ board are seen to be accountable, transparent and above all beyond reproach in all the financial transactions that have taken place.
However, the Act cannot provide for the human element of boards and management and in this respect there is a need for strong, ethical individuals, a culture and adherence to the application of internal corporate governance and full disclosure of all monetary transactions.
If you are a board member or involved in a charitable organisation and feel it could benefit from an independent review of its operations/financial reporting contact us on 021 4641400 or email firstname.lastname@example.org
Blog post by Patrick Kearney, Partner, Quintas.