FAQs About Charities

How are charities held accountable by government ?

The regulation of charities is in general the responsibility of state governments. Mostly the work of charities, and the way they fundraise, is regulated through a whole range of Acts from those which relate to tax to those which relate to gaming. The terms and requirements of the various Acts under which charities are regulated - including those relating specifically to charities - vary quite significantly, as do the way they are interpreted. For example, in NSW, the Act relating to charities requires them to disclose their fundraising income and expenditure, and a change in Victoria brought in that same requirement. Givewell research, however, has shown that the rate of adherence to that requirement - though better in NSW - is still quite variable in both states. For information on the regulations governing non-profit organisations and fundraising in each state click here.

Organisations working in the area of Overseas Aid, regardless of the State in which they are based, fall into a separate category. In order to obtain funding from AusAID, organisations are required to be members of ACFID (Australian Council for International Development), and must adhere to the ACFID Code of Conduct. This Code carries with it a number of requirements, including some relating to disclosure of fundraising and administration costs. It should be noted, however, that not all overseas aid organisations seek funding from AusAID, and do not have to be members of ACFID in order to operate.

The issue of the regulation of charities was one of the things raised in the context of the Inquiry into the Definitions of Charities and Related Organisations which the Commonwealth Government initiated in 2000 and which handed down its report in June 2001 (this Report is available at www.cdi.gov.au). The Inquiry found that there is a significant amount of variance in the way charities are defined from State to State, and also that the vast range of regulations, from different areas of law, which relate to charities make them complex organisations to operate. Such complexity may also make it more difficult for the public to have a clear sense about the operations of organisations which call themselves charities.

What are the factors to look at when researching a charity ?

Evidence suggests that a charity's operating methods, and operating costs, are the things that people consider to be the most important. Donors generally want to know that they are supporting projects and that their money is going directly to the cause they are interested in helping, rather than supporting the charities operations. Of course, most people realise that a certain amount of administration and expense must be incurred in order for the charity to operate and to raise money.

Increasingly, however, donors are keen to know how much a charity spends on fundraising and administration, and would like to see these costs disclosed in a way they can readily understand. Under certain regulations (for example the ACFID Code of Conduct and the law relating to charities operating in NSW) the way these costs should be calculated and disclosed is detailed, so that clear comparisons should be possible between organisations. In the case of organisations not working in under these regulations, comparison may not be possible, either because there is no disclosure of these costs or because the way they are calculated may not be the same. In the future, either through changes to regulations relating to charities or as a result of public pressure, it may be that charities will consider it to be in their interest to provide a greater degree of disclosure.

As well as the issue of fair comparisons, when looking at a charity's administration and fundraising costs it should also be noted that, based on their structure and operating methods, it is easier for some organisations to have lower costs than others. Organisations which rely heavily on volunteers, for example, may have lower administrative costs; denominational charities, for example, often have very low costs associated with fundraising because money is raised directly from their congregations. Economies of size can also make a difference to both administrative and fundraising costs.

In and of themselves, of course, these factors do not necessarily mean that these kinds of charities are better or more efficient at what they do. For many people, the choice about which charity to support is based primarily on their interest in the cause the charity works with. If there are a number of charities working for that particular cause, however, it may be worthwhile to compare them, to see how they differ from another charity working in the same area, and to work out whether your donation is going to be used as you envisage it will be.

A final issue to look at is sustainability and longevity, particularly for people interested in leaving a bequest. An understanding of an organisation's financial status can assist with this, although as the recent upheavals in the corporate sector have shown us there are never any guarantees

What are some of the current challenges being faced by Charities ?

The challenge most often reported by charities as their most major and on-going one is that of attracting donors and supporters. In part, this is a result of the sheer number of organisations and causes out there. The flip side of the greatly increased levels of awareness about all manner of needs that people in our society have - which can only be a good thing - is that it appears harder and harder to look after everyone adequately. Then again, Givewell research over the last decade has consistently shown that public support to Australian charities has been growing steadily, suggesting that Australians respond well to calls for assistance. There is not necessarily any reason to suggest that this will change significantly in the short or the long term.

As well as constantly finding new ways to raise funds, charities are also being asked - by both donors and the various regulations under which their operations fall (for e.g. the introduction of new arrangements relating to the GST) - to operate effectively and in business-like ways, and this carries with it administrative and operating challenges of various kinds. Charities are also relying increasingly on government funding to run programs, which is the concomitant of governments increasingly outsourcing welfare and social programs to charities. This is a shift in the way governments operate which requires - on the part of the charity - a much higher degree of competency in relation to applying for government funding as well as acquitting that funding with a view to receiving future funding.

Increased government funding, and involvement by charities in delivering programs which were previously government programs, also raises the problem of potential conflicts of interest between government and the not for profit sector. There is also the possibility that such arrangements may affect a charity's ability to remain independent of government, and not to be associated with the policies of any particular government.