To what extent do the practices of charitable organisations comply with charity laws and standards?

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INVESTIGATION

SECOND DRAFT

Research Topic: Charitable Organisations

Research Question: To what extent do the practices of charitable organisations comply with charity laws and standards?


INTRODUCTION

The charity sector has been in the limelight of late – but for a negative reason. Over the past few years, numerous cases of charity fund misappropriation made headlines including the high profile Hale House scandal and recent court settlements involving the associates of United Way, Easter Seals and Red Cross (Waide 2003). Consequently, public trust dwindled; validating Donna Childs’, the president of the Miami Valley Better Business Bureau, statement that almost half of the public believes that charities lack disclosure of information (Mulgrew 2003). Among primary concerns include the amount of funds going to beneficiaries and total fundraising and administration expenditure (National Council for Voluntary Organisations [NCVO] 2004, p. 4).

This situation implies that certain charities are deficient in maintaining their level of accountability and transparency. All charities are regulated by law and sometimes; they also adopt standards to gauge their performances. Therefore, a charity that has high compliance to both charity laws and standards will have better accountability and transparency. This serves as the basis of the research question:

“To what extent do the practices of charitable organisations comply with charity laws and standards?”

This paper will evaluate compliance to charity laws and standards in three areas:

  • Administration and oversight
  • Means of raising funds
  • How funds are distributed

The charity laws and standards used will be given followed by evaluation of the degree of compliance of charities’ practices to them.

Among the sources used are Internet articles, online publications, newspaper reports and email interviews with personnel from international charity-regulatory bodies.


  1. BACKGROUND

Firstly, the term ‘charitable organisation’ is defined followed by explanation of its types and also the charity laws and standards to provide a better understanding of the terms that will be used in this investigation.

1.1 Definition of charitable organisation

The Internet defines a charitable organisation as a tax-exempt organisation which operates exclusively for any philanthropic, benevolent, educational, religious, patriotic, social welfare, public health, environment conservation and other accepted purposes (Nonprofit Hub n.d.). In short, a charity’s principal reason for existence is to drive humanitarian practices.

1.2 Types of charitable organisation

In the year 1891 in United Kingdom, Lord Macnaghten classified charities in four ‘heads’ based on their purposes:

  • relieve poverty and ill health,
  • advance religion,
  • improve education,
  • and for other benevolent aims

(Pratten 2004)

These charities exist in five main legal forms which are:

  • limited companies (usually limited by guarantee),
  • unincorporated charities (trusts/associations),
  • charities incorporated by Royal Charter,
  • and charities incorporated under an Act of Parliament

(Charity Commission 2004)

1.3 Definitions of charity laws and standards

The oldest and undoubtedly, preeminent charity law is UK’s Charities Acts of 1992 and 1993. A few of the major statutory requirements include the submission of an Annual Report and Annual Return, adherence to the Charity Commission’s requisites and compliance to the contents of the Statement of Recommended Practice (SORP) particularly on issues such as reporting and accounting, trading, political activities and fundraising (Charity Commission 2004; Plummer 1996).

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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 ...

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