No valuation of State funded cinema before transfer to private company

The trustees of a Galway arthouse cinema which received millions in State funding did not get an independent valuation before transferring its ownership to a private firm, an investigation by the Charities Regulator has found.

The cinema project ran into significant difficulties, including delays and cost overruns, since it was first proposed in 2004. The charity Solas-Galway Picture Palace, has since transferred ownership to Element Pictures, which runs the LightHouse Cinema in Dublin.

The project had received a large amount of State funding and donations from the public, but no “independent valuation” was undertaken before it was transferred from the charity, the regulator’s report found. This meant there was no way to verify “whether the trustees had obtained the maximum benefit on behalf of the charity,” it said.

In total the project received €7.5 million in funding, the majority of which came from public bodies. The unfinished cinema was valued at €3.8 million in the charity’s last financial accounts, in 2014.

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The project had received more than €300,000 in public donations, and the decision by the charity’s board to enter into negotiations solely with Element Pictures, “removed any potential opportunity for the asset to remain within the charitable sector”, which may have been a factor in people donating money, the report said.

The report was also critical that the process of transferring, saying the asset was not done competitively or on the open market. There were several governance shortcomings in how the board of trustees managed the capital project, the report found.

No income

The charity had reported no income since 2007, and had incorrectly listed donations as liabilities to be repaid rather than income on their financial accounts.

The charity’s auditor resigned in October 2016 due to concerns over corporate governance. The investigation found no evidence that the board took action to address the concerns raised by the auditor after his resignation.

The Charities Regulator started an investigation in February 2017 into the transfer of the cinema to the private operator. Last July the charity entered into voluntary liquidation but the report found cause for “concern” that the regulator was not told of this in a “timely basis,” given it was investigating the charity.

The Galway cinema opened under the name Pálás this February, and Element Pictures have a 30-year lease on the site, which is owned by Galway City Council. The firm paid €881,000 to finish the construction and will pay a rent of €1 per annum for the first 25 years of the lease, with agreement to pay market rent for the final five years.

In a statement, Element Pictures criticised the regulator’s report, and said the company’s appointment to take over the cinema’s running followed a “competitive process which involved, we understand, a number of leading art house chains in the UK”.

Describing the transfer of the cinema as a disposal of an asset was also a mischaracterisation, the company said.

“There was no disposal of a valuable charitable asset in 2016, rather Solas was relieved of any further responsibility to oversee the final phase of construction and, at the request of the public funders, we agreed to take on that responsibility,” Element Pictures said.

It added that this “seems to have been erroneously interpreted by the inspectors as a disposal by Solas”.

Responding to the regulator's report, film-maker Lelia Doolan of Solas-Galway Picture Palace, said the people who started the project did so as volunteers, "and are very happy that they brought such a fantastic civic project about".

John Farrelly, chief executive of the Charities Regulator, said the “lack of oversight and sufficient competence” in managing the large capital project, had served to “undermine public trust” in the governance of charities.