FIA and Charities Respond to Allegations of ‘Unnecessary Spending’ of Donations

The sector’s peak body for fundraising has defended charities that were named and shamed as allegedly spending up to 83 per cent of their donations on fundraising.

The allegations were printed in the Courier Mail on 10 June and subsequently published online.

The article followed a two-month investigation conducted by the Courier Mail which reviewed the 2016 financial reports of 45 charities operating in Queensland and elsewhere.

The article said the investigation had “exposed high spending on fundraising costs, which has seen as little as 17 cents in the dollar make it to those in need”.

“Charities are spending up to 83 per cent of donations on chasing fundraising dollars and some are even blowing more cash raising donations than they actually receive,” the article said.

But those in the sector said that methodology behind the Courier’s investigation was “problematic” and spoke to a larger issue of a lack of an accountancy standard and national benchmark.

In response to the Courier article and two subsequent ones, also on charities, Fundraising Institute Australia (FIA) CEO Rob Edwards wrote a letter to the Courier Mail editor which is published on the FIA website.

“Fundraising Institute Australia (FIA) is the national peak body representing professional fundraising in Australia, a sector that employs more than 1.2 million people, saves government social welfare budgets billions of dollars and provides much-needed support to our poor, sick and underprivileged,” the letter said.

“Unfortunately, articles such as the aforementioned – which comprise a table populated with inaccurate data and accuse charities of ‘spending unnecessarily’ – do a great disservice to the organisations working to benefit those most in need.”

Edwards told Pro Bono News extrapolating figures from charities on a year-to-year basis and comparing them to one another across a diverse sector was “problematic”.

“A good example of this, or an anecdote for this, was a forum I attended a few weeks ago hosted by QUT. There were about 50 people from the sector talking about fundraising regulations. Part of the day’s format was that we broke into groups and the chair of each group was someone from QUT’s accounting faculty specialising in charitable accounting. We were given figures from charities, their fundraising income and their expenses and we were all asked to come out with the cost of fundraising and each one of those groups had a different answer,” Edwards said.

“My point being is there is no set way of accounting for fundraising costs and the reality also is that some charities will spend more on a particular year on acquisition as they will in the next year.”

Edwards also challenged the idea that fundraising costs equated to “unnecessary” expenditure.

“The reality is charities have to invest in fundraising activities to acquire donations for the recipients,” Edwards said.

“At the end of the day fundraising is a very competitive market.”

In the letter, Edwards said: “There is no clear accounting standard for reporting fundraising costs; each charity is left to decide how best to allocate costs given its responsibility for accountability and transparency when dealing with the public. This very point makes charities unique in how they present their accounts as they subscribe to a higher standard than that which applies to the corporate sector.

“Excluding bequests [as the Courier Mail article did] from total fundraising revenue and failing to separate different fundraising activities with different cost profiles, creates a false and misleading impression of the cost of fundraising.”

Edwards said there should be a national standard.

“The accounting people have been trying to get their heads around this for a number of years and a number of papers have been published, the short answer would be yes [there should be a national standard] if we could get the accounting professionals to actually agree,” Edwards said.

The Courier Mail article also raised the issue of benchmarks for the percentage of a donation that goes towards the intended charitable cause.

ACNC commissioner Susan Pascoe told Pro Bono News there were two reasons why the ACNC had not issued a national benchmark.

“The first is that we are not the relevant jurisdiction, that, at present is with the states and territories. There may well be a good argument that there should be a national benchmark and we would be very happy to contribute to that,” Pascoe said.

“The second point is charities have enormously different activities so it is very hard.

“Let’s say you have a private ancillary fund that has a corpus of money that you are investing that can generate the surplus that you can use for the grants. Then in that case you may have spent a huge amount of the charities money that is not being used for its purpose because it is quite properly being invested for the long term.

“But at the other end of the spectrum you might have a charity that delivers under contract for government, for example non-government schools, not for profit hospitals. You would expect to see that the grant money and the donations are overwhelmingly put to their charitable purposes.

“To say that you can have a single metric that would account for the variety would be extremely challenging, put it that way.

“That is not to say that is in the long term there wouldn’t be benefits in having clearer guidance because this is an issue that is clearly troubling.”

Pascoe said the community had a legitimate requirement to see that charities were transparent.

“Whether that information comes as a ratio and whether the ratio makes sense is another thing,” Pascoe said.

Pascoe said since the establishment of the ACNC a “wealth of information” was available and larger organisations were publicising their annual reports on the website.

The Benevolent Society was one of the charities singled out in the Courier Mail article which reported that the charity “spent 10 per cent more on the cost of fundraising than the $1 million it received in donations.”

The Benevolent Society director of fundraising, philanthropy and impact investing James Clampett told Pro Bono News the statement was “not accurate”.

“Our accounts are fully audited and Section 20 (page 72) of our FY16 Annual Report  (available on our website) shows the data that we are required to report under the NSW Charitable Fundraising Act 1991 and the Regulations. This clearly shows our cost of fundraising at 22 per cent of gross fundraising revenue, well within any community expectations and below many competitors,” Clampett said.

“We are not trying to hide things, we are trying to be as transparent as possible.”

Clampett said both the philanthropic community and government contracts they worked with had stringent requirements the charity abided to.

“As an organisation we have been incredibly good, and we have been for 200 years, at looking after public money,” he said.

Edwards said he was concerned inaccurate analysis of charities expenditure could increase public distrust of the sector.

“Brewing public distrust in the sector and undermining public confidence will do damage well beyond the professional fundraisers at the coalface; ultimately, those who bear the brunt will be society’s most vulnerable,” Edwards said in the letter.

“It especially regrettable that one of the charities singled out for attention is Australia’s oldest, with over 200 years of proud history supporting the less fortunate in our community.”