Prosecutions against charities that do not file their annual report with the Charities Regulator will be ‘the next step’ in the regulation of the sector, writes Colin Kerr
The Charities Regulator is calling on non-profit organisations to prioritise compliance and transparency to support public trust at a time of rising regulation in the sector.
Published in late July, the Charities Regulator 2021 Annual Report revealed that just 64 percent of registered charities in Ireland had filed their annual reports on time.
Commenting on the finding, Helen Martin, Chief Executive of the Charities Regulator, said there had been a decline in the number of charities filing their annual reports within the required timeframe, a trend she called ‘disappointing.’
“Our registration and compliance units are assessing why some charities are failing to meet this statutory requirement,” Martin said.
Providing an overview of a charity’s finances and activities on the Public Register of Charities, these annual reports are an “important means” for registered charities to provide basic information to the public, Martin added.
“The question for charities is whether they can afford not to comply with the requirement to file annual reports. Funding is the number one concern for charities we surveyed last year, and as inflation brings an increased cost of living, it will remain so,” she said.
“There is a strong link between greater transparency and accountability and public trust in the sector, making their annual report to the Charities Regulator an important means for registered charities to provide basic information to the public on their finances and activities in the previous year.”
Under the Charities Act 2009, every charity must submit its annual report to the Charities Regulator ten months after its financial year ends.
“In 2021, we noticed a drop-off in the rate of compliance with this requirement,” said Tom Mulholland, Director of Compliance and Enforcement with the Charities Regulator.
“The Charities Regulator came into existence in 2014 and, every year prior to 2021, the rate of compliance was increasing year-on-year.
“We are concerned with the reduction of the number of charities filing their annual reports on time, as this is a legal requirement.”
Mulholland pointed out that filing an annual report to the Charities Regulator was not an onerous process.
“The report is filed online, and it is a straightforward form, which requires basic figures including income, expenditure, assets, and liabilities. It is an opportunity for charities to give details of the work they carry out,” he said.
“There is a free text section on the form, which allows the charity to detail their activities, which means that if someone is looking up a charity on the Register of Charities website (charitiesregulator.ie), they can see from the most recent annual report what the charity itself is saying about its activities.”
Those charities that file their annual reports to the regulator were also demonstrating to the public that they were compliant with their obligations.
Mulholland said: “This should be a comfort to someone who decides to donate to a charity, and it also allows the donor to get information about the charity in terms of its income, expenditure and activities.”
While the Charities Regulator had always been ‘proportionate’ in its interaction with charities, Mulholland said that, in the interest of fairness and due diligence, it had to consider those charities which were making the effort to be compliant when dealing with non-compliant parties.
“We are considering our options when dealing with those charities that do not file their annual reports to the Charities Regulator,” he said.
“It is possible to remove a charity from the Register of Charities. This has serious consequences–an entity that is not on the register is not permitted to call itself a charity or conduct any charitable work under the Charities Act.
“It is also an offence under the Charities Act not to file an annual report with the Charities Regulator and we are actively contemplating acting against those charities that are not compliant,” he said.
Mulholland said that the Charities Regulator could opt to prosecute a charity in the District Court.
Prosecutions have been taken against entities acting as charities, which are not on the Register of Charities. To date, however, no prosecution has been taken against charities that do not file their annual reports.
“The Charities Regulator is evolving and we have been in business since 2014. We take a proportionate response in relation to our interactions with charities and we tend to interact with charities rather than dictate actions to be taken,” Mulholland said.
“Having said that, prosecutions against charities, which do not file their annual report with the Charities Regulator, will be the next step in the development of regulation of the sector.”
Under the Charities Governance Code, Chartered Accountants looking after the accounts of a charity should have access to the minutes of the meetings of the charity’s trustees.
“Accountants working with charities should be able to see these minutes, which should show that the trustees are taking an active part in the running of the charity and that the decisions they make are clear from the minutes,” said Mulholland.
“There is also legislation before the Oireachtas, the Charities (Amendment) Bill 2022, which provides for the introduction of accounting regulations in relation to charities, which will supply a format for the preparation of financial statements in relation to charities. The Bill will also herald the introduction of Charities’ Statement of Recommended Practice (SORP) requirements for charities with an income of more than €250,000.”
Already in force in Britain, SORP is not yet a requirement in the Republic of Ireland. The Charities Regulator is also continuing to promote the Charities Governance Code, which sets out minimum standards for managing and controlling Irish charities.
The code was established to help charity trustees implement processes that meet their legal duties under charity legislation. “The code was rolled out in 2021 and we are pleased with the uptake, which is around 69 percent,” said Mulholland.
“One of the aims of the code is to encourage transparency in Irish charities. One of the ways charities can show transparency is through the clarity of their financial statements.
“We would also urge charities filing their accounts with the Companies Registration Office to file their full financial statements rather than their abridged statements.”
In conclusion, Charities Regulator Chief Executive Helen Martin said that compliance with the Charities Governance Code, and with the requirements of the Charities Regulator, could only benefit individual charities directly.
“It is public money that is being spent here,” Martin said, “and everybody from the donors to the Regulator to the charities themselves want to make sure that these funds are spent in a transparent and accountable manner.”
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