Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

I am sharing time with Deputies Keating, Barry, O'Donovan, Connaughton and Spring.

I am pleased to address the House on this Private Members' Bill. We are all concerned at recent disclosures regarding certain charitable organisations. We are all concerned at the impact these disclosures are having on Ireland's charities, many of which are excellently run and have nothing to fear from increased transparency and accountability. The Charities Act of 2009 provides for a system of regulation of charities in Ireland, at the heart of which is the creation and support of strong trust and confidence in our charities. On the part of Government, we plan to support this through the phased introduction of the Charities Act.

In addressing the Bill before us today, I will first take some time to remind the House of our work in this area since coming to Government and outline what we intend to do in the coming months. The Charities Act was enacted under the previous Government in February 2009, with cross-party support. My own party, then in opposition, was pleased to support it as a necessary advance in the regulation of a sector that plays such a vital role in our economy and society. A vibrant and well-governed charity sector is in everyone's interests and the measures contained in the Charities Act are aimed at supporting this.

The Act provides for the establishment of a new regulator for the charity sector. The Charities Regulatory Authority is to be an independent State agency charged with the registration and regulation of all charities operating here. The creation of this body is essential to the full roll out of the Charities Act. By the time this Government took office in March 2011, over two years from the enactment of the necessary legislation, the authority was not yet established and no concrete plans for its establishment had been announced. A number of minor, primarily technical, sections of the Act had been commenced but that was all.

Under the restructuring of Departments that took place at the time this Government was formed, the Charities Act came into my area of responsibility as Minister for Justice and Equality. As with all other areas of existing or planned expenditure, the establishment of the new regulatory authority had to be examined as part of the comprehensive review of expenditure conducted by all Departments that year. During this process, it became clear that the roll out of the Charities Act as envisaged by the previous Government was no longer financially viable given the urgent need to reduce Government expenditure.

Notwithstanding this, at all times it has been the policy of this Government to strengthen the regulation of the charitable sector in a pragmatic and proportionate way. This is why, on coming into Government, we took some time to examine alternatives to the regime envisaged in the Charities Act that might deliver improvements in charity governance without the expense to the State and its citizens of establishing a new independent regulator. The outcome of this process was a recognition of the fact that, given that the Charities Act had been enacted and stood on the statute books, any meaningful new regulatory measures outside of the framework of the Act would first require its repeal or, at the very least, substantive amendment.

The Charities Act represents an important legislative milestone in this State. For the first time, charitable purpose is defined in law, comprehensive statutory registration of charities is prescribed and the legal basis is established for a significant increase in the information about charities and their affairs to be made available to the public. In view of this, and notwithstanding the fact that for reasons of cost it was no longer possible to implement the Act as originally envisaged, we have at no time proposed the repeal of this legislation. Such a move would not represent an advance in the regulation of the charities sector. Instead, we have put our efforts into determining how best to bring into force key measures of the Act in a way that does not involve unsustainable expenditure on the part of the State and yet is capable of delivering a demonstrable improvement in the regulation of the sector.

To advance this, my Department conducted a public and stakeholder consultation over an eight week period from January to March of last year. The constructive engagement of an active and informed stakeholder community has been one of the hallmarks of the development of charities regulation over many years. Since taking responsibility for this area, I have continued this approach and have directly consulted with some individuals and bodies myself. I was impressed by the scale and calibre of stakeholder participation in last year's consultation. I was also struck by the breadth of support among the sector and the general public for the introduction of these reforms. This engagement is helping to inform our approach and I am committed to an ongoing dialogue with our stakeholders as we proceed.

Following last year's consultation, I developed proposals for the implementation of the Charities Act and these were approved by Government last July. This will involve the establishment of a charities regulatory authority and the development and publication of a register of charities, as provided for under the Act. In order to minimise the cost to the taxpayer, we will initially establish the authority on a small scale, to be staffed by officials from within my Department.

In time and in order to enable the development of the services provided by the Authority, charities themselves will be required to meet some of the costs of its operation through payment of a modest and proportionate annual fee. This is provided for in the Charities Act. In this way, the regulation of charities will become largely self-financing in due course. It is only through utilising this provision that we are able to establish these new structures at this time of constraint in Government spending. The proposal to levy annual fees on charities was contained in the consultation documents published this time last year and charities had the opportunity to give their views on and propose alternatives to a suggested fee structure. I will take account of the views expressed and alternatives proposed before putting in place a fee structure. Registration fees will not be payable by charities before 2015 at the earliest.

Following Government approval of my proposals in July, I announced my intention to establish the new authority in 2014, following the necessary resource approvals from the Minister for Public Expenditure and Reform. Sanction to fill the post of CEO on an interim basis and a number of other administrative posts from within existing resources was received by my Department in mid December. The sanction given represents a reduction on the resources originally sought, such that the new authority will initially be staffed by approximately ten administrative staff. Its focus in the early phase of its operation will be on the preparation for publication of a statutory register of charities.

We are very aware of the urgency of making progress on this. That is why I announced last Friday that I intend to have the administrative staff positions filled by the end of February. Arrangements are also being made to fill the post of CEO of the new authority on an interim basis by this time. Regarding the independent board of the new authority, I also announced last Friday my intention to make appointments to this board by Easter. To facilitate this, I will issue a call this week for expressions of interest from suitably qualified persons who wish to be considered for appointment. I look forward to being able to report further progress to the House on this important work in the near future.

The importance of high standards of probity within our charities cannot be overstated.

Many of these are large organisations with a substantial financial turnover. Many of them receive significant levels of Government funding in addition to funds raised through the generosity of the Irish public. They have a duty to use those funds efficiently and ethically in pursuit of their charitable purpose, and those who provide the funds have a right to know that they are being used for the purpose intended by the giver - be that Government, philanthropic organisation, corporation, or private individual. Where funds intended for charity are not being used as intended, or indeed where they are being used inefficiently, such that an unacceptable proportion of the funds is spent on overheads, that should concern all of us, not least the charities themselves, who must strive to benefit their given charitable purpose to the maximum extent possible. No one disputes that those who are employed by charities must be remunerated at an appropriate level for the work they do, but the charity sector is not well served by a lack of transparency over senior executive salaries, nor by excessive levels of remuneration, where such may exist.

In recent weeks we have heard a series of disturbing allegations about the use of charitable donations by various organisations. The details of these have been the subject of considerable

examination by others in this House, and by committees of this House, and I do not propose to revisit them this evening. In so far as my responsibilities as Minister for Justice and Equality extend, I have given detailed consideration to the question of the appropriate use of donated funds by charities. In June 2011, responsibility for the operation of the charitable lotteries scheme was transferred from the Department of Public Expenditure and Reform to the Department of Justice and Equality. I wish to say at the outset that there are two cases currently before the High Court with regard to the charitable lotteries scheme, and that I do not wish to say anything this evening that would create any difficulty for the judges of the High Court in determining these matters or that could be deemed to prejudice the outcome of the proceedings. However, as Minister, I have a responsibility to notify this House about these matters that are, in the context of the court proceedings, already in the public domain and matters that have recently been discussed at the Oireachtas Joint Committee on Justice, Defence and Equality and are directly related to the question of the transparent use of donated funds by charities. It is in that context that I wish to make the following limited comments about the charitable lotteries scheme.

The scheme was established in 1997 in response to claims by a number of charities that their ability to raise funds had been severely curtailed by the introduction of the national lottery in 1987. Under the terms of the scheme, funds are paid out to eligible charities that have been operating a fund-raising lottery since at least 1997 in which products are sold that are similar to products sold by the national lottery. The total amount paid out in any one year is determined as part of the budget allocation and was, at its highest, €8.618 million in 2009 and 2010 and, at its lowest, €4 million in 2013. Eligible charities must apply each year for funding under the scheme, and the total available funding each year is divided among the successful applicant charities. The allocation of funding under the scheme is by reference to gross sales of qualifying products averaged over three years, and it is a requirement of the scheme that all funding paid out under the scheme must be used for charitable purposes only.

However, in relation to lottery fund-raising operated by a charity receiving funding from the scheme, there is no requirement for such a lottery to be operated efficiently, or indeed at a profit. There is no incentive for such charities to keep the operating costs of such lotteries down. In fact, the charitable lotteries scheme incentivises charities to leverage public funds, payable under the scheme, by maximising their gross ticket sales with no regard to either operating costs or how much of the money raised by ticket sales is, in fact, used for charitable purposes. Under this scheme, since 1997, successive Governments have paid out a total of more than €120 million in national lottery surplus funding and taxpayers' money to a group of charities that operate fund-raising lotteries.

On assuming responsibility for the operation of the scheme, I immediately undertook a review of payments being made, the manner in which the scheme operated and the nature of fund-raising activities that were being supplemented by the State under the scheme. I became very concerned that the fund-raising activities of some of the organisations that benefit from the charitable lotteries scheme operated at very low profit margins and that the operation of the scheme incentivised inefficient fund-raising practices that could be used as a means to leverage Government funding under the scheme. The focus on the number of tickets sold, rather than profitable fund-raising, ensures additional funding from Government for the charity concerned. Accordingly, I took steps to reduce Government support for inefficient methods of charity fund-raising through the gradual phasing out of the costly and inefficient charitable lotteries scheme. My decision to phase out the scheme was based on the budgetary exigencies of the period and the fact that the scheme is an inefficient and uneconomic use of the State's resources for the following reasons: it encourages inefficient fund-raising practices and high administration costs; it creates an incentive to run a charitable lottery at a low profit margin or at a loss; it has resulted in low proportions of profits reaching designated charities; and it was unfair to the donors that such a low proportion of moneys donated were being used for charitable purposes and that the scheme had essentially evolved into a mechanism for obtaining taxpayers' and national lottery surplus funds.

Many of the lotteries whose organisations benefit from the charitable lotteries scheme operate at very low profit margins. The proportion of profits generated that flows to the charitable cause for which the lottery products are sold is very low. For example, in the case of Rehab, which received approximately two thirds of the total available fund each year, the proportion of the face value of a Rehab Lotteries Limited instant win scratch card that was retained for the benefit of the charitable organisation averaged around 1%, and the average was around 15% for draw lotteries over the period 2008 to 2010.

In May 2012 an audit was carried out by the Department of Justice and Equality on the charitable lotteries scheme funds received by Rehab for the two-year period from 1 January 2010 to 31 December 2011. It was found that in 2010 the costs of generating the lottery sales in Rehab represented a significant percentage of overall sales revenue, leading to a low profit margin. For example, bingo sales of €3,190,000 in this period yielded profits of only €548,000, while scratch card sales of €3,969,000 yielded profits of only €9,452. In summary, 2010 figures supplied by Rehab Lotteries Limited show its gross lottery sales of almost €7.2 million yielded a net profit of €558,000 or 8%.

In November 2011, I met with Rehab and queried the size of the profits accruing from the scratch card product of the Rehab lottery, noting that it generated a profit of only €9,452 based on product sales of close to €4 million. I noted that the profit ratio seemed disproportionate and expressed concern at the approach being taken to public fund-raising. I made it clear I was considering issues relating to the scheme. Further work was subsequently undertaken on the matter within my Department.

In October 2012 I wrote to all beneficiaries of the scheme advising them of my intention to wind down the scheme gradually over a period of three years, beginning in 2013. I emphasised to them that the gradual withdrawal of funding was intended to give them an opportunity to review their fund-raising practices where necessary to ensure their profitability. It is important to charities and their donors alike that fund-raising efforts are run in a businesslike and efficient manner and that the maximum possible proportion of funds raised is used to support charitable activities. My objective in phasing out the charitable lotteries scheme is to wind down a scheme that I believe is no longer fit for purpose.

I understand that at a meeting of the Joint Committee on Justice, Defence and Equality held on 9October 2013, the CEO of Rehab referred to the winding down of the scheme as a "shocking decision" by Government. I hope after this evening my approach to the scheme is now better understood. The planned reduction in payments first took effect at the end of last year. Funding was to be reduced each year according to the following plan: it was maintained at €6 million in 2012 across the scheme, followed by a reduction to €4 million in 2013, €2 million in 2014, €1 million in 2015 and nil in 2016. The scheme would then cease to operate. My decision to phase out the scheme is currently the subject of judicial review proceedings brought by the Rehab Group and Rehab Lotteries Limited. The judicial review hearing took place on 24, 25and 26July 2013 and judgment of the High Court in this matter is awaited.

In the meantime, the Rehab Group and Rehab Lotteries Limited have chosen to embark on separate litigation against the State under competition law, claiming damages of up to €1.5 billion in connection with the operation of the national lottery. Whatever the outcome of this costly action, it is likely to exert a significant burden on either public resources, charity resources or both. That seems to me unfortunate at a time when both public and charity resources are under such extreme pressure to meet the front-line needs of our citizens as we work together towards recovery. As I have said, while I do not wish to make a comment that may in any way prejudice the outcome of proceedings that are before the courts, it is important that, as Minister, I take this opportunity to brief the House in so far as it is appropriate for me to do in the context of a debate about governance of charities and use of donated funds.

I wish to emphasise that, in explaining the areas of my concern, I do not want in any way to detract from the excellent service Rehab provides to its service-users nor do I want to undermine or denigrate the work of dedicated Rehab staff engaged in the provision of those services. My essential concern is to ensure Rehab, as well as the other charities which have benefited from this scheme, operates efficiently in the raising of public funds, and that a substantial portion of funds raised are used for the charity’s objectives and on those who rely on its services.

It is the Government's focus to work towards implementing the Charities Act as it stands. To embark on a process of amending this legislation at this time would be an unnecessary distraction from the work in hand. The Act provides for a full review of its operation five years after the establishment of the Charities Regulatory Authority. That review will allow for a proper, considered and consultative process to determine whether there are ways in which the Act needs to be improved.

We do not at present envisage amending the Charities Act. The Government does not support the amendment in section 2 of this Private Members’ Bill to include the advancement of human rights in the list of purposes that are of benefit to the community. This is not due to any lack of recognition of the vital role of human rights organisations in our communities, both here and worldwide. Rather, it is in light of the importance of ensuring the new system of regulation of charities is appropriately aligned with the system of charitable tax exemption long operated by the Revenue Commissioners. Under this system, the Revenue Commissioners recognise the advancement of human rights as a charitable purpose only in the case of a human rights charity that has consultative status with the United Nations.

Under section 40 of the Charities Act, organisations holding a charity reference number denoting they hold a charitable tax exemption number from the Revenue Commissioners will be automatically placed on the register of charities by the new authority. It is, therefore, important the two systems are aligned. It is important to recall the Charities Act was consciously framed so as not to negatively impact on any organisation that currently enjoys charitable status with the Revenue Commissioners. Accordingly, under the circumstances, I consider the amendment is not necessary, as human rights organisations that already have charitable tax exemptions will be automatically registered as charities under section 40. The provisions in section 3 of the Charities Act provide for the extension of charitable status to organisations with purposes not specified in the Act. This is an issue that could be considered in the context of the aforementioned five-year review.

The Government does not support section 3. I have already set out our plans for the charities regulatory authority to be staffed to an interim level by the end of February and to have its board appointed by Easter. Following that, it will work in a preparatory mode for some time to enable it to develop the register of charities for publication, as well as putting in place such other administrative policies and procedures as are required for its operation. The Commissioners of Charitable Donations and Bequests for Ireland will be dissolved on the formal establishment of the new authority and their functions transferred to it. Once the necessary arrangements are in place, the authority will be formally established by ministerial order and the register of charities published. Subject to the necessary arrangements being in place, this will be before the end of 2014. In light of this, the Government does not support the proposed amendment nor the proposed Bill.

I reiterate how important it is that trust and confidence in our charity sector is restored. The new system of charities regulation, provided for in the Charities Act, will be an important part of this. Critical also is clear leadership from the charity sector itself. Our foremost charities must lead by example and demonstrate through their own actions that there is no place in Ireland's charity sector for poor governance or lack of transparency. In light of recent events, the public's demand to know what becomes of its charitable donations seems entirely reasonable. It is a demand I support that can only be met by the charities themselves. I call on them to do so.

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