Can You Trust Your Charity?
I’m a sucker! Send a cute kid with a good cause to knock on my door and I’ll probably give to anything. My wife would too. But, to be honest, we’re becoming a little overwhelmed. In the past six months, we’ve had phone calls from no less than six charities. As a result, our linen cupboard contains tea towels we didn’t really need and we’ve paid for products we don’t really want. The local shopping centre will often have someone collecting loose change or selling fundraising tokens. Television and radio advertisements asking us to give, grab our attention at all times of the day and night.
Despite some negative publicity, it seems Australians like to give! According to Philanthropy Australia,1 Australian individuals and businesses donate more than $A5.4 billion to over 34,000 nonprofit organisations (NPOs) each year. Every adult, on average, donates $A133 per year.2 A Philanthropy New Zealand survey of 600 Enzedders found 93 per cent had made a donation to something in the previous 12 months, and a quarter had done so between six and 11 times.
Like people, charities can be both quite different and similar. Some, like World Vision, benefit the poor in developing countries. Others strengthen local sporting, cultural or emergency service organisations. Religious groups are categorised as NPOs. And we’ve all heard of established welfare groups like St Vincent De Paul and the Salvos.
Charities do an amazing and worthwhile job in contributing to the care of the disabled and disadvantaged. They educate our children about drugs, assist the unemployed, advance science, protect the environment, care for injured animals and improve circumstances for the aged. They sponsor the arts and contribute to the very fabric of society. But few realise that the average charity operates with a relative handful of staff and an income of less than $A100,000.
Such is the level of our giving that about 70 per cent of Australians donate money, while approximately 20 per cent give their time.3 Many of these supporters give to registered charities. By law they must be not-for-profit organisations, for the public benefit and have a charitable purpose.
But can they be trusted? The media, of course, leaps at the opportunity to cast doubt. Recent allegations of mishandled funds for Bali victims damaged all charities. Were the funds misappropriated or delayed? Who is to be believed? Do charities always spend your donation wisely? Do you really know what you’re donating to?
With more and more charities actively appealing for your cash, it’s necessary to ask questions before opening your wallet or passing on your credit card number. Following are some further suggestions for ensuring your gift fulfils your expectations for it:
1. What is the mission behind the advertising.
Most charities fall into one of four categories—relief of financial hardship; advancement of education; advancement of religion; and purposes beneficial to the community.
With more and more people giving larger donations to two or three charities instead of smaller donations to many, it is becoming more important to know exactly what you are giving to. Although both are necessary at times, you may prefer to give to causes that give a “hand up” rather than a “handout.”
2. Be aware that many charities withhold a percentage of donations for fundraising. What is it in this case?
Most charities necessarily reinvest a percentage of donations into further fundraising. For example, if you donate one dollar, 10 cents might be kept aside to cover the cost of further fundraising. This is known as the fundraising cost ratio. In 1998, the average fundraising cost ratio was 23 per cent.4 However for Asian Aid, which is a relatively small child-sponsorship organisation, it was just 0.68 per cent.
Of course, some charitable organisations raise more money than others because they advertise more, and go on to do even more good. However, this is not always the case and savvy donors are increasingly scrutinising a charity’s bottom line. Your charity should be up front with you, stating their fundraising cost ratio.
3. How efficient is your charity? What percentage of donations is withheld to cover administrative expenses.
In an ideal world, doing good would cost nothing. But charities, like businesses, have a host of expenses to cover. And these expenses are increasing, with a more recent example being higher public liability and insurance costs. Government legislation and community expectations have also added to the cost of giving.
However, some charities withhold a much smaller percentage than do others for such overheads. If your charity is retaining 25 per cent for administration, and 20 per cent for fundraising, it is obvious that 45 per cent of what you give isn’t going directly to the recipients.
4. What happens to the extra money collected during specific appeals?
Recent media reports indicate the need for charities to declare where excess funds raised will be spent. Your charity should keep you informed.
5. How do I avoid the tax man?
It’s surprising, but in the Australian context, the Australian Tax Office (ATO) actually encourages giving, even though it reduces its own income! Even more amazing, however, is that many don’t bother to claim eligible donations as tax deductions.
In fact, up to two-thirds of all donations aren’t claimed. According to the ATO (Dec 2003), some 3.45 million Australian taxpayers—29 percent—made claims for tax-deductible donations in 2000-01. They claimed $A838 million, an average of $A243 each. And while for several years the proportion of taxpayers claiming such deductions has hovered around 30 per cent, the amount claimed has doubled since 1993.
“The picture painted by the statistics for the last eight years depicts a consistently narrow base of donors holding up philanthropy in Australia. . . . the same number of individuals are bearing a heavier burden,” says Dr Jill Thomson of the Givewell organisation.
“The culture of giving in Australia is not growing and charities are having to rely on the generosity of the philanthropic few,”
Research by Givewell has found that two-thirds of individual donations were not claimed and that 5.2 million Australians didn’t claim deductions on donations to charities.5
To make sure you are reimbursed, ask whether your charity is able to provide tax-deductible receipts. Keep them in a safe place and include them on your tax return to minimise your tax. However, not all charitable organisations qualify for tax-deductibility, but they may still be in need and worthy of your support.
6. How do you know your charity is financially accountable?
If not provided, ask for a copy of their annual report. And ask questions. Check the web site www.auscharity.com.au for excellent information or subscribe to Givewell www.givewell.com.au for a professional review of most charities and advice on where to give effectively. Remember, charities are there to serve their donors, not just those who they benefit.
The fact that a charity is an endorsed “Deductible Gift Recipient” is a good indicator of a charity’s bona fides, and this can be checked with the ATO, either by calling or logging onto their web site www.ato.com.au. There are more than 18,000 such recipients.
Giving is powerful. Confucius said, “He who wishes to secure the good of others has already secured his own.” The ancient writer of the biblical book of Proverbs would have agreed. He said, “One man gives freely, yet gains even more: another withholds unduly, but comes to poverty” (Proverbs 11:24). Deep down, we all know it: the more you give, the more you receive, whether you practise it or not. Informed giving is even more satisfying.
And, by the way, when that cute kid comes knocking again, be generous.
It’s worth it!
References
1. http://www.philanthropy.org.au/factsheets/7-05-04-gifts.htm
2. Giving Trends in Australia, O’Keefe & Partners www.givewell.com.au
3. http://www.philanthropy.org.au/factsheets/7-05-04-gifts.htm
4. http://www.philanthropy.org.au/factsheets/7-05-03-nonprof.htm
5. http://www.givewell.com.au/not_claimed.asp
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This is an extract from June 2004
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