Significant work has gone into the development of the new regulatory framework for not-for-profits in recent years. The Charities Regulator has been visible and delivered a consistent message on governance and regulation while publishing a steady stream of guidelines on fundraising, internal controls, conflicts, promotion of political causes and role of trustees. The latest guidance is the Charities Governance Code.
Aedín Morkan, audit and assurance partner at Mazars, said the various not-for profit umbrella bodies have invested in building knowledge and capacity with the aim of increasing public trust in the sector.
“Initiatives such as the Good Governance Awards recognise and reward the efforts to achieve high standards in governance and financial reporting,” she said. In considering how not-for-profits are adapting to this new regulatory framework, Morkan identified three broad categories which they fall into.
First, many organisations are making a concerted effort not just to comply but to be best in class in governance, regulatory compliance and financial reporting. They are embracing the spirit of the Statement of Recommended Practice for Charities (Charities SORP) and the Charities Regulatory Authority (CRA) guidelines, and they are well on the way to early-adopting the new CRA Governance Code.
The second group are charities which have good intentions but fail to deliver on these due to lack of resources, lack of capacity or perhaps underestimating what is involved. Others in this category consider they are compliant with Charities SORP or the CRA guidelines, but evidence would suggest otherwise.
Finally, there are those not-for-profits in varying states of denial or blissful ignorance. To think there are none in this category would be naïve. “Based on my own experience within the sector, I think most not-for-profits fall into category two,” said Morkan. “So why, despite the development of the regulatory framework and the extensive range of training and information sessions on offer, are all charities not in category one?
“One of the factors is the size of the sector. There are 29,300 organisations, of which 9,800 are charities, according to the latest data published by Benefacts. The variation in size is enormous, ranging from the large state-funded bodies in receipt of hundreds of millions in income annually to the unincorporated volunteer-only community groups. While the new governance code has sought to be proportional, it is a difficult task to balance the needs, the capacity and the individual circumstances of such a diverse group.”
Morkan said the compliance requirements for not-for-profits have mushroomed in recent years. “Is any other sector required to comply with quite so many reporting and compliance obligations?” she asked. “Regulation, reporting and compliance are critical to safeguarding the use of public funds and protecting our most vulnerable.
However, a more streamlined compliance framework would make for more effective use of public funding. “Not-for-profits continue to grapple with financial sustainability. Many have no visibility of funding beyond the end of the year; many service arrangements are not formally signed off until midway through the year of funding; many are delivering what should be state services at a cost which is significantly more than the contribution made by the state. Therefore, it is no surprise that voluntary guidelines are not top of the priority list.
“I believe that professional advisers have a role to play in rebuilding public trust in the sector. We can adopt a supportive role to our not-for-profit clients as they adapt to this new regulatory framework, actively encouraging and guiding them to achieve best in class in governance, regulatory compliance, internal control and financial reporting.
“Through my work with the Good Governance Awards and the Published Accounts Awards, I see that the degree of compliance with Charities SORP varies quite significantly. Similarly, the increase in the number of not-for-profits filing abridged accounts is of concern. While responsibility ultimately rests with the directors/trustees, I would expect all good advisers to promote early adoption of, and full compliance with, Charities SORP and to discourage the filing of abridged accounts.”
This article first appeared in the Sunday Business Post 9th June 2019.