Registration and reporting
The Charities Act was commenced in October 2014. As of June 2019, more than 10,000 charities are registered with the CRA and listed on the register.
The ‘carrot’ aspect of the register is that charities can demonstrate their ongoing compliance and commitment to transparency by their presence on the register and by submitting annual reports to the CRA.
The ‘stick’ is that carrying out charitable activities without being registered as a charity in Ireland (even if registered as a charity in another jurisdiction) is an offence.
The statutory functions of the CRA include increasing public trust and confidence in the management and administration of charities, as well as ensuring and monitoring compliance with the Charities Act.
Responsibility within charities for ensuring compliance with the Charities Act lies with the charity trustees, who are the directors/officers or other persons performing those functions within the charity, regardless of their title.
In terms of annual reporting obligations, compliant (or ‘good’) charities submit their annual reports to the CRA on time (ten months after their financial year-end). Leading (or ‘great’) charities take the extra step of voluntarily submitting their financial statements to the CRA and using the annual report as an opportunity to tell the charity’s story over the previous year and demonstrate transparency and good governance.
In addition to annual reporting obligations, every charity must ensure that its information on the register is kept up-to-date. Maintaining the charity’s details on the register is an important ongoing task (as well as being a legal obligation), as the register is often the first port of call for members of the public seeking to find out more about a charity.
The Charities Act introduced important whistleblowing obligations that require certain persons, who have formed the opinion that there are reasonable grounds for believing that an offence under the Criminal Justice (Theft and Fraud Offences) Act 2001 involving a charity has been or is being committed, to notify the CRA.
All charities should be aware of the whistleblowing requirements and should have procedures in place to ensure that notifications are made to the CRA where necessary.
Since its establishment, the CRA has published a suite of guidance documents to assist charity trustees in carrying out their duties.
These guidance documents breathe life into the charity legislation and provide practical tips and tools to charity trustees in relation to compliance. The CRA has published guidance on topics including fundraising from the public, internal financial controls, promoting political causes, and conflicts of interest.
Several of the CRA guidance documents have been drafted on a ‘comply or explain’ basis, meaning that charities should comply with the CRA’s guidelines or ensure that they can explain why they have decided not to do so.
For example, a charity that is governed by a charter or statute may not be in a position to make changes to its governing document as easily as a charity that is a company.
In those circumstances, the charity can explain its non-compliance, rather than seek to comply. Similarly, the fundraising guidelines are divided into obligations with which charities must comply and good practice recommendations that charities should follow.
‘Great’ governance includes reading the CRA guidelines and striving to implement their content to the full extent permitted by the charity’s governing structure.
It does not require a blanket adoption of all CRA recommendations, but rather a considered analysis as to whether a particular recommendation can be complied with.
If a charity is not in compliance with a particular guideline, it must decide whether it should amend its practices to comply with that guideline or whether there is a good reason why the particular guideline is not appropriate that it can explain to the CRA and the public.
A major development in charities governance was the publication of the Charities Governance Code by the CRA in November 2018. The code specifies minimum governance principles for charities.
For each principle, a core set of standards is prescribed for all charities on a ‘comply or explain’ basis.
The code also provides additional standards that should be met by charities with higher levels of income, complex organisational and funding structures, or significant numbers of employees.
For each standard, charities must determine what actions they take to meet the standard and what evidence they can show the CRA to demonstrate compliance.
The CRA has designated 2019 as the year for charities to get to grips with the code. All charities will be expected to implement the standards in 2020 and report on compliance in 2021.
It is anticipated that charities with good governance will implement the core standards and report on compliance annually, while those with great governance will actively debate, at board level, how to amend governance practices to better meet the standards of, and demonstrate compliance with, the code.
Often, what distinguishes the ‘great’ from the ‘good’, in terms of governance, is meaningful engagement by the charity trustees and an in-depth knowledge of the obligations that apply to them and to their charity.
A charity seeking to make the leap to best-in-class governance should consider the following:
- One of the greatest assets that a charity can have is an engaged board of charity trustees that understands its role and how to balance the charity’s mission with its compliance obligations. In appointing charity trustees, there is an inevitable tension between reappointing previous charity trustees to ensure the retention of corporate memory, and refreshing the skills and experience of the board. The introduction of term limits and rotation provisions in a charity’s governing instrument can assist with the transition of charity trustees and emphasise the importance of succession planning.
- Charity trustees aspiring to great governance will not only understand, but will also regularly review, the charity’s governing document. Regardless of whether a charity’s governing document is a company constitution updated for the Companies Act 2014 or a trust deed from the 1800s, it is the document that governs the charity and regulates the charity’s purpose, powers, and meetings, among other matters. Knowing and adhering to a charity’s governing document and updating it when it does not accurately reflect day-to-day practices can greatly assist a charity to achieve its mission.
- Inevitably, charity trustees will have other interests, both professional and personal, outside of the charity. The CRA guidance on conflicts of interest assists charity trustees in determining what a conflict of interest is, and how it can arise. Having a clear, concise conflict-of-interest policy in place is essential. Living its application and enforcement distinguishes great governance.
- Charities should have a good working knowledge of the legislation and guidelines that apply to the sector, including guidelines issued by the CRA and the Revenue Commissioners (where a charity holds a charitable tax exemption). The Charities Act is not the only legislation governing charities. Although certain sections of the 1961 and 1973 Charities Acts were repealed by the 2009 act, many sections of those acts remain in force and govern matters such as cy-près applications, applications to appoint new trustees, and requests to the CRA for its opinion or advice. The usefulness of these acts should not be overlooked, particularly where a charity finds itself constrained by its governing instrument.
In reality, the distinction between a good and a great charity will involve a careful balance of commitment to governance and dedication to the delivery of the charity’s mission. Irish-registered charities carry out many important missions across numerous counties and countries, improving the lives of countless people.
This work cannot be carried out in a vacuum, but must be executed in accordance with the regulatory regime that has been put in place to both support and regulate the charity sector.
The past few years have seen the introduction of numerous changes in the governance of charities.
While some of these changes derive from legislation, many were introduced by the CRA as guidelines to assist charities in adhering to charity law and complying with best practice governance standards.
Charities should have an awareness of additional regulation that might be introduced from time to time.
For example, although not yet introduced, the Minister for Rural and Community Development has the authority, under the Charities Act, to make regulations that prescribe the form of accounts to be prepared by charities.
It is expected that these regulations will require charities to prepare accounts using the Charities SORP (statement of recommended practice), which is an interpretation of FRS102. It is hoped that the introduction of these regulations will bring further transparency to the sector.
Opportuntiy for enhancement
While charities with good governance meet the minimum standards imposed, charities with great governance use the increased regulation and guidance as an opportunity to enhance transparency and demonstrate that they are best-in-class in terms of governance.
By embracing best-practice governance standards, many great charities anticipate that they will enhance public trust and confidence, as well as their internal operations.
It is this attitude, and the commitment to constant improvement, that truly separates the great from the good, in terms of governance, and encourages many of those charities that currently rest within the ‘good’ category to continue their journey to greatness.