Help for charities with accounting compliance

WE THANK Ms Chia Yong Yong, president of the Society for the Physically
Disabled, for her commentary last Wednesday, 'Accounting compliance comes at
a hefty price'.

We must strike a right balance between promoting better governance and the
cost of compliance with the rules and codes that apply to the charity sector. The
ultimate objective is to better serve our beneficiaries and retain the confidence of
our donors.

To encourage greater transparency and better governance in the charity sector,

the Charity Council launched the Code of Governance in November 2007 after
extensive public consultation.

Compliance with the code is not mandatory. Instead, it is a set of best practices
aimed at promoting good governance and self-regulation by charities. Charities
need only to indicate the reason if they are not complying with any practices in
the checklist. The code is also tiered according to the size of charities, with less
onerous guidelines for smaller charities.

We agree with Ms Chia's suggestion to have administrators, academics, auditors

and practitioners review the code and help resolve difficulties at the operational
level. They will formulate practical best practices and help ensure there is no
ambiguity in interpreting the code.

The Charity Council is actively exploring ways to lower the cost of compliance.
For example, it is engaging various professional associations to encourage their
members to serve in charities and provide pro-bono services where possible.

The Charity Council will also launch a shared services pilot project, for charities
to outsource their corporate finance and accounting functions to a professional
shared service provider. We hope this shared services initiative can reduce the
administrative costs for charities in the long term via greater economies of scale.

The Accounting Standards Council is currently studying appropriate accounting

standards for the charity sector.

In August last year, the Accounting Standards Council conducted a public

consultation on broad accounting principles. There was general support for these
principles. The resulting draft accounting standards will be subject to further
public consultation and refinement in the next few months.

We would like to assure Ms Chia that we will bear her cogent and sensible
suggestions in mind.

Carol Chua (Ms)

Deputy Director, Charities Unit
Ministry of Community Development, Youth and Sports
CHARITIES & GOVERNANCE
Accounting compliance comes at a hefty price
BY CHIA YONG YONG
FOR THE STRAITS TIMES

CHARITIES in Singapore have been asked to climb an Everest.

Since April 1, a governance evaluation checklist has been posted on

www.charities.gov.sg, to help Institutions of a Public Character (IPCs) and
charities disclose how far they have adopted key guidelines in the Code of
Governance issued by the Charity Council.

In an e-mail message sent to IPCs on May25, the National Council of Social

Service described the use of this online checklist as "not encouraging". This
should come as no surprise.

Singapore's charity sector has, by and large, accepted the need to enhance its
governance and management capabilities. It has tried to follow the Code of
Governance but there is still uncertainty over how to interpret the guidelines, with
auditors and charities coming up with different versions.

Committees comprising administrators, academics, auditors and practitioners

should be set up to discuss each major chapter of the code. These groups can
iron out the difficulties at the operational level.

More importantly, they can settle what would be considered acceptable best
practices. There will then be no ambiguity in interpreting the code.

While it was necessary to improve governance at charities, it has come at a

price. Administrative expenses related to documentation, controls and audits
have gone up, in some instance by as much as 300 per cent. Charities used to
boast of having low administrative costs, but this is no longer the case.

The public may want charities to be better run but most are unwilling to increase
their donations to pay for higher administrative costs. Also, there is no consensus
as yet on the need to pay for professional staff to run charities.

The Institute of Certified Public Accountants of Singapore approved the

Statement of Recommended Accounting Practice (RAP 6) in November 2005.
RAP 6 is based on a similar standard issued by the Charity Commission for
England and Wales. Charities in Singapore are encouraged to comply with the
recommendations set out in RAP 6. But because of RAP 6's presentation format
and level of detail, such compliance will be a strain on the already limited
resources of charities.
The Accounting Standards Council is currently reviewing the accounting
requirements for charities and IPCs. If complying with the RAP 6 becomes
mandatory, it will likely take a toll on charities and IPCs. The RAP 6 format may
give more detailed information but it would do so at a greater administrative cost
without addressing donors' concerns over how their money is being used.

Does the public really care what accounting practice charities adopt? Would it not
be better for charities to devote their limited resources to improving their internal
checks and balances?

The question of governance of charities has thus far focused mostly on their
boards. While this is important, we need to look also at hiring professional
management staff. Governance is not only about policies and procedures. It is
also about having committed staff.

Governance at charities has been and will continue to be less than satisfactory
so long as there is a shortage of auditors and accountants and charities lack the
funds to hire competent professionals to look after their finances.

An accountant managing just "accounts payable" in the commercial sector would

suffer a pay cut of up to 20 per cent if he were to become a finance manager in a
charity. And on top of doing the accounting job, he would also have to handle the
board and all the enhanced governance requirements.

Even if the charity wanted to increase his pay, it would not be able to do so by
much, especially since the salaries of CEOs of charities are being scaled down.
Senior management in charities face increased governance and liability risks yet
their remuneration is at least 15 per cent lower than that of their counterparts in
enterprises with the same turnover.

Charities here are willing to scale this Everest but lack the resources to do so.
Despite the briefings we have received and the availability of maps, the road
remains hazy and difficult to negotiate.

The authorities can help by establishing committees to work out clear

interpretations of the Code of Governance. They can also help by not making a
rigid accounting system mandatory.

The writer is the president of the Society for the Physically Disabled.