Charitable foundations cannot afford the statutory audit required under Russian law
Guided by current legislation, the authorities are demanding that charitable foundations provide statutory audits, but, according to experts, not every organisation is able to allocate the necessary funding to do this.
The law obliging charitable foundations to pass a statutory audit has been in force for a while already, but it is only in 2017 that the authorities have started to demand from organisations what is required by law, says Oleg Sharipkov, the Executive Director of the Civic Union Fund told the Agency of Social Information.
“The budget of many regional charitable foundations is about 100,000 roubles per year. And there are many such foundations. There are about three or four foundations in the regions with a budget of about 3 million roubles, which is still not very much. But in general, the budget tends to be 1-200,000 roubles. For these organisations to meet the requirement for a statutory audit is just not realistic, they will never be able to find the money for it. We found out how much it costs for us to do an audit in Penza Oblast. We put the figure at 25,000 roubles. For a big foundation from St Petersburg, for example, this figure would be more like 150,000 roubles. This is a big problem: it is obvious that 99% of foundations will not be able to meet this requirement of the law and to do the statutory audit. So, 99% will be forced outside of the law’s parameters, and will be in violation,” said the expert.
Only specialised auditors, with a license and which are part of the auditor’s regulatory body, will be able to carry out an audit, emphasised Sharipkov. These organisations are responsible for the quality of the audit, and their services are consequently expensive. And if as a result of the measures of some law, 99% of their “customers” will not be able to carry out an audit, it means the problem lies directly within this law, the expert suggests. By contrast, this law requires commercial structure to conduct a statutory audit only if their turnover is more than 60 million roubles. “For some reason this part of the law does not apply to charitable foundations. I suggest levelling the playing field between commercial structures and charitable foundations. Please, if a charitable fund has a turnover of more than 60 million roubles, then the audit will be mandatory, but if it is less, then it is not,” added Sharipkov.
According to the expert, the financial situation in which most regional charitable foundations find themselves is such that, not only can they not allow themselves to carry out a statutory audit, but they will also encounter problems because they will have to pay fines for non-compliance with the law. This situation is a threat to many organisations which will be forced to close with a negative balance.
“The audit report is a form of external certification which is supposed to show that an organisation has healthy finances and accounts, including charitable funds and donations,” says Svetlana Makovetskaya, the Director of GRANI Centre. “And if an organisation is registered as a foundation, then it must assume in advance that an audit report will be obligatory.” In her opinion, an audit is a standard requirement of organisations calling themselves foundations and fundraising.
From Makovetskaya’s point of view, the problem is not that charitable foundations are being asked to provide a statutory audit, but rather that organisations have nowhere from which to take this money: “Audit reports and the cost of audits are really an expensive pleasure, and charitable foundations, especially rural ones, do not have anywhere to take this money from. Even private or individual philanthropists are prepared to give money only for the completion of concrete things, to help someone, for some charitable project. They are hardly willing to donate for administrative costs,” says Makovetskaya.
In this sense, charitable donations in any case require that someone external evaluates whether they are being correctly spent, she considers: “Yes, audits are expensive, but what is the alternative? It is possible that it could be self-regulation, replacing audit reports with reports from a self-regulatory organisation, which verifies you. Self-regulation as a non-commercial entity could be cheaper. Charitable foundations in any case need some kind of certification. And if this is not an audit, then let them come together as a self-regulatory organisation.”