As for standards, one of the most widely applied in US will be those by the Better Business Bureau (BBB), a renowned charity watchdog which promotes 20 voluntary standards of charity accountability in terms of governance, financial expenditure and probity (Give.org; Mulgrew 2003).
2.0 ADMINISTRATION AND OVERSIGHT
This section examines the administration and overseeing of charities where the degree of compliance will be evaluated in terms of policies, planning and decision-making as well as the credibility of members.
2.1 Policies, planning and decision-making
In charitable organisations, trustees replace CEOs and divisional managers as the management board that converges occasionally to set policies, plan future activities and also decide on the best solution for a particular situation.
With regards to the aforementioned charity law, a charity must consist of a board of unpaid trustees who are responsible for the organisation and answers to a senior management team or a Chief Executive. Additionally, the objectives must be politics-free where direct support for a political party is prohibited (Plummer 1996). Better Business Bureau (BBB) however, goes further to recommend that the board must have a minimum of 5 voting members, at least 3 annual meetings and regular assessments of performance and effectiveness (Give.org 2003).
To a large extent, charities are efficient in this area and are, in fact, operating at higher levels than the standards. Charity Commission’s (2004) analysis confirms this claim where 81% of charities are able to explain their objectives clearly, 76% described their aims and missions while about 66% and 35% detailed their reserves and investment policies respectively in their Annual Reports. Of course, negative feedbacks were also given such as in a review by the Institute of Chartered Accountants which concluded that nonprofit organisations had unsatisfactory reporting of objectives, lack description of management mechanisms and fail to reveal critical information regarding investments and grants (D’Cruz 2003).
Charities are generally accountable in their governance. Yet, the inefficiency in expressing aims and describing activities including programs and services gives the charity a weaker impression of compliance to charity laws and standards. Therefore, it is prudent that charities attempt to improve their ability to specify and recount for their internal organisational workings as higher transparency can boost public confidence in them.
2.2 Credibility of members
Undeniably, the capability and integrity of members are the crux in determining whether an organisation succeeds or fails in its mission. Therefore, members of charities especially the trustees must possess certain qualities that make them eligible people for the job. Section 17 of Charities Act 1993 states that trustees are disqualified if they are guilty of misconduct or honesty-related crimes, are bankrupts or have undischarged debts (Plummer 1996). However, there are no specific standards regarding this matter.
The members of charities are almost always legally eligible but many of them lack essential expertise and knowledge essential to manage a charity. As recent survey by Association of Chief Executives of Voluntary Organisations or ACEVO (2003) finds, less than 10% of trustees are appraised while 50% of boards lack marketing, IT, HR development and fundraising skills, hence bringing the reliability of charities into serious question. This disappointing situation is reaffirmed in Plummer’s study (1996) of the management breakdown crisis in 1987 in the Alzheimer’s Disease Society resulting from the employment of dedicated yet incapable people. Fortunately, matters have improved as charities have started recruiting more competent and effective members. For instance, Oxfam applies a new trustee-selection method to incorporate valuable skills that reflect their activities whereas Scope’s trustees undergo complete training in management (Plummer 1996).
While skills are necessary in tackling responsibilities, they are of lesser value compared to the dedication and moral drive imbued in the members of charities as the former can be acquired through training whereas the latter cannot. If members intentions are dishonorable since the beginning, that will mark certain downfall for the organisation especially in its management and financial areas.
- MEANS OF RAISING FUNDS
This section evaluates charity fund-raising procedures which include advocating, campaigning, recording and acknowledging contributions from donors.
3.1 Advocacy and campaigning
Fundraising is another essential facet of charities that is closely regulated by charity laws and standards. In order to acquire the money needed to carry out programs and provide services, charities engage in various activities to gather funds especially by soliciting donations from the public.
Firstly, authorisation is required before a charity can fundraise legally. Charities must report to state and federal authorities which monitor all public fundraising activities, as well as adhere to the Codes of Practices stipulated by the Institute of Fundraising and Professional Fundraising Regulatory Association (NCVO 2004, p. 23; Pratten 2004). Meanwhile, at Give.org (2003), BBB advises charities to solicit truthfully, provide accurate information to the public including the exact profit ratio for sales or services conducted, and present their annual report upon request.
In practice, the majority of fundraising campaigns are operated truthfully although the methods employed by some may tend towards manipulation. One such example can be seen in a British charity, Shelter, which was criticised for having deceptive campaign literature (Plummer 1996). In this case, information given to the public tends to be biased in order to gain sympathy for the charity’s cause and therefore, generate monetary support. To further exacerbate the situation, Pratten (2004) reports of emerging bogus fundraisers and under-regulated face-to-face solicitations. However, little of these alleges can be proven and are usually results of negative publicity.
The inference here is that charities are, in general, amenable to both charity laws and standards in the process of advocating and campaigning for their cause. However, the public tends to be skeptical due to uneven media coverage of charity campaigns where bad or scandalous campaigns are highly publicised compared to commendable ones. This act of branding charities as weak and deceitful merely because of a few ‘rotten apple’ cases is therefore unjustified.
3.1 Advocacy and campaigning
Besides soliciting for funds in an honest manner, it is also imperative that charities maintain a complete record of all the donations that they receive and acknowledge the donors. Today, the utilisation of high-technology electronic gadgets makes the recording of such information simpler and much more efficient. This helps in financial accounting and assures donors that their money or goods are received, appreciated and noted by the charity.
Additionally, the law also obligates charities to record all contributions received, keep bank statements involved, maintain copies of information used for fundraising including publications and phone scripts as well as provide written acknowledgment of donations especially when requested by donors (Alberta Government Services 2000). Charities too are recommended to send donors receipts even when not requested (Hooi n.d.).
Overall, most charities have satisfactory recording practices that successfully prevent any mishandling of collected funds. However, it was suggested (Freedman, P 2005, pers. Comm., 17 March) that charities take more initiative in sending donors acknowledgments or thank you notes. To illustrate, Shelter Home in Malaysia has a modus operandi where it issues temporary receipts, followed by official receipts and finally a copy of the statement of accounts will also be sent to donors. All daily and monthly collections are then recorded in financial statements to ensure financial accountability (Hooi n.d.).
The lack of major complaints regarding fund-recording and acknowledging suggest that charities are quite competent in recording their collections but are less efficient at acknowledging them. This may be contributed to time and staff constraints especially when the number of donors is large. Nevertheless, the onus is not solely on charities as donors’ attitude of not requesting for receipts for small donations fuels this complacent attitude.
- DISTRIBUTION OF FUNDS
Collected funds of charities need to be distributed to various benefactors through different procedures stipulated by their policies. Regarding to this, this section will evaluate the compliance of charities’ fund-appropriation and financial reporting to existing laws and standards.
4.1 Appropriation of money and goods
Charity fund-appropriation, being one of the core functions of charities, is highly regarded by the public and therefore, is subjected to stringent regulations. The charity sector is under increased media scrutiny since the exposure of notorious fund-embezzling incidents. Consequently, donors now demand to know what exactly happened to their money or goods – whether they did, in fact, go to their purported causes. While there are no laws detailing how charities should manage their funds, the BBB advises charitable organizations to spend a minimum of 65% of their revenues on program activities and less than 35% for fundraising events while avoiding accumulation of funds (Give.org 2003). In brief, the bulk of charity endowments should be distributed in the form of goods or services to beneficiaries in accordance with the purpose and mission for which the organisation exists.
In practice, fund-appropriation by charities border on standard requirements and at times, are found to be well below it. For instance, Mohl (2004) reported that recently, the Lance Armstrong Foundation spent $8.5 million or 81% of its $10.5 million on program services. Firefighters Charitable Organisation instead, raised %10.7 million in 2003, of which $9.2 million (86%) was used to pay telemarketing expenses while a meager $1.3 million (12%) went to program services. In another extreme case, a charity, VietNow National Headquarters, allowed Telemarketing Associates to keep 85% of the total funds it managed to raise for the charity (Waide 2003).
Nonetheless, the situation is no hopeless. A recent evaluation by Charity Navigator (2004), a renowned charity watchdog, shows that 70% of charities spend at least 75% of their funds on program services and less than 10% and 15% on fundraising and administration costs respectively, which is a good sign that charities are managing their funds well. It also justified the occasions of exorbitant fundraising expenditure by stating that fundraising costs incurred is proportional to the popularity of the cause promoted by a charity.
To summarise, charities may not adhere fully to the standards from the revenue allocation perspective but this should not be taken as a weakness especially in cases of high fundraising costs unless the charity is unable to defend its fund-allocation decisions. Moreover, these costs are not always wastage or products or inefficiency – they are investments necessary to generate higher collections especially for charities that suffer from low donations level. In the absence of clear guidelines, most charities are doing a good job of utilising their revenues.
4.2 Financial reporting
Like for-profit organizations, charities are subjected to reporting requirements particularly in the financial area to the government and other charity regulatory bodies. Through these reports, a charity’s performance and probity can be evaluated with regards to income and expenditure. It is statutory that charities enclose their annual transactions and explain their financial standing along with salient features of their accounts at the end of their fiscal year (Plummer 1996). Charities are deemed up to standards if they are able to provide full financial statements upon request, list breakdown of expenses, report accurately and create annual budgets (Give.org 2003).
The level of compliance of charity reporting to laws and standards often differs according to area. In UK, charity financial disclosure is satisfactory where about 71% revealed their resources and expenses while 63% described their financial health (Charity Commission 2004). Unfortunately, the situation was opposite in Australia where in 1997, only 38% of major Australian charities had qualified audit reports and 45% did not meet state report requirements (Walsh 1999). Not only that, Waide (2003) also finds that only 50% of charities provided their informational tax returns upon request, hence failing BBB’s standards.
On the whole, reporting levels though complying with laws, barely meet standards. This suggests that charity boards have insufficient financial expertise and resources in handling monetary matters as not all charities, especially smaller scale ones, are capable to hire financial firms or professional staff. With the rising call for accountability and transparency, charities’ reputation might be further undermined if this situation persists.
CONCLUSION
To sum up, the charity sector is currently performing reasonably well if looked at in broad terms. Charities have proven to be competent in critical areas including governance, trustworthiness when raising funds and informing the public, recording of collections as well as reporting their financial activities. However, they too have their weaknesses particularly when it relates to the capability of members and acknowledging donations.
Thus, charities need to strive to maintain their level of efficiency and simultaneously, put more effort into analysing and subsequently, alleviate their shortcomings in areas mentioned above. Charities should always bear in mind the fundamental reason of their existence – to serve the cause they pursued so passionately – and not sidetrack from that. Likewise, the public needs to understand the workings of a charity and the problems that they encounter to be both transparent and accountable. It is unjustified to simply assume that charities are inefficient and worse yet, deceitful.
On the part of charitable organisations, they are more cognizant of charity laws and are eagerly adopting available standards to reverse the trend of public mistrust. Hence charities are constantly upgrading and equipping themselves with the necessary skills to adjust to these changes. Hopefully, charities will be able to learn from past mistakes, ameliorate their performance and thus, continue serving for the greater good.