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Column: Charities need our trust – so they require tighter regulation

The non-profit sector generates €6billion a year but goes virtually unregulated, writes Michael Moriarty. Isn’t it time this changed?

Michael Moriarty

Today Labour senators will table a private motion calling for increased transparency and oversight in the charity sector. Here, Michael Moriarty argues that the sector contains many ethical grey areas – and tighter regulation is a must.

IRISH CHARITIES HAVE been making the headlines this summer. John O’Shea and GOAL went to the High Court in July, before O’Shea settled his case against the very charity he founded. Barnardos, the children’s charity, closed most of their services for a week in August as part of a cost saving measure. Age Action, meanwhile, has imposed pay cuts and unpaid leave.

Charities now have to do more with less. They have to make every cent count. But with resources scarce and people being asked to contribute more, it is also crucial that that they are seen to make every cent count. This is why charity regulation is so important.

There is still scant formal regulation of charities. The government promised a charities regulator. However, it has now decided that this is something the Irish State can no longer afford during these austere times.

Our neighbours in England and Wales, Scotland and Northern Ireland have their own dedicated authorities which are resourced and charged to supervise the charities within their respective jurisdictions. It seems counter-intuitive that we in the Republic of Ireland, we who have recently lost so much from the failure to regulate banks and finance houses, lag behind on this key issue.

Grey areas

The work of Irish charities may seem a long way from credit default swaps, collateralised debt obligations or even 100 per cent interest only mortgages. Nonetheless, the not-for-profit sector has enough of its own complexities and ethical grey areas to keep a statutory regulator busy.

Charities are big business here. There are 100,000 people working in the sector, and more than 560,000 people working as volunteers. The Irish Non-profit Knowledge Exchange estimated the income of the not-for-profit sector at over €6billion.

Even with this figure falling, it is still between three and four per cent of gross domestic product. And yet, virtually unregulated.

We rely on charities to provide support in health, education and social services. According to the OECD, 37 per cent of Irish bi-lateral overseas aid donated by the State is given to or through NGOs. Irish not-for-profit bodies stage our plays and organise our national games. They give shelter to our homeless, speak up for the marginalised and care for many of us in the final stages of our lives.

What we refer to as the Third sector is prone to error just like the private sector or the public sector. Those of us working as staff or managers for Irish charities can suffer from the same foibles; ego, hubris, tunnel-vision, greed, self-preservation, inertia, the list could go on. But perhaps even more than commercial enterprises or State bodies, charities need public trust and goodwill in order to be able to function.

Ethical pitfalls

So what sort of ethical pitfalls surround the Irish charity? One of the greatest dangers is an accountability gap. For most not-for-profit organisations the person funding an activity and the person benefiting from that activity will never meet.

Major funders such as State bodies or philanthropic institutes have the clout to demand tailored individual reports supported by independent evaluations or audits. But for most of the rest of us we must rely on the information provided by the charities soliciting our cash. Put bluntly, we give them the money and hope they spend it properly.

There is no obligation for Irish charities to publish annual reports or make their financial statements freely available to their supporters. Information which is published is rarely standardised making it difficult for a layperson to compare the performance of charities, even of those which work on similar issues.

The accountability gap goes two ways. It seems self-evident that the beneficiaries of a charity are its most important stakeholder group. Yet there is no requirement that those that the charity is established to serve have a voice in the direction and management of the organisation.

Ethical issues also arise concerning staff management. Many frontline staff of charities work in hazardous, stressful environments both at home and overseas. Because they are driven by a desire to achieve a “greater good” often these workers will take risks and make sacrifices that would not be tolerated in a non-charity workplace.

Could regulation actually address these issues? Voluntary codes for the charity sector in Ireland exist which cover topics such as good governance, principles for fundraising and best practise for sending volunteers overseas.

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Trust in charities

Yet a survey by Grant Thornton earlier this year indicates that the majority of charities do not currently subscribe to such codes. Moreover even when charities do opt-in to these voluntary standards, the bodies within the charity sector which administer them have neither the resources nor independence that a statutory regulator would bring.

State funding bodies such as the HSE and Irish Aid have attempted to raise the standards of operations of the charities dependent on them for funding. But these funders have a limited remit to impose their will outside of the work which their grants directly fund.

The Charities Act 2009 provides for the establishment of a Charities Regulatory Authority. The Minister with responsibility, Alan Shatter, considered that the Scottish Charities Regulator requires almost 50 staff and stated that it was unrealistic to expect that a similar body could be established in Ireland at this time. The Minister and others are working to implement the Charities Act and increase standards across the sector in the absence of a regulatory body.

The costs of a statutory regulator are real and significant. However during these difficult times every donation made by a member of the public to a charity is given with greater sacrifice, each State grant awarded is more precious. More and more people are becoming reliant on the assistance of charities to get them through their day.

It is hard to say how resilient trust in the charity sector is. Could a scandal or a series of incidents irreversibly damage this vital component of our society? In the same way that we now survey the damage inflicted by an inadequately regulated financial sector, could we find ourselves in five years time looking back and wishing that we had had the political will to ensure more comprehensive regulation of our charity sector?

Michael Moriarty is an accountant working in the charity sector. He is funded by the Ray Murphy Scholarship to research philanthropy in Ireland. More information can be found at raymurphybursary.org.

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