Charities' Accounting Can Disguise True Costs - CHOICE Report

A study by consumer advocate group CHOICE has found accounting systems for charities are wanting and can make fundraising costs seem lower than they really are so it appears a higher proportion of donations are reaching those in need.

CHOICE concluded that the variety of ways in which charities’ overheads are recorded makes it very difficult for donors to realistically compare different charities’ cost effectiveness on a like-for-like basis. This is largely due to the absence of uniform accounting and reporting standards in the sector.

While overseas aid organisations have a voluntary code of conduct that aims to improve disclosure, some domestic charities don’t make their annual reports or financial accounts available to the public.

CHOICE says the average fundraising cost ratio (the sum spent on raising money as a percentage of the total funds raised) is sometimes artificially low, a problem confirmed by many working within the sector.

Nine charities willingly gave CHOICE financial information but the different ways the information is structured makes comparisons next to impossible.

CHOICE media spokesperson Christopher Zinn says many charities put their own definitions on items such as administration and fundraising costs and juggle these expenses around to achieve low cost ratios.

Zinn says while the charities’ accounting methods are quite legal, CHOICE thinks donors have a right to clear, consistent information that enables them to make an informed decision about which charity or charities to support.

The report points out that some states have rules for cost ratios. In NSW the maximum is 40%, in Victoria registered fundraisers who donate less than 50% of proceeds to beneficiaries may be asked to demonstrate how their fundraising is in the public interest.

CHOICE supports calls for a single regulator of the charity sector, made by the Fundraising Institute Australia and some charities, to replace a mish-mash of state and territory regulations and reporting requirements.

A new agency, akin to the Charities Commission in the UK or New Zealand, could improve transparency and disclosure for consumers and reduce compliance and administration costs for charities.

Check out the CHOICE report at: http://www.choice.com.au/viewArticle.aspx?id=106240&catId=100268&tid=100008&p=1&title=Charities