MORE IRISH CHARITIES are not publishing detailed financial information about the sources of their revenue, and what they’re spending it on.
While large companies (more than 50 employees, more than €12m in turnover) must file their financial statements in full, smaller companies can avail of a size exemption, permitting the accounts to be filed as “abridged”.
This means that while they must produce a directors and auditors’ report, balance sheet and notes – no information about income and expenditure during the year has to be provided.
Due to a recent change in the Companies Act, Irish nonprofit companies – including thousands of social enterprises and charities – can now avail of this exemption and they are doing so in steadily increasing numbers.
In 2016 – the year when companies limited by guarantee were first able to avail of the size exemption – the percentage of registered charities availing of the exemption was 24%. In 2017, the number grew to 32%.
Concerning trend
The organisations concerned cover a wide spectrum, some receiving substantial funding from government and from the public. They include nonprofits working in community development, culture, education, health and social services.
This is a trend that should be of concern to anyone interested in the question of public trust in charities.
Why do some charities avoid publishing financial information about their revenues, and what they’re spending them on? These are matters which, survey after survey tells us, are of keen interest to the public.
How can charities ask us to trust them more, when they tell us less?
Given the extent of regulation in place, it is perplexing that the authorities that fund charities and regulate them haven’t been able to apply common standards that recognise the public interest in this information.
A regulatory paradox
In fact, an unfortunate and surely unintended consequence of regulatory provisions combine to keep this information out of public view.
Government funders – who according to Benefacts analysis provide service fees or grants totalling more than €5.3billion to about 2,700 Irish nonprofits – have very strict requirements about what must be provided in the financial reports of organisations receiving public funds. But there is no stipulation that these accounts are to be shared with the public, just that they be provided to the government funder.
As a result, hundreds of nonprofits are able, perfectly legitimately, to file a full set of accounts with their government funder or funders, and an abridged set of accounts with the Companies Registration Office (CRO).
In addition, the Regulator of Charities is unable to require charities that are incorporated as companies to attach accounts to their annual return, because under the Charities Act, 2009, companies that are charities are explicitly excused from having to file their accounts with the Charities Regulator because they already file them with … the CRO.
These disclosure trends have come to light thanks to the work of Benefacts, which is funded by Government and philanthropies to make the work of Irish nonprofits more accessible and more transparent.
It has uncovered these trends because a team of financial analysts opens all of the financial statements filed by nonprofit companies each year with the CRO, digitises their contents and incorporates them into a database which is a unique source of free public information on the entire nonprofit sector, updated daily.
This is how, for the first time, disclosure trends based on real numbers – not estimates – have been published.
Where do charities’ best interests lie?
The good news is that while nearly one third of charities are choosing to limit their public disclosures, the leaders of major fundraising charities who are the members of the Charities Institute of Ireland are doing everything they can to promote greater and more transparent voluntary disclosure through the adoption of best practice – and highly transparent – charity reporting standards.
So most of the nonprofit directors and charity trustees who are sitting around boardroom tables in the coming weeks have a decision to make.
As they review the results for 2017, they need to consider whether they want to recommend to their members that the accounts be filed in full. The law (and their auditors) says they don’t have to, but a wider sense of their responsibility to stakeholders might tell them otherwise.
Patricia Quinn is the founder and managing director of Benefacts, a social enterprise established in 2014 to promote the transparency and accessibility of Irish nonprofits and their work.
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