Building trust in the not- for-profit sector ensures a bright future

05 June 2016

John O'Callaghan writes a piece for the Sunday Business Post on the importance of accountability within Ireland's not-for-profit sector.

Embracing the challenge of change is key for Ireland’s not-for-profit sector if it is to meet public demands for accountability, according John O’Callaghan, partner and head of the not-for-profit sector team at BDO Ireland.

“Irish people feel justly proud of their long tradition of charitable giving, and the public good has long been served by a diverse range of membership organisations,” he said. 

“Implicit in all such investments of time and money is trust: the tacit understanding that resources given to not-for-profit organisations are used appropriately and judiciously. A number of high-profile cases in recent years have challenged that perception, resulting not only in reputational damage to individual organisations, but to something of a question mark over the entire sector.” 

He said the only way forward lay in a clear commitment by individual organisations and the sector as a whole to international best practice and standards.

“Often the first challenge an organisation faces is determining which rules actually apply to it. This isn’t just a question of statutory requirements. Its own foundation documents, constitution and structure will play important determining factors.”

O’Callaghan said the Charities Act 2009 and the Companies Act 2014 had collectively served to update governance structures among not for profits, while the accounting and reporting standard SORP (FRS102) provided the best-practice benchmark that virtually every organisation in the sector should aspire to. 

“SORP is the statement of recommended practice, accounting and reporting by charities and, while not a statutory requirement in Ireland, is recognised among more progressive organisations as key to sustaining the long term confidence of their support base,” said O’Callaghan. 

“Among charities, the appropriate accounting for what is termed ‘restricted funds’ is, therefore, a hugely important issue, although not necessarily a straightforward one, complicated by the fact that an element of any such funding may be required to meet the administrative costs associated with it.”

He said that the most common concern raised with financial advisers by managers of not for profits was typically around the organisation’s reserve policy and determining the appropriate level of (unrestricted) reserves to hold. 

“Again, there is no straightforward answer, as it very much depends on the nature of the organisation and its funding model. What is important is that the organisation sets a policy that is appropriate to its functioning and its strategic goals,” said O’Callaghan.

“Another significant challenge for larger organisations is around the accountability of subsidiary or branch operations. Individual elements of not for profits often enjoy considerable autonomy, and ensuring they align with the goals and standards of the central body can be a challenge in its own right.” 

BDO established a specialist not-for-profit division five years ago with separate teams focused on member organisations and charitable bodies. 

“Our workload has increased significantly over the last three years, with a client base that includes local charities, industry bodies, sporting bodies, and national and international organisations and projects,” said O’Callaghan. 

“The workload is correspondingly diverse and can include corporate governance reviews, support for the transition to SORP (FRS102), reserve policy research and advice, annual report reviews and critiques and sectoral tax advice.” 

He said it was hugely satisfying to work with organisations keen to ensure they were operating to international best practice and that their donors had full confidence that monies were being well spent. 

“Experience tells us that not for profits benefit greatly from working with an external partner that really knows the sector and can draw on knowledge and experience from around the world, ” said O’Callaghan. 

“The right advisory team can play a central role in not only strengthening existing structures, but future-proofing the organisation for the long term.”