Too many charities rush to appoint expensive bosses, says regulator

Too many Irish charities rush to appoint an expensively-paid chief executive before they have even done any fundraising, Charities Regulator Helen Martin told a Bar Council webinar last week.

“Not every charity requires a CEO and this is something we come across a lot – applications coming in from charities that haven’t even started their activities and they are already talking about paying the CEO €150,000 a year, and they haven’t even raised a penny,” she said.

The regulator was speaking  at a webinar organised by The Bar of Ireland Voluntary Assistance Scheme (VAS).

VAS is the pro bono arm of the Bar and makes voluntary legal assistance available to charities, NGOs and civil society groups.

Chief executive salaries are of great concern, the Charities Regulator said, because some charities may simply need a project manager for a fixed period.

Concerning 

It is particularly concerning where the chief executive is the only employee, or one of two, the regulator said.

“There has to be a sense of reasonableness about what boards of trustees are approving. Again it comes back to: is this required, in terms of advancing your charitable purpose?

“Does your charity need 20 employees to deliver on its mandate, given what you’ve decided you are going to do and the services that you are providing to the public.

“These are all questions. I would urge charity trustees not to start with: we need a CEO, or we need ten people. You really have to look, and to justify.

“Private benefit from a charity has to be reasonable, ancillary, and necessary. That applies to salaries as well.”

The regulator said she was hoping for an amendment to current legislation about the requirements for full disclosure in accounts, holding charities to higher standards than commercial entities, in relation to financial transparency and the way accounts are presented and the information they contain.

Amendment

“We do need an amendment to our legislation in order to be able to impose that,” she said.

“We do think it is required in the sector, in particular for charities with over €250,000 in income or expenditure,” she continued.

A key provision will be that the number of employees earning over €70,000 will have to be published, and the amount of workers in each 10k band above that.

Helen Martin said that there was no remuneration guidance for chief executives and that the level would depend on a number of factors, such as the size and complexity of the organisation.

Charities must always advertise paid positions and have a competitive process of appointment, she continued.

Certain types of charity are funded 90% or more by the State and there will be requirements on what the funder believes is an appropriate salary.

Helen Martin said that having a beneficiary of the charity’s work in the board of trustees brings a really important perspective, but that all trustees must act in the best interests of the charity.

A beneficiary on the board could give rise to conflicts of loyalty, so such a trustee might need to opt out of certain decisions.

Compliance

Thomas Mulholland is director of compliance and enforcement at the Charities Regulator

He  is a qualified accountant who previously worked for the Office of the Director of Corporate Enforcement (ODCE).

He said that a charity must have a charitable purpose with a public benefit and it cannot be a part-time business.

All assets and income must be applied to the charitable purpose, notwithstanding that employees must be paid and have full employment rights.

Mulholland gave the example of a charity set up to rehome unwanted greyhounds, which are in demand as pets in the US.

Rehoming the hounds involved a charity employee flying to the US with the dogs and staying in a hotel while the animals passed through customs.

Flights

The employee was getting a private benefit in the form of a flight and hotels, but this expenditure was necessary for the specific running of that charity, he explained, and was therefore reasonable. 

Currently there are 11,500 charities on the register, with over 74,000 trustees, and part of the enforcement remit is to deal with any concerns submitted to the Charities Regulator.

Fraud and governance issues are submitted, as well as more minor issues, he said, but all concerns are treated in a proportionate manner.

In 2019 there were 649 concerns, which dropped to 466 last year, but approximately half are in relation to entities that are not charities. 

This is not a large number, in the context of 11,500 charities, Mulholland said.

“The majority of charity trustees carry out their duties with the best of intentions and for the good of their charities,” he said.

It is widely understood that those involved in charity work should not receive any private benefit, he added, and relatively few concerns are received about this, he said, but it may be part of governance issues.

Charity governance, as well as financial control and transparency, all come up as issues, but sometimes what is submitted as an issue may not take account of all the information on the matter.

Taxi fares

Mulholland gave an example of a charity employee who was having their taxi fare to and from work paid for by the charity.

Such a payment would not normally be acceptable but, in this particular instance, the charity was involved in counselling services and one counsellor had received a threat of violence.

As part of measure to protect that employee, the taxi fares were paid for a certain length of time.

Thomas Mulholland said that his approach is to ask charity trustees whether, if the matter at issue was public knowledge, they would continue with that course of action.

If trustees respond that if everybody knew, then changes would be made, the regulator’s response is you should not be doing it in the first place. 

“You must be prepared as a charity trustee to defend your decision,” he said.

“That sunlight is often the best disinfectant, is a good way of looking at things,” he said.

Reputational risk to charities is key, he continued, because instances of extravagant spending can severely damage fundraising efforts.

Extravagance

Publicity of any kind alleging extravagance is an existential risk, Thomas Mulholland said, and could lead to a threat of permanent closure.

Sometimes charities don’t comprehend the seriousness of private-benefit issues.

He gave an example of a small charity which had an agreement with a private clothing-collection company to process and sell donations. 

The charity received €100 a month in exchange for use of their logo. However, the issue of private benefit arose for the clothing collector, and the regulator stepped in to ask how much the business was making on the back of the charity logo. 

The contract was ultimately cancelled.

“In my experience, it tends to happen a lot in long-established charities where practices develop over time,” Mulholland said.

He said that travel expenses should always be kept within Revenue guidelines, or else the charity leaves itself open to audit and a build-up of Revenue liabilities.

Dominated by an individual 

“My experience of these things is that they tend to happen in charities which are dominated by a single individual or maybe a small group of individuals,” he noted. 

Where a single entity has too much influence the board of trustees may not be in place, or be too weak to challenge a dominant trustee who doesn’t like being challenged.

“If you are the trustee of a charity you must ask the hard questions, you are responsible for all the assets, and for the governance and running of the charity in a proper manner,” Thomas Mulholland said.

He added that the two most common areas of weakness are travel expenses and credit cards.

Unacceptable expenses

Four inspections have been carried out to date on charities, and their reports are available online.  The use of credit cards and unacceptable travel expenses were key issues featured in each of those investigations, he said.

Three out of those four charities are no longer in existence, because donations dried up when these issues came to light.

Strong oversight from trustees is the simplest protection for any charity, Thomas Mulholland said.

Trustees should not be afraid to ask awkward questions, or any questions, to get information they feel they require, he said.

Every charity should have strong financial controls and division of duties because this is where the real risks lie.

Financial controls

“My strong belief is that financial controls are absolutely key in the running of any charity,” he said. Credit-card spends should not be signed off by the same person using them.

Mulholland said very often charity trustees have no idea how many credit cards are in use at the charity.

Finally he urged transparency: “It’s hard to think of any information that a charity should not be making publicly available,” he said, and full financial statements should always be on the website.