This article was first published in the IS Chartered Accountant, May 2016. Re-published with permission from the Institute of Singapore Chartered Accountants (ISCA).
WHAT ACCOUNTANTS CAN DO
Charities contribute to society through their social value creation. A flourishing charity sector can add value to community life because Charities help to maintain important social relationships in civil society. In recent years, the Singapore government has devoted considerable resources to building new social service capabilities and deepening competencies to better serve the needs of the various groups of the population. Like other organisations, Charities operate in a rapidly-changing and competitive environment. To adapt to the changing circumstances, Hsieh Fu Hua, President of National Council of Social Service, has pointed out the need for Charities to adopt a business mindset in organising and managing their activities. Additionally, as a result of major scandals and misuse of funds both here and overseas, Charities are also under increased pressure to improve accountability. There are, therefore, many areas in which accountants can help Charities do good better – from financial reporting to financial management.
The Institute of Singapore Chartered Accountants (ISCA), together with the Centre for Social Development (Asia), Department of Social Work, Faculty of Arts and Social Sciences, National University of Singapore (NUS), supported by the Charity Council and Chartered Institute of Management Accountants (CIMA), have come together to produce a series of articles that aims to explore the areas where accountants can volunteer their skills and time.
This first article introduces accountants to the local charity landscape, and highlights the importance of financial accountability as well as the challenges faced by Charities. The second article will look at the regulatory framework within which Charities operate, while subsequent articles will focus on areas such as full-cost accounting, cash and reserve practices.
SINGAPORE'S CHARITY LANDSCAPE
Charities operate on a non-profit basis. They are set up exclusively for charitable purposes, to carry out activities to achieve these purposes to benefit the public. The Commissioner of Charities, along with the Sector Administrators, regulate Singapore’s Charity sector. Under the Charities Act, the objectives of the Commissioner include:
- To maintain public trust and confidence in Charities;
- Promote compliance by Charities;
- Promote effective use of charitable resources, and
- Enhance the accountability of Charities to donors, beneficiaries and the general public.
Some registered charities hold the status of Institutions of a Public Character (IPC), which allow them to issue tax-deductible receipts to donors. To qualify as an IPC, one of the requirements is that the Charity must be dedicated to serving the needs of the community in Singapore as a whole and is not confined to sectional interests or groups of persons based on race, belief or religion.
In Singapore, the number of registered Charities has been growing over the last decade, from 1,807 in 2005 to 2,180 in 2014. Over half of them (52%) were small, with annual receipts of less than S$250,000. There were 612 IPCs, with the majority from the Social and Welfare sector.
FINANCIAL ACCOUNTABILITY IN CHARITIES
An objective of the Charities Act is to enhance the accountability of Charities to donors, beneficiaries and the general public. Accountability can be understood as the Charities’ ‘answerability’ to their stakeholders. There are various elements to accountability including finance, accounting, governance, transparency, compliance and trust. Trust is arguably a Charity’s single most important asset. Preserving trust ensures continual support from the donors and other stakeholders.
Gerard Ee, President of ISCA and Chairman of the Charity Council, explains, “Charities have a moral obligation to be accountable for their funds and accounts. This instils a sense of confidence in stakeholders to continue their support for the Charities. Therefore, Charities must be financially accountable to earn trust from donors and other stakeholders. Keeping accurate and up-to-date financial records is one way for Charities to connect with their donors and stakeholders.”
Charities must have proper bookkeeping, financial management and internal controls in place to ensure accountability. Charities need to comply with laws and regulations, for example, financial statements must be prepared in accordance with the applicable accounting standards, and annual reports must be prepared to keep the stakeholders informed of the Charities’ activities.
If there is poor financial accountability, financial mismanagement or even fraud, Charities could end up in trouble. One recent high-profile case is that of the Kids Company in the United Kingdom (see KIDS COMPANY, below). The Charity collapsed in August 2015, just days after receiving a £3-million restructuring grant from the Cabinet Office.
Founded in 1996 by Camila Batmanghelidjh to provide support to vulnerable young people, Kids Company was a highly-celebrated Charity with high-profile supporters including Prime Minister David Cameron, business elites and many celebrities. The Charity had continued to receive substantial government funding over the years despite a history of poor financial management, such as:
- In 2001, a grant-making body, Pilgrim Trust, terminated its £2-million grant on grounds that the Charity was unable to provide the required financial information.
- In 2002, the Charity Commission was informed about concerns as to whether Kids Company was sufficiently competent.
- In 2006, the trustees were informed that it had “weak finances, conflicting information about number of users” and “the absence to date of any internal attempt even to track and record results”.
- In 2010, the trustees were warned that “the organisation continues to grow very fast, and has low reserves relative to its size”.
- In 2014, an audit commissioned by the Cabinet Office found that the Charity was facing a “serious cash flow” issue, and “without improving the cash position of the Charity, it is not possible to build reserves and invest in new activities and locations”.
- In 2015, the government disbursed £7.3 million in grants with conditions on two occasions – £4.3-million grant in March 2015, for Kids Company’s downsizing plan, but no plans were submitted; a further £3-million grant in July 2015, for restructuring purposes, with £880,000 used to pay off its overdue bills.
- Following its collapse, the 2016 report by the Public Administration Committee revealed the following:
- “Negligent trustees” repeatedly ignored auditor’s clear warnings about the precarious finances of the Charity;
- The government was aware of the overstating in the number of clients, but did nothing about it;
- Earlier intervention by the Charity Commission might have helped safeguard Kids Company.
The committee chairman Bernard Jenkin concluded that the collapse of Kids Company was “an extraordinary catalogue of failures of governance and control at every level – trustees, auditors, inspectors, regulators and government”.
Sources: BBC News and The Guardian
PROBLEMS FACED BY CHARITIES
Charities normally allocate the bulk of their funds towards helping beneficiaries, and often do not have adequate resources to support general overheads and the administrative functions. The problem is particularly acute for small Charities with annual receipts of less than S$250,000, which constitute more than half (52%) of Singapore’s registered Charities. They normally have to rely on part-time bookkeepers or volunteers to keep their financial records. With only a few staff, it is often a challenge for them to implement internal control measures, such as segregation of duties, and maintaining checks and balances. As such, they typically lack the requisite financial management expertise to do well.
How can accountants help these Charities? In a 2015 survey by the Charity Council, Charities have indicated that they would need help in the following areas, in order of priority – management of reserves and investments, budgeting, cost accounting, cash flow management, development of accounting policies and procedures, internal audit and bookkeeping. Without a doubt, accountants have the requisite skills to offer help in these areas.
An example of skills-based volunteerism is best embodied by ISCA President and Charity Council Chairman Mr Ee, a Chartered Accountant who is active in the social services sector. His expertise in auditing has made him an authority on corporate governance. Read about his experience as a volunteer (see GERARD EE, THE VOLUNTEER ACCOUNTANT).
For accountants to help Charities do better, they would need to understand the regulatory framework within which Charities carry out their activities. This essentially encompasses the applicable accounting standards, the Charities Act and Regulations, as well as the Code of Governance for Charities and IPCs.
GERARD EE, THE VOLUNTEER ACCOUNTANT
He is a man who wears many hats.
Mr Ee started his career as an accountant in 1974, and became a public accountant in 1976 until his retirement as a partner of Ernst & Young in 2005. As a volunteer accountant, he has been actively involved in the Charity sector throughout his professional life. With a passion for both the Charity and Corporate sectors, Mr Ee has served as President, National Council of Social Service and National Kidney Foundation; Board Member, Accounting and Corporate Regulatory Authority; Council Member, Accounting Standards Council, and Nominated Member of Parliament (1997 to 2002). He is currently the President, ISCA, and Chairman, Charity Council, Changi General Hospital and Eastern Health Alliance. Here, Mr Ee shares the satisfaction he gets as a volunteer.
“Initially, I was not interested in volunteering. But when I started volunteering, I experienced the rewards of impacting other people’s lives. The satisfaction is very different from when you buy a new watch for example. You feel happy with your new purchase for a while but after that, the happiness fades off, and you will be looking for the next thing to buy.
In contrast, when you volunteer – let’s say in a Boys’ Home – you can see someone being reformed, returning to school and contributing meaningfully to society. He may grow up to be successful. That personal satisfaction is lasting.
Many years down the road, when you sit back and reflect, and think of that person you helped, it will bring a smile to your face and a glow to your heart. The more you experience this satisfaction, the more you want to help. This long-lasting satisfaction comes from your own effort – and that’s what life is all about. Such satisfaction is enduring and is something money cannot buy.”
This is the first in a series of articles to explore the areas where accountants can volunteer their skills and time. The next article will focus on the regulatory framework of Charities.
To find out more about skills-based volunteering opportunities, ISCA members can contact ISCA Cares.
For charities which require assistance in accounts-related matters, please contact firstname.lastname@example.org.
 Tan, T. (2015). ‘Rewriting the Rules of Social Service’, The AlumNUS magazine, Issue 103, 18-20
 The recognised charitable purposes include the relief of poverty, the advancement of education, the advancement of religion, and other purposes beneficial to the community.
 The five Sector Administrators are Ministry of Social and Family Development, Ministry of Health, Ministry of Education, Sport Singapore, and People’s Association.
 Charities (Institutions of A Public Character) Regulations (Cap 37, Rg 5, 2008 Rev Ed)
 Charities under ‘Others’ include charities set up for animal welfare, environment conservation and youth development.
 Charity Council. (2015) Inaugural Townhall Meeting