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
Financial reports are a universally accepted way of assessing the health and well being of a company. Financial reporting standards are mandated in law (the Companies Act, 2014), and provided by the Financial Reporting Council (FRC) for the UK and Ireland.
Financial reporting gives business owners an account of the use of their funds showing movements in the value of the assets, the cost of sales and any profit from activities. Nonprofit companies also have to provide an account of the business but face unique challenges. Rather than shareholders, they have stakeholders. Nobody owns the assets – the nonprofit company sets out how these assets have been used to realise the best interests of the company’s beneficiaries or purposes.
Devised by a specialist Committee established by the FRC, the Statement of Recommended Practice (or SORP) for Charities provides a structured way for charities to provide an account of their business. The Charities SORP provides information in a way that reflects the particular characteristics of charities.
As well as the usual measures of financial performance, the trustees of a charity need to provide a much greater level of analysis to stakeholders. This covers:
Even though the SORP for charities is not yet mandatory in Ireland, it is already used by 325 Irish charities on a voluntary basis. It is strongly recommended by lead agencies like Charities Institute Ireland, Carmichael Centre and The Wheel.
It’s widely expected that the Charities Regulator will soon mandate Charities SORP for charities in Ireland, meaning it will no longer be a voluntary standard.
For this reason, charities in Ireland should take a particular interest in the current round of consultation being led by the FRC Committee on Charities SORP, which includes three participants from Ireland.
The Committee are currently seeking views on suggestions to improve the Charities SORP – the closing date for submissions is December 11th.
For further details on financial reporting for this sector, or to learn more about individual organisations, explore our database here.
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.
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
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.
We’ve pulled together a breakdown of Charities SORP reporters based on their 2014 financial statements (2015 data will be available early next year).
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.
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.
At their invitation, Benefacts met with the members of the Open Data Governance Board on 4th April. The meeting went on for nearly an hour, and didn’t give us half enough time to cover a big agenda that we share with the Board – transparency in government, data-driven decisions, a better-informed public.
Continue reading “Benefacts and the Open Data Governance Board”