OPINION:THE CHARITIES Act went on to the statute book in February 2009, and Minister for Justice Alan Shatter took over responsibility for putting it into force following the formation of the Coalition in 2011.
To date, the Act has still not been put into operation, with the exception of two minor provisions. The Minister has declared that he will not be moving to start the rest of the Act any time soon, because we cannot afford the additional costs of establishing a new charities regulatory authority.
No one has asked what are the costs of not having such an authority.
The Act was more than 10 years in gestation, and its preparation involved extensive consultation with the charity sector, the legal and financial accounting professions and others. The officials responsible for drafting it studied the regulatory regime for charities in British Commonwealth countries far and near.
The Act makes it mandatory for every charity to be registered, and for uniform public disclosure of up-to-date information about all charities – their purposes, programmes, governance and, for all save private charitable foundations, their finances.
It also provides powers and sanctions for dealing with abuses.
One of the costs of not enforcing the Act is the cost of compliance. In the absence of regulation, thousands of small charities (for example immigrant organisations, sporting bodies, religious entities, local services for young people or older people, and charities providing other community services) are forced to incorporate as companies limited by guarantee because there is no alternative source of regulatory scrutiny to satisfy funders’ requirements.
In the most recent year for which data is available from the now defunct Irish Nonprofits Database, 8,000 Irish non-profit companies with public benefit purposes spent almost €17 million on audit fees alone. For the very smallest of these (where total annual revenue was less than €50,000), this amounted to an average cost of about €1,200 – more than 7 per cent of annual turnover.
By contrast, in England, Wales and Scotland, only a fraction of charities are incorporated as companies. Under their respective regulatory regimes, small charities are able to avail of a simpler (but equally valid) kind of financial reporting, at a significantly reduced cost, and larger charities must provide detailed disclosures about the sources and uses of their revenue, including the salaries of their higher-paid employees.
The same provisions are written into the (unenforced) Irish legislation. Requiring small non-profit companies to file full audited financial statements – they are not allowed avail of the reporting threshold that allows smaller private companies to file abridged accounts – is like using a sledgehammer to crack a nut.
It creates a disproportionate administrative and financial burden on the charities themselves – and on the rest of us, because of course about 60 per cent of charities’ revenue derives from public sources.
Another uncounted cost of having no charities regulation is the tens of thousands of euro in lost donations to Irish charities from overseas sources. US-based corporate donors are required by US law to ensure beneficiaries of their funding comply with the equivalent of US charitable regulation standards.
Without charity regulation, they fall back on the poor substitute of charitable tax exemption from Revenue, which is by no means universal, is not mandatory, and provides almost nothing by way of either public disclosure or regulatory oversight. If a non-profit doesn’t have a CHY charity number from Revenue – and thousands don’t – they can’t receive donations from these lucrative sources.
Those are some of the tangible costs. They may be added to soon, if charities are called on to furnish detailed disclosures under regulations controlling the work of lobbyists or – the latest idea to surface – under Freedom of Information.
Maybe this incoherence is evidence of what happens when responsibility for regulating a sector is located in one Government department (Justice), and responsibility for policy resides elsewhere (Environment).
Instead of imposing a patchwork of regulatory demands intended for other purposes, why not implement the ones designed with the sector in mind?
These would deliver what the public wants: greater transparency and accountability for the public money charities spend in our name and for our benefit. It might prove cheaper in the long run. At the very least, it would help protect the biggest intangible asset of all: the public’s trust.
Patricia Quinn was the founder and chief executive of Irish Nonprofits Knowledge Exchange. She consults with charities on strategy and governance.