1997 Charities Annual Reports

Survey of Charities' 1997 Annual Reports

Over the last 6 months Givewell has been progressively collecting the Annual Reports of major charitable organisations. We have made significant progress in using this information to establish a genuine research database which concentrates on providing brief reports on each organisation for use by major donors. We are in the process of sending draft reports for review and correction and will follow up with a final report before our research service is established in July this year.

This survey of has been conducted to provide the sector some feedback on what we are looking for in each Annual Report and to highlight some issues relevant to accountability and informed giving.

Introduction
The Annual Report of a charity is assuming an increasing level of importance to donors. It is the prime means by which a charity, its Board and Auditor demonstrate accountability - a topic attracting increasing attention. An annual report is also the best source of reliable information about the activities and financial position of a charity - so donors, volunteers and staff can be better informed about what is happening with their contribution.

Purpose of the Survey
Givewell thus views the Annual Report as a pathway to informed giving. This survey reviewed annual reports to establish the extent to which they provided useful information to donors. One source Were selected criteria from the Annual Report Awards for the Community and Welfare sector. These include a statement of purpose, its history and cost of fundraising. We also selected some requirements of the NSW Fundraising Act such as cost of fundraising ratio, a statement of compliance with the Act in the auditor's report and a categorisation of assets. Other criteria were defined by Givewell. These include evidence of tax deductibility for donations, method of incorporation and whether payroll is separately disclosed.

About the Survey
A total of 40 Annual Reports of charities registered in NSW were reviewed. Of these 40, 9 are national charities, a further 7 are affiliated to similar charities in other states and the remainder operate locally in NSW.

There are 4 reasons for the NSW focus -

Fundraising law differs from state to state. However,
A large number of national charities are represented in NSW,
NSW has strict fundraising regulations which requires registered charities to publish an annual report with audited financial statements; and
NSW law also requires that a current annual report be provided to any member of the public on request.

Charities surveyed represent a variety of causes such as People with Disabilities, Humanitarian, Children, Aged Care, Overseas Aid, Medical Research, Mental Illness and Welfare etc. The size of the charities considered (by means of gross revenue from all sources as well as gross revenue from fundraising) was also widely dispersed. 8 charities had gross revenue of less than $1 million and 5 charities had gross revenue in excess of $50 million. 3 charities raised less than $100,000 from fundraising and 4 charities raised in excess of $10 million.

Analysis of Results
35 charities are registered to fundraise in NSW. One is an exempt religious body which voluntarily complies with the NSW Charitable Fundraising Act 1991. The remaining 4 are either exempt or have not registered.

Around one in four (27%) reports do not provide audited financial statements. Around one in four (24%) auditors reports are qualified. In all cases the qualification refers to accounting for cash donations.

Around two in five (38%) charities do not report the Cost of Fundraising in their report. Only one in three (33%) charities show the Cost of Fundraising ratio in a form required by the Act. This ratio shows the overall proportion of donations absorbed by fundraising costs.

Under half (45%) of the auditors reports make reference to the Act.

The above highlights the issue of accountability and demonstrates an apparent failure to comply with legislative requirements. Audit report qualifications and the failure to report on compliance with fundraising regulations is a real concern.

On the positive side, almost all (98%) reports state the source of income. Around four in five (83%) give a breakdown of assets and four in five (85%) reports carry a mission/vision/purpose statement.

Other areas need improvement if the annual report is to become a better reference source for informed giving. Only one in three (35%) reports make reference to the history the charity. While donations are tax deductible to all the charities being surveyed, only one in five (20%) state this in their report. Two in five (43%) reports state the charities method of incorporation. Also less than half (45%) separately disclose payroll.

Finally, only a minority (20%) are on the Internet.

Conclusion
These are disappointing results given the size and profile of the charities in the survey and the high proportion that are required to comply with fundraising regulations who also have an auditor. It is also disappointing that an insufficient number of annual reports are reflecting the benefits of strong regulation and well promoted industry guidelines. From the point of view of informed giving, many annual reports need improvement to provide more accountability and usefulness to discerning readers.

Michael Walsh, Principal
Aneesh Sadarangani, Research Analyst
May 1998

This report is for general information purposes and is not a fund raising request. Information in this report has been compiled from annual reports. Readers should make their own additional enquiries before making a decision inrelation to the matters raised in this report.