Regaining trust and confidence

Given the numerous scandals that have plagued the charity sector, it is time for charities to take a pioneering and smart approach to assure users, funders, donors and the public that they are serious about delivering value for their purpose. To do this they need to take the lead in prescribing governance standards

Not-for-profit facts

There are over 19,204 non-profit organisations in Ireland with 9,009 currently registered with the Charity Regulator.  These organisations range from companies limited by guarantee to unincorporated bodies.

Non-profits many of whom are charities are a key sector in the economy generating €10.9bn annually, of which €5.3bn is provided by the Exchequer or 8% of government spending according to the Benefacts Nonprofit Sector Report 2017. These organisations employ close to 150,000 people, so not far off the numbers employed in the multinational sector in Ireland. 

Assuming the 19,204 non-profit organisations have some oversight function with a minimum of 5 trustees / directors each, then there are roughly 96,020 volunteers who need to be aware of their legal and statutory responsibilities. 

The trustee/director education challenge

Therefore the challenge for anyone contemplating sitting on, or already sitting on, a charity board is to be fully aware of what is required in order to carry out their regulatory and compliance responsibilities as a trustee or director. Consider the plethora of legislation and guidelines that directors have to come to grips with, including:

• Charities Act 2009

• Companies Act 2014

• Financial Reporting Standard 102 (FRS102)

• Governance Code for Community, Voluntary and Charitable Organisations 2016

• Code of Practice for the Governance of State Bodies 2016

Understanding all of the above is a significant challenge for a director and of course, it is a moving target as legislation is always reviewed and updated. Some government funding agencies have their own governance guidelines as well.

The charities sector took the lead on producing their own Governance Code in 2012 which was a commendable first step with the latest version being published in 2016.

Charity sector should take the lead in setting standards

Perhaps the sector now needs to approach government with a proposition that links a service level agreement with governance standards required of the service providers.  This could be a blended mix of a minimum set of core governance requirements in place (e.g. required by the Regulator and/or Statutory Funder) plus adherence to a number of key governance principles and practices that is subject to verification and validation.  The details would have to be worked through.

This will ensure that regardless of the government agency funding the service provider, there will be a standard set of governance criteria to be met. The standards should be segmented for those charities that have income less than €500,000 and those with income over €500,000. Those with income over €500,000 would have a more demanding set of standards.

The prescribed governance standards should be assurable by the funding agency /regulator or by a contracted and competent third party acting on its behalf. Governance assurance should be conducted on a regular basis by the funding agency / regulator in the same way that they are subject to audit. A risk rated approach by the funding agency / regulator is likely to yield the most effective approach. This is the same approach taken by the Revenue Commissioners when they carry out audits

Investment is required to meet governance standards

The journey to bringing all charities up to the same governance standard will take time and investment.  This investment should pay dividends for the funding agencies by improving the governance and performance of the organisations that they fund and reduce the risk for both parties.  This investment would also assist charities in demonstrating to donors that they have robust governance systems to ensure that their donations are put to the use for which it is intended.

Every service provider will be starting from a different place. Ideally some sort of baseline competency assessment is carried out to ascertain the starting point.  This could be done with a well-developed online tool.  The charity would then agree with the funder the gaps that need to be plugged and the duration over which those required standards are to be met.  Some organisations will need to be supported to meet these standards over the agreed period.

Standards should be easy to understand and assurable

The standards would cover items such as the following:

• A governance hand book with prescribed content such as:
• Formalised and written roles and responsibilities for all board, committee and senior management roles;
• Standard terms of reference for board committees;
• Code of Ethics which clearly specifies the standards of ethics, conduct and performance expected of board members, staff and volunteers;
• Matters reserved of the board;
• Risk register;
• Standard induction programmes completed by new directors;
• Agency reporting requirements;
• Maximum terms for directors;
• Board evaluation requirements;
• Ongoing CPD (continuous professional development) for directors.

Many of the required governance standards could be templated for localisation and made available from a central government portal or by an approved third party provider to ensure consistency. This portal would also provide user friendly tools, such as how to prepare for meetings, minutes recording, how to develop a risk register, how to carry out board evaluations etc.

If the service provider does not meet the standards over the agreed period of time, then the funder should consider reducing funding until as such time as they meet the standard. If the standards can’t be met, then the agency should consider withdrawing funding altogether as they will be exposing the service users and the funding agencies to ongoing and unnecessary risk. This would be a last resort.

Trustee and director education would also need to be provided to assist those organisations to meet their governance standards. But it needs stimulating, engaging and fun.  This can be done cost effectively online.

Investment in trustee/director education will improve performance and reduce risk

The investment in governance in the charities sector will mean better informed trustees / directors, a greater focus on value for money, less risk and potentially less high profile negative media coverage for the funder and the individual board directors.

Moving forward we need to ensure that we don’t overwhelm volunteers with perceived compliance bureaucracy and cost.  A radical and enlightened approach to new and assurable governance standards supported by innovative and cost effective trustee / director education is required.  This will help them to understand their compliance responsibilities and enable them to spend more time on adding value for their charity to deliver on it’s mission.