The importance of transparency in the charity sector

There are more than 12,000 charities in Ireland and malpractice in even one of them can result in an erosion of public trust in the entire sector.

One of the few antidotes to that potential contagion is what Barnardos director of finance, IT and governance, finance Kevin Gregory describes as the disinfectant of sunlight.

“Transparency is really important,” he says. “Unfortunately, there have been issues in the sector, even this year. If you are not willing to put the information out there, if you are not willing to spray the disinfectant of sunlight, people are entitled to ask why not. Charities not doing it are leaving themselves open to questions.”

Ivan Cooper, director of public policy with charities umbrella body The Wheel, agrees.

“Charity is all about trust,” he explains. “It’s no accident that the people who control charities are called trustees. Trustees are custodians of the funds and assets entrusted to them to advance their charitable missions. When understood that way, trustees are holding public resources to be applied to their charitable work. And donors to a charity are not just giving their money – they are giving a bit of themselves when they support a charity.

“Donors and the public generally have an important stake in the work that charities do and they are entitled to know how and on what the charity is expending its funds.”

That places a tremendous onus on charities.

“They need to be open and transparent in all of their activities and make themselves accountable to the people and the communities they serve, as well as wider stakeholder groups such as Government bodies, donors and so on,” he says. “Charities should publish good-quality information on their work and tailor it to the needs of the different stakeholder groups. They should also publish good-quality annual reports and full audited accounts. They should never publish abridged accounts as that can make it appear that the charity is hiding something, even if that is not the intention.”

Minimum standards

Complete information is very important, according to Gregory. “There are minimum standards laid down by law for charities. But adhering to the minimum standard is not enough. Charities must go above and beyond that and not just comply with the letter of the law. People start to think things are there when they aren’t if they are not getting the full picture.”

For Cooper that means embracing a culture of openness. “Charities must be ready to answer questions whenever they are asked,” he says. “They must also reduce the amount of secrecy and confidentiality applied to their decision-making. They should make all their decisions as though they are making them in public. They should also establish proper consultative processes to ensure their decision-making is as inclusive as possible.”

While there may be general agreement that charities need to be as transparent as possible, Cooper accepts that more work needs to be done on that score.

“There has been an unfortunate trend towards the publication of abridged accounts. We are working hard to stop that. There is no place for it. There is a culture of secrecy which can come from the private sector. Sometimes external advisers might not be giving the right guidance on that.”

A sense of competitiveness may also be coming into the sector from outside. “Charities shouldn’t be competing with each other,” says Cooper. “In some ways the system is set up to create competition. We have to make sure that the competitive ethos of the private sector is not brought inappropriately into the charity sector where openness, transparency and accountability are critically important.”

There is a way to deal with the issues created by the publication of unabridged accounts. “The effect of abridged accounts is to prevent people from seeing the full detail,” Cooper points out. “Behind every set of abridged accounts is full financial statement. The important thing is to work towards making the statement of recommended practice [SORP] for charities’ financial reporting mandatory in Ireland.”

The Charities Regulator is working towards that but will not be in a position to do it until an amendment to the Charities Act is passed by the Oireachtas. “We are calling on the Government to prioritise that legislation so that the regulator can put the standard in place,” Cooper says.

There are other standards that charities should adhere to, Gregory points out.

“There is a governance code set out by the Charities Institute. Transparency is one of its main pillars. And there are the guidelines for charitable organisations on fundraising from the public. Along with SORP these make up the triple lock. At the moment if you don’t have the three of those you are going to be asked questions and people will wonder what you are hiding.”

Having those high standards in place can help address issues of public trust should they arise, he continues.

“We did find that a couple of our standing order donors stopped in the wake of problems being exposed in another charity. People from outside the sector can think all charities are the same. If something goes wrong in one charity, we are able to say that we are different, we have all the governance and other standards in place, and we disclose all financial information including the CEO’s salary and so on. People will then understand that we are not like the other organisations that have had problems.”

He believes it would be a step in the right direction for the regulator to publish a list of the charities that apply the different codes. He doesn’t necessarily recommend a naughty list for charities that don’t comply on the lines of the tax defaulters list, but says it would be incredibly powerful.

“Maybe people would be a little bit more careful if it was.”