Delivering a vibrant and trusted charities sector

Dec 01, 2017
Charities Regulator, John Farrelly, talks about upcoming regulatory changes and the role Chartered Accountants can play in supporting the sector.

The Charities Regulator has just completed an extensive public consultation process on the future governance of charities. This consultation will inform the deliberations of a panel established by the regulator to make proposals for the governance of charities and to support trustees in their duties. These proposals will, in turn, feed into new legislation to amend the Charities Act 2009. The new legislation will mean that, for the first time, all registered Irish charities will have regulations regardless of their legal form.

The intention of this new legislation is not to impose an onerous regulatory burden, but to instead support the sector according to Charities Regulator, John Farrelly. “We want the public to be able to have confidence in the good work charities are doing”, he says. “There are good people in charities doing good work in the public interest and they should be protected and encouraged. As a regulator, we aim to apply the law so that good charities can flourish.”

He points out that a one-size-fits-all approach will not work for a sector which comprises 8,860 charities with 47,000 trustees at the last count. “Good charities regulation needs to take the diversity of charities into account”, says John.

Understanding the challenges

Having volunteered and worked as a manager and board member in a number of charities over the years, he is mindful of the varying levels of capacity and capability, as well as the pressures, faced by charities.

“As a regulator, we will more effectively deliver on our mandate if we understand the charitable sector and its challenges”, he adds. “This requires engagement and consultation. The international evidence shows that engagement is a key feature of an effective regulator. We have put considerable effort into this.” Indeed, the recent consultation process is an example of this engagement.

It would be easy but incorrect to assume that the process is a response to some of the recent scandals which have beset the sector. “I don’t agree that you can look at the failings of a few people in a few charities and say that there are failings in them all,” John argues. “A small number of them are struggling with governance, but they are attempting to do things right. Our role is to support them. There has never been a structure in place before now to support trustees.”

Key changes

One of the key changes that will be made in the New Year is the introduction of mandatory reporting. “This will be proportionate. It will bring a greater level of transparency in areas such as trustee expenses, related party transactions, salaries and so on, and there will be independent scrutiny of accounts.”

He explains that one of the Charities Regulator’s key functions is to ensure that charities are accountable for their funds to donors, beneficiaries and the public. “We see a charity’s set of accounts as playing a vital role in delivering that transparency and accountability,” Farrelly continues. “The new regulations make Charities SORP mandatory for larger charities and this will bring greater transparency in terms of disclosures.”

For smaller charities, this will involve an independent examination of accounts while larger concerns with turnover above €250,000 will require a full audit. “An auditor gathers evidence that everything has been done correctly, while an independent examiner will bring to the attention of the trustees issues that they think need to be addressed,” John explains.

The role of Chartered Accountants

Chartered Accountants will be key players in both areas and have a major role to play in the running of charities, John adds. “We know that there is a strong inclination towards voluntarism on the part of the accountancy profession. We would encourage that. This is a group of people with a significant amount to offer to their local community. Many Irish charities are well-served by trustees who are Chartered Accountants volunteering their time in the public interest.”

John believes that adopting and consistently demonstrating high levels of governance, accountability and transparency are essential in helping organisations foster the trust of their donors and beneficiaries. “In fact, I would say that irrespective of regulation, it is the transparent, accountable charity which will command trust and confidence and, therefore, deliver best on their mission.”

The role of professional accountants is critically important in this respect. “It is vital that when auditors are planning their charity audits, they first recognise that they are auditing a body that is managing, controlling and expending charitable funds,” he says. “This is crucial. Auditors must test the probity of expenditure in relation to the spending of all income. They also need to raise with the charity trustees matters they find in relation to internal financial control issues. In addition, I see a wider role for accountants and auditors – adding value to their clients in terms of improving governance and financial management within charities.”

Increasing public trust

Auditors and independent examiners should be seen in a positive light by charities, according to John. “The audit and the independent examination are tools to support trustees,” he points out. “Chartered Accountants are out there doing the work and they understand the needs of the charities. They provide valuable help and advice to trustees.”

He welcomes the fact that accounting bodies like Chartered Accountants Ireland are including CPD training days in the area of charity accounting. “I see this as a key step to ensuring that accounting professionals are equipped to conduct charity accounting engagements in a professional and value adding way. We would also encourage Chartered Accountants to continue to volunteer to act as trustees and offer their time and expertise to charities.”

The Charities Regulator will play its part as well. “We have developed a new online tool for trustees that explains in an interactive way their duties and responsibilities. We are also putting in place IT systems with the capability to monitor proactively the activities of charities so that we can support people who are doing good work and get involved to help those charities where we identify a risk.”

The Register of Charities is another key step towards increasing public trust and confidence, adds John. “The register will provide relevant information to donors, beneficiaries and the general public”, he notes. “It will help to strengthen the accountability of each individual charity and the overall sector. It is a key regulatory tool in transparently connecting the public to the work of charities. The register provides assurance to members of the public that this charity is real and is worth supporting.”
The Charities Regulator will use the register to educate the public on how to identify and support a registered charity. “The public will become our eyes and ears and contact us if they believe a person or entity is pretending to be a charity or if a charity is not in compliance with the law,” he explains.

“A well-regulated sector is one that assures the public and enables people to give with confidence”, John concludes. “We have been vested by the State, on behalf of the people, with certain powers and we will use them responsibly. We will regulate the charity sector in the public interest so as to ensure compliance with the law and support best practice in the governance, management and administration of charities.”