Helping you to keep up-to-date with developments in the Charity sector

January 2015

www.pwc.ie

Charity news

2PwC Charity news

I am very pleased to bring you our first edition of Charity News for 2015. This issues looks at some of the important issues facing many of our charities - the new Charity SORP, Fraud and Digital Trust, New EU Data Protection Rules and the Charitable Giving Guide.

We hope that this issue provides a reminder to you of recent developments in the sector and prompts you to shine a light on your charity to identify changes required to protect and enhance your organisation.

If you would like to discuss any aspect of this newsletter, or any other challenges that your organisation may be facing, please contact your regular PwC contact or contact me at teresa.harrington@ie.pwc.com.

Finally, from the team in PwC Ireland we wish you a safe and prosperous 2015.

Teresa Harrington PwC Not for Profit Leader, Ireland

Introduction

3PwC Charity news

The new Charity SORP – Timelines to ConsiderA new charity SORP has been published in the UK in order to provide guidance on the application of the FRS 102 accounting framework. The SORP also provides guidance to the charity sector on areas where FRS 102, the new UK and Ireland accounting standard, is silent or where guidance is considered necessary. FRS 102 is effective for accounting periods beginning on or after 1 January 2015. The implementation of FRS 102 and the new SORP presents a real challenge both in terms of practical understanding of the new requirements and what they will

mean for individual institutions. Charities are not permitted to follow FRS 101.

While in Ireland we await the regulations from the Minister for Justice and Equality in relation to the form and content of the financial statements and annual reports of charities, the SORP is considered at this point in time to be the best point of reference.

The implementation timeline for an indicative March year end entity is summarised below:

To comply with this timeline all entities will need to be able to restate prior year comparatives so in the case of a March year-end the opening balance sheet position would be as at 1 April 2014. Therefore, work needs to begin now for all entities as data will need to be collected.

Audit Committees need to understand the key areas of change so they will be able to properly discharge their responsibilities under the new SORP, as well as challenge progress with the conversion project which management will be undertaking.

Management should start considering how best to plan for these changes and perform an impact assessment of the expected changes. The Charity should consider preparing their financial statements in compliance with the New Charity SORP, including the new disclosures and presentational requirements. In addition to presentational changes, there are some significant changes from the accounting framework. Key areas that will need to be considered include pensions, legacies and

donated stock, revenue recognition, investment properties, intangible assets, financial and embedded derivatives and holiday pay accruals.

How PwC can helpThere are many ways that PwC can provide you with support in relation to the changes expected by FRS 102 and the new Charities SORP. For example, our FRS 102 reporting impact assessments are a practical response to help you understand the potential effects of new accounting rules on your financial statements. We can then work with you to develop and manage the associated project plan as well as providing training to your staff.

For further details see:

www.pwc.ie/not-for-profit

Charities: What it means for you - FRS102, New Charities SORP and update on the Charities Act, 2009

Transition dateOpening SORP balance sheet

1 April 2014

2014/15Restated Comparatives

2015/16First year of new SORP reporting

2014 2015 2016

Comparative year end2014/15 restated

comparatives

First SORP year end2015/16 Annual report

(plus 2014/15 comparatives)

4PwC Charity news

Fraud Risk – Preventing and Detecting FraudPwC’s most recent Global Economic Crime Survey indicated that 51% of all organisations had encountered fraud in the past 12 months (3,877 respondents). Perhaps significantly, 38% of organisations had not carried out a fraud risk assessment during that period.

A question we regularly pose to our charity clients: “Is the sector simply less susceptible to fraud risk, or could more be done by Charities to proactively prevent and detect this issue?” A common theme emerging from discussions with Charities suggests an internal perception of a reduced vulnerability to fraud, added to this a reluctance to publicise cases internally or externally for fear of reputational damage. Recent newsworthy fraud cases within the sector suggest that this view may well be overly complacent.

Management is responsible for implementing policies and in fulfilling these responsibilities, management should identify and evaluate the risks faced by the organisation and design, operate and monitor an appropriate system of internal control. The most effective and cost effective way for charities to deal with the threat of fraud is to be proactive, focus resources on prevention, and let intelligent automated systems shoulder the burden of detection. This will help minimise losses due to fraud and prevent a need for costly

reactive investigations. Fraud risk assessments are a crucial exercise to be undertaken by Charities, and good practice would be to engage with stakeholders to ensure identified risks reflect the actual, rather than expected, environment in which they operate.

Common areas of fraud risk include Segregation of duties, Mandate Fraud, Bribery and corruption, Purchase card usage and Source of donations.

In response to risks associated with fraud and ethics we would expect a charity to have critical policies and procedures in the following areas: whistle blowing, fraud response plan, anti-fraud, ethical policies and investment, donation vetting processes, staff code of conduct including volunteers and part time/agency staff, Trustee codes of conduct, Anti-money laundering, Anti-bribery arrangements, including gifts and hospitality and declarations of interest and Related third parties.

5PwC Charity news

Digital Trust – How Cyber Secure is Your Charity?Charitable organisations are operating in a significantly different environment than they were several years ago. The competition in the market for funding and generating voluntary income is getting stronger. Stakeholders such as donors, funders, beneficiaries, and supporters are increasingly technologically aware and are interacting in different ways, with the trend being around increased use of information systems and technology. This puts a focus on the IT and systems provision that supports charities interactions with these stakeholders.

The need for cost reduction and process efficiency has also resulted in corporate systems requiring investment to e-enable processes and to ensure they are adapted to changing models of provision. There is also a need to enhance management information to support decision making given the more dynamic and competitive marketplace we are seeing across the sector.

Given recent high profile events in both the private and public sector, data protection has never been higher on the agenda. Reputation, trust and brand value can all be seriously affected by information loss and theft. Technology continues to evolve quickly and new technologies are becoming the norm for organisations. As such, the safeguarding of personal sensitive information held on computers or physical files is paramount. While technology protection is one of the key components to better data protection, equal attention needs to be paid to people, organisation, culture and processes.

Such is the speed of technological advancements that organisations in all sectors are struggling to keep pace with demand. We would expect cyber security to be a “hot topic” for charities, given the pace of change in technology and charities need to keep pace with change not just to thrive but to survive.

If the answers to these questions are not at your fingertips, you are not alone. However, the expectations of the sector in terms of the digital agenda are growing. In building digital trust Charities will be able to maximise growth potential and manage the risks in the new and emerging opportunities available, but for many investment will be required.

Charities should be able to answer cyber security questions around:

1. How well protected is the Charity from a potential cyber-attack?

2. What level of cyber security risk is considered acceptable?

3. How would the Charity respond to a major cyber security incident?

Charities also need to be able to understand the challenge posed by the broader digital agenda:

1. What is the Charity’s IS / IT Strategy and how will this meet the needs of the Charity today and in the future?

2. How can the Charity deliver more with less funding without compromising overarching security and availability?

3. What are the Charity’s social media and digital strategies?

4. Does the Charity have sufficient capacity to support increased demand - particularly given the increase in use of mobile devices and the exponential growth in online media streaming?

5. How is the Charity leveraging the insight provided by the additional data held?

6. How is the Charity monitoring and responding to emerging risks, challenges and opportunities in the digital arena?

6PwC Charity news

New EU Data Protection Rules and its Impact on Charity FundraisingThe EU’s proposals to reform data protection rules could have a serious impact on charity fundraising.

Under the current rules, charities may contact donors by direct mail or by telephone unless they opt out. For email and text fundraising, there is a ‘soft opt in’ whereby charities can: contact donors who have expressed interest; have been given an option to opt out; and are being contacted about similar opportunities. The new EU proposals would require people to give their explicit consent (eg, by ticking a box or some other positive action) before a charity could contact them for marketing purposes.

Under the proposed regime, profiling based on personal data would be prohibited without the explicit consent of the individual. As a result, charities’ ability to build up prospective donor information would be hampered and charities would no longer by able to target direct marketing campaigns at specific donor profiles.

The proposals would have a dramatic impact on those charities which rely heavily on the use of cold mailing lists to fundraise because unless individuals have opted in for their details to be shared on a third-party list they could not be contacted. A recent report by marketing agency Medialab titled The European Union & Data Protection: the Biggest Challenge in Fundraising for a Generation? has said that the third-party list rental market, which is still a huge source of new donors for dozens of charities, ‘could face a loss of up to 50 per cent in numbers’.

Individuals would also gain a right to erasure/right to be forgotten which would

give them the right to request the complete and permanent deletion of their personal information from charity databases. Currently, individuals can request that their information is no longer used for marketing and their personal data is retained in a suppression file to ensure organisational compliance.

The EU proposals, which are designed to strengthen online privacy rights and build trust in online services, could come into effect as early as 2017. However, the Institute of Fundraising is campaigning for the introduction of less stringent data protection rules and the proposals may yet be amended.

7PwC Charity news

Charitable Giving Guide ReminderPosition in relation to donations made by individuals on or after 1 January 2013

• Donations from all individual donors are treated in the same manner, with the tax relief in all cases being repaid to the charity. Self-assessed taxpayers can no longer claim a deduction on their tax returns for donations.

• A blended rate of relief (31%) applies to all taxpayers regardless of their marginal tax rate, subject to the taxpayer having paid at least the amount of tax being claimed by the charity. All donations should be grossed up as previously done for donations from PAYE taxpayers.

• The charitable donations scheme has been removed from the scope of the high earners’ restriction.

• An annual donation limit of €1 million per individual, which can be tax relieved under the scheme, has been introduced.

• The restriction of the donation to 10% of the individual’s total income, where the donor is associated with the charity, is retained.

• The administration of the scheme has also been simplified in that bodies will be permitted to use “Enduring Certificates” from donors that could last up to a maximum of 5 years (CHY3 Cert). There is also an option to complete an “Annual Certificate” solely in respect of donations made in a single year (CHY4 Cert). These forms can be found on the Revenue Commissionaires website at http://www.revenue.ie/en/business/authorised-charities.html.

• The charity is only required to record the donor’s PPSN the first time a declaration is signed. Thereafter, charities will use their own identifier for any communications with the donor.

• Bodies must submit refund claims to the Revenue Commissioners electronically.

• Claims will not be processed until after the appropriate returns have been received by Revenue. In the case of a PAYE donor the appropriate return is the employer’s Form P35 for the year in which the donation is made and in the case of a self-assessed donor it is the donor’s tax return for the year in which the donation is made.

8PwC Charity news

Community mattersEvery activity PwC undertakes, both as an organisation and its individual people, has an impact on the communities in which we operate. Our responsibility is to ensure that these activities support strong, thriving and diverse communities. We want to ensure that the contribution we make is meaningful and provides focused and effective partnerships to deliver real benefits and changes. Our programme encompasses strategic partnerships such as Business in The Community Ireland, Chambers Ireland and Business to Arts. Our initiatives include Junior Achievement, The Localise Project, JobCare, Santa Letters programme, Camara and the PwC People Giving Scheme.

Fundraiser for Irish Guide Dogs - one of our 3 charities we supported in 2014

Localise Project - Working with the local school in Sheriff Street, to raise funds for a local project. Rowed the Liffey for Peter McVerry Trust.

Launch of 2015 People Giving Scheme - Christmas Lunch event

9PwC Charity news

Of further interestGovernance trends shaping the board of the future Board performance and diversity

Companies Bill 2012 Overview of the new legislation which was passed in December 2014

New data protection legislation is on the horizon with significant impact to organisations in IrelandChanges to privacy regulation are on the way and will affect how Irish companies handle personal data. The most significant change to EU data protection laws since 1995 replaces the current EU Directive 95/46EC. Currently in draft, and making its way through the European Parliament, it is expected to be introduced in 2017. There are a number of key areas to be aware of:

• Harmonised regulation across the EU in the form of mandatory regulation

• Mandatory data breach notification

• Increased sanctions of up to 2% of annual worldwide turnover

• Increased accountability and assignment of a Data Protection Officers

• Controversial extension of jurisdictional reach if doing business in the EU

• Deal with a single regulator in the country in which you have your main establishment

• Increased responsibility for data processors

• Transfers outside the EU remain restricted

• Evidence of compliance and privacy impact assessments for companies

• The right to be forgotten for individuals

• Data portability to allow individual’s move data easily

• Consent rules strengthened

10PwC Charity news

Key contacts

Teresa HarringtonAudit Partner

teresa.harrington@ie.pwc.com +353 1 792 8558

Angela Devaney Audit Senior Manger

angela.devaney@ie.pwc.com +353 1 792 6861

Peter O’Boyle Advisory Senior Manager

peter.oboyle@ie.pwc.com +353 1 792 6164

Teresa McColgan Tax Partner

teresa.mccolgan@ie.pwc.com +353 1 792 8613

Ciara Whelan Tax Director

ciara.whelan@ie.pwc.com +353 1 792 8635

Munro O’Dwyer Pensions Director

munro.odwyer@ie.pwc.com +353 1 792 8708

Dervla McCormack Consulting Partner

dervla.mccormack@ie.pwc.com +353 1 792 8520

11PwC Charity news

www.pwc.ie

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2015 PricewaterhouseCoopers. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. 05385