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By Teresa Harrington, Charity and Not-For-Profit Sector Leader, PwC and Irene O’Keeffe, Director, Charity and Not-For-Profit Sector, PwC

The recently introduced Charities Bill is the first piece of charities legislation in Ireland in 30 years. It constitutes a major revamp of the regulatory environment for this important sector which represents approximately 8% of Ireland’s GDP. The Bill will provide clarity to the sector, protect it and enhance public trust and confidence. The Bill further reflects key principles of transparency, accountability and good governance outlined in the General Scheme for the Charities Regulation Bill, 2006 and reflects many of the suggestions and contributions submitted during the consultation period by organisations operating in the sector. Irish charities are well regarded at home and throughout the world. This well deserved reputation will now be underpinned by a system of regulation that protects and enhances it.

The sector was largely unregulated up until now. For example, there was no register of charities. One of the main changes under the Bill is the introduction of an independent Charities Regulatory Authority, a regulatory body for charitable organisations. All new charities will now have to apply to this body to be registered as a charitable organisation. Existing charities will be given six months to register. The registration process will require charities to supply three years sets of accounts, the charity’s constitution and details on how the charity intends to raise funds. All of this will bring a greater level of transparency to the sector and allow for establishing the bona fides of a charitable organisation.

Particularly welcome is the recognition of the need for proportionality, and the Bill provides for varying reporting and audit requirements depending on the size of the charity. Once the Bill is passed, charities will be required to file accounts, subject to certain audit thresholds. Agreed standards will be put in place for financial reporting, that will ensure consistency across all not-for-profit organisations. Unless gross income or expenditure of a charitable organisation falls below €100,000, the Trustees will have to prepare a statement of accounts in respect of each financial year in the form set out in the Regulations. Under the proposed terms of the legislation, these accounts must be audited within nine months of the end of the charity’s financial year. The Bill introduces the concept of examination of accounts for charitable organisations with gross income or expenditure of less than €100,000. This is an area that requires further clarification, given that this concept does not exist in company law or auditing literature.

The requirement for clarity in relation to fund-raising and the implementation of codes of good practice for fund-raising activities is also welcomed.

Overall the Bill is welcomed but will undoubtedly present challenges for some charitable organisations in terms of ensuring that they have the appropriate skills and resources. In addition, some cultural changes for certain organisations may be necessary so that they can adopt the principles of accountability and transparency which underpin the Bill.

Other significant detailed aspects of the Bill are as follows:

Establishment of Charities Regulatory Authority

The Bill as published by the Department of Community, Rural & Gaeltacht Affairs in April 2007 provides for the establishment of the Charities Regulatory Authority whose functions include:

-increasing public trust and confidence in the management and administration of charitable trusts and organisations; -promoting compliance by charity Trustees with their duties; -ensuring accountability of charitable organisations to donors and the public; -the provision of information and advice; -the establishment and maintenance of a register of charitable organisations.

Register of Charitable Organisations

A charitable organisation that intends to operate in the State must apply to the Authority to be registered and it is the duty of the Trustees of the organisation to make the application.

Existing charities must apply within 6 months of the commencement of the Authority or a later date as may be specified by the Minister.

Certain information must be submitted with the application, for example:

-copies of financial accounts for the 3 years preceding the application; -copy of the constitution of the organisation and details as to how the organisation proposes to raise money; -the appropriate fee to cover expenses in respect of the Register.

The Authority shall register the following details on the register as soon as practicable after registration:

-the name and principal place of business of the applicant; -the address of each premises in the State at which the applicant operates; -the names of the Trustees; -the registration number; -the objects of the organisation or trust; -any other matters the Authority deems appropriate.

Definition of Charitable Purpose

The Bill defines the following as being a charitable purpose:

-the prevention or relief of poverty or economic hardship; -the advancement of education; -the advancement of religion; -any other purpose that is of benefit to the community (a list is included in the Bill).

It is important to note that a purpose shall not be regarded as a charitable purpose unless it is of public benefit. In addition, a gift shall not be regarded as being of public benefit unless:

-it is intended to benefit the public; -if it confers a benefit on a person other than in his or her capacity as a member of the public or a section thereof, such benefit must be reasonable in the circumstances and necessary for the furtherance of the public interest.

Fund-raising

The Act provides for the following:

-Modernising aspects of the 1962 provisions of the Street and House to House Collections Act to take account of developments in fund-raising activities to reflect changes in collection mechanisms and to better safeguard the public interest, revising the definition of ‘collection’ and the introduction of a permit regime for direct debits or other ‘promises of money’. -Conferring power on the Authority to require charities to provide information on their fund-raising activities; -Implementing agreed Codes of Good Practice in relation to fund-raising operations.

It is important that charitable organisations implement and adhere to the Codes of Good Practice once they are finalised. The explanatory memorandum notes that work on the agreed Codes of Good Practice is advancing in co-operation with the charities sector.

Determination of tax exemption

The Bill clearly states that it does not affect the determination of eligibility for exemption from tax. A separate application for tax exemption must be made to the Revenue Commissioners.

Duty to keep proper books of account

The Trustees shall be responsible for the charitable organisation keeping proper books of account. The books of account must record and explain the transactions of the charity and enable the financial position to be determined with reasonable accuracy at any time. The books and records must be in a condition to allow the accounts of the organisation to be readily and properly audited and give a ‘true and fair’ view. Entries in the books of account must be made in a timely manner and be consistent year on year.

In essence charities now need to maintain the same standard of record keeping as if they had incorporated. These requirements are onerous. The books of account along with annual statements of account should be kept for a period of 6 years and must be available to those entitled to inspect the records. Failure to keep proper books of account is an offence where penalties will apply. This section of the Bill does not apply to charities that are companies.

Annual Statements of Accounts

Unless the gross income or expenditure of a charitable organisation falls below €100,000 the Trustees must prepare a statement of accounts in respect of each financial year in the form set out in the regulations. The exact form will be determined when the Authority is established. If the gross income or expenditure falls below €100,000 the Trustees may complete and income and expenditure account and a statement of assets and liabilities of the charitable organisation instead of the annual statement of accounts, in a form that may be prescribed by the Minister. Failure to prepare accounts is now an offence and penalties will apply. This section of the Bill does not apply to charities that are companies.

Annual Audit or Examination of Accounts

Not later than 9 months after the year end of the financial year the accounts of the charity must be audited by a person qualified to be appointed as a company auditor if the gross income or total expenditure exceeds €100,000 in the relevant year for the two preceding years.

For organisations what fall below the €100,000 limit the accounts shall, not later than 9 months after the year end be examined by an independent person approved by the Authority or audited by a person qualified to be an auditor. The Bill introduces the concept of ‘examination’ or accounts in lieu of an audit. This concept does not exist in company law or auditing literature. The level of assurance that will result from an examination is also unclear. This area requires further consideration. This section of the Bill does not apply to charities that are companies.

Annual Reports

Not later than 10 months after the year end of the financial year the Trustees must prepare and submit to the Authority a report on its activities in the financial year and other information as may be specified by the Minister.

The report must contain:

-the annual statement of accounts or income and expenditure account and statement of assets and liabilities as referred to above; -a copy of the auditor’s report where the accounts have been audited or a copy of the independent person’s report where the accounts have been examined; -for charitable organisations that are companies, a copy of the accounts prepared in accordance with the Companies Acts and a copy of the auditor’s report where such accounts have been audited must be attached to the annual return.

The explanatory memorandum to the Bill notes that provisions relating to annual reporting remain under discussion with the Department of Enterprise, Trade and Employment, and the Companies Registration Office, with a view to ensuring that any requirements for dual reporting by charities that are companies are eliminated to the greatest extent possible.

Public Inspection of Annual Reports

The annual reports and attached documents as referred to above shall be made available by the Authority to the members of the public. This requirement does not apply to private charitable trusts ie trusts not funded from public donations.

Remuneration of Trustees

Whilst the remuneration of Trustees is not specifically dealt with in the Bill, there is a reference to the repayment of remuneration, expenses and any benefit in kind in certain circumstances. There is no specific provision for remuneration of Trustees or for the purchase of indemnity insurance for Trustees.

Legal form for Charities

Charities have the choice of a number of different legal forms eg unincorporated, such as a trust or an unincorporated association, or incorporated, such as a company (usually limited by guarantee, rather than shares).

Relationship with other Statutory Bodies

The Authority will be empowered, subject to ministerial approval, to co-operate on an administrative basis with statutory bodies, both inside and outside the State.

Charity Trustees

The Bill sets out the circumstances in which a person ceases to be qualified for, or ceases to hold, the position of charity Trustee. A register of disqualified persons will be kept by the Authority and made available to the public. The Bill will also make it an offence to act, or purport to act, as a charity trustee while not qualified to do so.

Advocacy

Unlike the provision in the Heads of the Bill which proposed that ‘institutions established for the purpose of attempting to change the law or influence Government policy’ would have been excluded from being charities, there is no proposal to prohibit advocacy activity per se by charities in the Bill. However, under the Bill, any body, the principal object of which, is to promote a political cause is not entitled to be registered as a charity.

Investigations

The Authority will have wide powers to instigate investigations.

Charities Appeal Tribunal

The legislation will provide for an Appeals Tribunal in relation to appeals and applications for review concerning decisions made by the Authority. The Tribunal is intended to provide an alternative, particularly for smaller charities, to going to Court, and should facilitate keeping disputes out of the Courts system.

what changes did the charities will have in regard to poverty, education and region? or do they remain the same

will there be a system that allows me to check if an organisation doing a collection in my area is a registered charity.

Has the Charities Regulatory Authority been established? Where can I get more details without reading the Bill???

Has the Charities Regulatory Authority been established? Has the the Bill been passed? Commenced? Where can I find details of the appeals Tribunal. Has it been announced?

Thank you to all of the readers who have commented. We have fixed the problem and now you should be able to see the page with proper capitalisation.

Why all the capital letters? Is the webmaster a German ?

Thank you for your comment on Accountancy Ireland. We are aware of the problem when viewing articles in Firefox or on some mobile phones, and we are trying to fix it. If anyone could give some insight into how to rectify this problem, it would be greatly appreciated. If you view the webpage in Internet Explorer it will be in normal, and readable, format.

2Mike I think it's apparent from above that any charity (except private) will have to make their accounts publicly available throught the new authority ...a little off topic, but what's with the Capital Letters In Every Word?? or it's just me...

hi, i am tryinig to set up a charity which links ireland to ethiopia, can you send me more information on registration process and requirements, Thanks Niamh

can we force a charity to make their accounts public if you fear corruption?