What price accountability in the nonprofit sector

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Benefacts’ office is very busy these days because the period between September and December is when 75% of Irish nonprofit companies are required to file their annual financial statements. That’s because most have a financial year-end of 31st December. Companies are allowed nine months to prepare and adopt their accounts, have them externally audited, and present them to an annual general meeting of their members before filing them with the Companies Registration Office, which is where Benefacts gets them – they are public documents.

Audited financial statements are an extremely important source of data in the Benefacts Database of Irish nonprofits, because they have been verified as providing a true and fair view of the organisation’s finances. Benefacts uses them to find details of a nonprofit’s income, expenditure, assets and liabilities, as well as information about the numbers of employees, payroll costs, and other information of wide public interest.

So far, our team of financial analysts have digitised the contents of the 2015 financial statements for almost 5,000 nonprofits: our plan is to release the full set for 2015 in a major update to the database which will be published in Spring 2017.

A new trend that has given us cause for concern is the high number of nonprofits – including many that rely on public finding – which have elected to provide just a summary of the financial statements, in the form of “abridged” financial statements. Others have chosen to file accounts that have not been audited. Until last year, companies limited by guarantee were not permitted to file abridged or unaudited financial statements, but when the Companies Act 2014 made the reporting threshold for smaller companies available to all companies (including not-for-profit ones), many chose to take advantage of this. This means Benefacts is not able to present an analysis of their finances, and we report this on their Benefacts listing.

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In fact, compared to this time last year, we have seen a four-fold increase in the number of nonprofits filing abridged accounts.  As we write this, in excess of 20% have filed abridged accounts. This means that the company has chosen to put only very limited information about their income and expenditure in the public domain.

More positively, at the other end of the disclosure spectrum, about 5% of all nonprofits (9% of registered charities) have voluntarily elected to adopt best practice standards in financial reporting – the charities statement of recommended practice (or SORP). See below for a list of nonprofits that adopted the Charities SORP for their 2014 financial statements.

Advocates for greater transparency in charity accounting – including the incoming CEO of the Charities Institute of Ireland Lucy Masterson and the Charities Regulator John Farrelly – have encouraged charities that receive public funding to adopt the highest standards of public disclosure in publishing their annual accounts, and in fact a recent call for submissions from the Regulatory Authority, invites interested members of the public to comment on proposed new public reporting standards. Click here to review Benefacts’ own submission.

Tune in next week when we’ll be taking a closer look at SORP and some other current initiatives in this area.

 

Nonprofits that Adopted Charities SORP in 2014