This morning MD of Benefacts, Patricia Quinn hosted a masterclass on governance at The Wheel’s Annual Conference 2017. Entitled ‘Transparency in Action -Disclosure Practices in Irish Charities Today’, Patricia talked about the latest regulations and best practice in governance for the nonprofit and charity sector in Ireland. View full presentation here
We often get asked what is meant by the terms ‘Civil Society’ and ‘Nonprofit’ so let’s take a closer look at both the origin and meaning of these terms.
Civil society refers to the collective body of organisations that belong neither to government (the public sector) or the market (the private sector).
Nonprofit refers to individual organisations set up on a not-for-profit basis. This is a very wide definition that includes charities, community and voluntary organisations, non-governmental organisations, but also political, professional and membership bodies.
As many are not incorporated, we don’t describe them as companies. Likewise, we don’t call them charities if they haven’t yet registered as such with the Charities Regulator. All charities by definition are nonprofits, but not all nonprofits are charities because the law actually excludes certain categories of nonprofit including sports bodies, trades unions and political parties.
So where did these terms come from?
In the 1990s, at Johns Hopkins University in the US, the Comparative Nonprofit Sector Project (CNP) built a framework to carry out comparative analysis of the scope, structure, financing and impact of nonprofit activity by civil society organisations globally. This framework was subsequently adopted by the United Nations (UN).
The CNP produced two really important outputs:
- A definitive way to identify a nonprofit and
- A classification system grouping nonprofits according to their purpose.
How to identify a nonprofit: 5 core attributes
Organised: means organised or institutionalised to some extent. What is important is not that the organisation be registered or legally recognised, but that it have some institutional reality with a legal charter of incorporation. This excludes ad hoc or temporary gatherings of people with no real structure or organisational identity.
Private: means institutionally separate from government.This does not mean that nonprofit organisations may not receive significant government support or that government officials cannot sit on their boards. Rather, they must be “nongovernmental” in the sense of being structurally separate from the instrumentalities of government and they not exercise governmental authority.
Non-profit distributing: means not returning any surpluses generated to members or owners. Nonprofit organisations may accumulate a surplus in a given year, but this must be reinvested into the basic mission of the agency and not distributed to the organisation’s owners, members, founders or governing board.
Self-governing: means equipped to control their own activities. Some organisations that are private and nongovernmental may nevertheless be so tightly controlled either by governmental agencies or private businesses that they essentially function as parts of these other institutions even though they are structurally separate. To meet this criterion, organisations must control their activities to a significant extent, have their own internal governance procedures, and enjoy a meaningful degree of autonomy.
Voluntary: means involving some meaningful degree of voluntary participation. This involves two different, but related conditions: (1) the organisation must engage volunteers in its operations and management either on its board or through the use of volunteer staff and voluntary contributions; and (2) “voluntary” also carries the meaning of “non-compulsory”. Organisations in which membership is required or otherwise stipulated by law are excluded from the nonprofit sector. These include some professional associations that require membership in order to be license to practice a trade or profession.
A classification system for nonprofits: 12 subsectors
Although the classification framework has divided nonprofits into 12 subsectors, it is still a very broad classification as it covers organisations of all kinds – local and national, small and large, religious and secular, professional and amateur, incorporated and unincorporated.
In order to fit the Irish context, we have adapted this classification system, dividing our database into 12 sub-sectors, as outlined below.
The following provides examples from each subsector:
We are continually updating our database, and periodically we add new groups of organisations read here for more information on how we collect data. Likewise, we are always trying to improve the search and explore experience for users of our website – please submit your feedback here.
Earlier this week we were delighted to have presented at an information event organised by Chartered Accountants Ireland. The audience consisted of charity finance directors, auditors and trustees who had all gathered to learn more about trends and developments in the nonprofit sector.
Our Finance Director Paula Nyland shared some insights on financial reporting by Irish charities, based on Benefacts’ review of all of the publicly available financial statements of nonprofits in our scope – at the last count, 7,921 organisations, of which 4,722 are registered charities. Paula noted that 91% of those charities whose accounts are publicly available have still not elected to use the voluntary financial reporting standard for charities (the Statement of Recommended Practice, or Charities SORP).
Most of the charities that have chosen to use this reporting standard are fundraising in an environment where funders’ expectations drive higher reporting standards: international development aid – where many of the institutional donors are international governmental bodies – health, and social care.
Analysis by subset of Irish charities that report using Charities SORP
We’ve pulled together a breakdown of Charities SORP reporters based on their 2014 financial statements (2015 data will be available early next year).
3-fold increase in the number of nonprofits filing abridged accounts
Paula also took the audience through the dramatic increase in the number of nonprofits that have chosen to avail of the exemption from filing full financial accounts with the Companies Registration Office: under the 2014 Companies Act, this is available for the first time to smaller (<€8.8m turnover, €4.4m assets, <50 staff) nonprofit companies.
In effect, this means that very little financial information is publicly available about these entities. “Abridged” accounts give the reader only limited information about the financial profile of an organisation: namely, the names of the directors, the audit opinion, the balance sheet and a small number of other statutory disclosures. Compared to 2014, when only 7.5% of non-profit companies filed abridged accounts, the percentage of nonprofits taking advantage of the change in the law has jumped almost threefold to 21% in the case of 2015 accounts filed to date.
New financial reporting standards imminent
Section 47 of the Charities Act, 2009 provides for the setting of specific standards for financial reporting by charities. The Charities Regulator John Farrelly, speaking at the same event, said he was on the point of publishing new draft regulations, and would be touring Ireland for a round of consultation on these during October. These regulations will set a new mandatory reporting standard, albeit for unincorporated charities only, since under the Charities Act Section 47 (11), these regulations will not apply to charitable organisations that are incorporated as companies.
According to our database, 70% of registered charities are incorporated under the Companies Act. This means that the new regulations will apply to only 30% of currently-registered charities although of course this number is likely to grow as more charities complete the process of registration.
Here’s our analysis: the column on the right indicates the scale of charities that will be initially affected by the new regulations.
To explore our database further, click here.