Charities and not for profit

Governance and the charity sector

With instances of poor governance having tarnished the sector as a whole and with public trust in charities now well below its peak of 74% in 2012, can your organisation afford not to apply best practice?

In the Republic of Ireland, there were 9,061 charities in the Register of Charities at 31 December 2017, an increase of 1,058 from the end of 2016. The number of concerns received by the Charities Regulator about organisations in 2017 was 67% greater than the previous year, according to its annual compliance report. The Charities Regulator received 531 concerns last year. An analysis of concerns received since the Charities Regulator was established in October 2014, up to the end of 2017, shows the main category of concerns related to financial control and transparency (29%), legitimacy of a charity (23%) and governance (23%).

Similar statistics apply to Northern Ireland. At present, there are over 6,000 charities registered with the Charity Commission for Northern Ireland.

A recent consultative panel defined good governance as the duties and responsibilities of the charity trustees to put in place systems and processes to ensure that the charity achieves and sustains its charitable objectives with integrity and is managed in an effective, efficient, accountable and transparent manner. This has been further underlined and expanded upon with the recent release of Chartered Accountants Ireland “Concise Guide of Ethics and Governance, for charities and not for profit sector” which is supported by both the Charities Regulator Ireland and the Charities Commission Northern Ireland.

It is widely believed that good governance should be applied in a holistic manner, which should mirror the individual values and ethical culture of the organisation. While rules, processes and policies are key in ensuring that the charities/not for profit perform well and comply with legal requirements, good governance will only succeed if it is truly embedded in the culture and the fundamental structure of each organisation. It is widely believed that the best starting place is with the behaviour of the trustees, leading by example. 

Governance ensures that basic processes and controls are in place within a charity, which will ensure transparency and accountability within a charity, and will assist charity trustees in carrying out their statutory, regulatory and fiduciary duties. This will go towards restoring public trust and confidence in the charities sector as a whole.

The recent guide launched by Chartered Accountants Ireland, provides explanatory and practical information to both current and prospective trustees of charity and not for profit organisations. It outlines both the duties and responsibilities of trustees from a statutory and regulatory perspective along with the expectations of a trustee from the sector.

Given the diversity and range of entities within the Not for Profit and Charitable sector a one-size-fits-all model is not appropriate in the context of the scale and scope of Irish charities. However, it is clear that good governance ensures that charity trustees can carry out their statutory duties which include but are not limited to:

  • ensuring that the charity is carrying out its charitable purposes for the public benefit;
  • acting in the best interests of the charity;
  • managing the assets of the charity;
  • ensuring the charity keeps proper books of account; and
  • acting with reasonable skill and care.

There are a number of ways in which charity trustees can ensure good governance within their organisation, such as ensuring their board of trustees meets regularly; is diverse; has a good skills and gender mix; has induction procedures in place and a focus on succession planning. All of these will enhance the management of any charity.

As part of the production of the guide Chartered Accountants Ireland engaged in a number of initiatives conducting a series of focus groups across the island of Ireland, using a structured discussion guide, obtaining views from the sector. As a result of the above process of production the participants identified 8 attributes of a well-functioning board of trustees. These are outlined as follows:

  • Strong relationships between members of the board
  • Teamwork
  • Constructive criticism
  • Communication
  • Clearly defined roles and responsibilities
  • Terms of reference
  • Diverse members
  • Ethics

Good governance is something all charity trustees should insist upon and strive to achieve. This will create a standard of excellence within a vibrant charities sector, valued for the public benefit it provides. 

The Charities Regulator in Ireland has recently indicated its intention to seek regulations pertaining to accounting and reporting. These regulations will provide a key foundation and framework for charities to improve their governance. The Charities Regulator has requested the amendment of the Act, to ensure that these regulations, when introduced, apply to charities which are also companies. This approach will ensure a coherent, proportionate framework for both accounting and reporting by all registered Irish charities. A corporate governance code for charities is anticipated to be launched in November 2018, with regulation concerning accounting and reporting being passed in 2019, taking effect from 2020. 

The introduction of accounting and reporting regulations will increase transparency, incentivise best governance practice and enable charities to evidence this to the Charities Regulator, donors, beneficiaries and ultimately assist with the restoration of public trust in the sector.

The Concise Guide of Ethics and Governance for the Charity and Not-For-Profit Sector published by Chartered Accountants Ireland is available to download here.