Monday, September 22, 2008

Charities and non-profit groups set for shake-up, by Daryl Passmore - The Sunday Mail - 21st September 2008

When you pop a box of Weet-Bix into your trolley during the weekly supermarket shop, do you feel like you are doing your bit for charity?

Sanitarium Health Foods is one of the country's biggest breakfast cereal companies, with a turnover of more than $300 million and about 1500 staff. But it pays no company tax on its profits.

That's because Sanitarium – Australia's first health food company, established 110 years ago – is owned by the Seventh-Day Adventist Church and donates all its profit to the church for charitable activities including hospitals, educational facilities, indigenous programs and aid to people in developing countries.

In Sydney's western suburbs, a soccer club runs a used-car sales lot. It does not pay tax on its profits, either, because Australia is unique in the developed world in not taxing charities or non-profit organisations on this type of "related business income".

On the flipside, a community centre that starts running bus trips for lonely old folk could jeopardise its status as a Deductible Gift Recipient, with donations tax-deductible, because that is viewed as a "social", not "benevolent", activity.

All are part of a massive not-for-profit sector that includes everything from your child's local footy club to the Catholic Church, which turns over $15 billion a year from insurance companies through to funeral services.

The sector includes about 700,000 organisations – 150,000 of them incorporated – turning over more than $74 billion a year, according to the National Roundtable of Nonprofit Organisations.

It employs more than 884,000 paid staff and about 2.5 million volunteers. Nearly 90 per cent of Australians are members of a non-profit group and a third of adults have volunteered with one.

Much of the money is public funding – either through direct donations or government contracts to deliver services.

But despite it enormous size, the sector is characterised by a bewildering, almost chaotic array of laws, regulations, standards, governance models and methods of accountability.

A review is in progress, which could lead to the biggest overhaul of the sector in decades.

The Senate's standing committee on economics is holding an inquiry into the disclosure regimes for charities and not-for-profit organisations which, among other things, will examine the legal structures for registering and running groups, reporting requirements and improving transparency in the use of public and government funds.

Submissions closed last month and the committee will report by the end of November.

The inquiry was initiated by Democrat senators Lyn Allison and Andrew Murray, both of whom have since left Parliament, following a study by consumer group Choice in March.

What they found was that existing and potential supporters often faced huge challenges in finding out how money was used, how much made it to the intended target, how much was dwindled in administration and fund-raising costs, and how effective charities are in achieving their goals.

Choice spokesman Christopher Zinn said nearly nine out of 10 adults give to charity, with an annual average of more than $400.

"But despite such widespread support and high trust in the charitable sector, donors have concerns," Mr Zinn said.

"The problem is getting and comparing the information. Our research, including a survey of charities, found wide variability and inconsistency in the way they communicate key information to donors.

"That's if they communicate it at all. Sometimes, the information simply isn't publicly available.

"This absence of transparency means that the 90 per cent of us who want to donate have an almost impossible task in comparing charities and ensuring our money has the best effect.

"It's important not to have to rely on faith and trust keeping charities going."

Gina Anderson, chief executive officer of Philanthropy Australia, agrees greater scrutiny is essential to ensuring the continued growth in support from charitable trusts, foundations, corporations, families and individuals.

"Philanthropists, donors and social investors are asking for greater transparency to understand who is doing a good job and who isn't," she said.

She argues that the term "non-profit" has negative connotations and should be replaced with "Community Benefit Entity", and advocates a financial reporting system that differentiates between those established for charitable purposes and those with community purposes such as sporting groups and private clubs – with the level of public accountability varying according to size.

"The vast majority of not-for-profits turn over less than $500,000. Do we really want them to provide a full annual report? Probably not."

Most organisations welcome the inquiry, saying regulatory reform is well overdue.

"We now have the first opportunity for a generation – the first chance, perhaps, since Australia has been a nation – to consider the goals and needs and structures of the community sector from the ground up," said Rhonda Galbally, chief executive officer of Our Community, a resource centre for the sector.

Professor Myles McGregor-Lowndes, director of the Australian Centre for Philanthropy and Nonprofit Studies at Queensland University of Technology, said: "There are quite a number of problems, particularly the outdated and archaic laws.

"When I was an articled clerk 25 years ago and went to register a company, it would take three weeks. Now I could walk in with my $300 and 10 minutes later, walk out with the certificate of incorporation and get on with business. But it still takes months to register incorporated associations."

Prof McGregor-Lowndes has devised a standard chart of accounts which could be adopted across the whole charity and non-profit area and for which there is virtually unanimous support. The issue, according to most in the sector, is not a lack of controls – but an excess. National charities have to register in each state, under nine separate pieces of legislation.

Anglicare Australia, in its submission to the inquiry, highlights the problem of overlapping jurisdictions "with 93 state, territory and Commonwealth bodies able to make a determination about an organisation's charitable status".

Depending what they do, groups have to comply with a raft of laws covering employment, insurance, child protection, aged care, environment, land ownership, privacy, food preparation and occupational health and safety.

It's time-consuming and expensive.

Rodney Brady, chief financial officer with the Seventh-Day Adventist Church, said that while people were concerned about funds being chewed up by administration, regulatory requirements meant more and more money had to be used that way.

"A few years ago, we were able to run our overseas aid programs using other resources to cover overheads. The burden of requirements now means we have to use 10 per cent from the funds to cover the overheads."

Professor Mark Lyons from the University of Technology said: "Current regulatory arrangements encompassing non-profit organisations are a dreadful mess, they are costly to governments and non-profit organisations and disadvantage the public."

So complex and muddied were they that only a completely new, purpose-built system would work, he said.

"Tacking non-profits on to corporations and requiring ASIC (the Australian Securities and Investments Commission) to regulate them is certainly not appropriate," said Prof Lyons.

There is widespread support for a dedicated national regulator for the sector and one possible outcome of the inquiry is a Charity Commission.

Britain has had one for more than five years and New Zealand established one this year.

Strong supporters of the concept include Mission Australia and Oxfam Australia. They say that such a body should be responsible not only for registering and monitoring charities, but also for advocating to government and raising awareness and profile among the public.

Oxfam Australia executive director Andrew Hewett said an Australian Charity Commission would need to be well-resourced to avoid the risk of it becoming "a toothless tiger".

Prof McGregor-Lowndes said a Charity Commission would be the "Rolls-Royce" response – with a price tag to match.

With the UK body costing $75 million a year to look after 190,000 organisations and the New Zealand version costing about $15 million for 25,000 groups, an Australian commission would require about $60 million to handle up to 150,000.

Prof McGregor-Lowndes suspects the Federal Government would baulk at that and hand the job to ASIC.

Mr Brady, of the Adventists, said one of the strengths of the New Zealand commission was that it was a voluntary registration system.

"You don't have to join, but if you do then you get the benefits of having charitable status," he said.

And they include tax rebates on all donations. New Zealand has also joined other countries such as the US and Canada in removing an upper limit on the rebate allowed.

"People bemoan the fact that Australia is one of the lowest-giving countries in the world. But we do not have a tax regime that encourages donations to charity."

Mr Brady said the assumption by many people that charities, and churches in particular, did not pay any tax was inaccurate and frustrating. While they did not pay income tax, if profits went to charitable activities they were taxed "at many stages along the way", including GST.

Mission Australia is calling for current tax concessions to remain – and for charities and non-profits to be exempted from state taxes such as stamp duty.

Some of the major players – the Salvation Army and St Vincent de Paul among them – are unconvinced by the need for a commission, however.

"I think you would need to question whether we need another bureaucracy. Our preference would be to make the current regimes simpler and more effective," said Ms Anderson, of Philanthropy Australia.

Dr Ted Flack, who has 32 years' experience in the sector including periods as president of the Fundraising Institute of Australia and Volunteering Queensland, sees a danger of overkill in redesigning the regulatory regime and said it would not necessarily do anything to increase accountability.

"About 80 per cent of incorporated associations already comply and send their annual returns to the regulator. I'm not sure what that accomplishes because they are just filed, so apart from creating some public service jobs I'm not sure what difference it makes."

Dr Flack, now Queensland state director of communications and fund-raising for St Vincent de Paul and a part-time lecturer at the Centre for Philanthropy, said what mattered was that the people who were interested could find out about particular non-profits, and that would differ from large national charities and small fishing clubs with a handful of members.

He advocates different approaches for "public" non-profits which seek public money through donations and government grants, and "private" non-profits which don't.

"All we need to do is require those seeking some tax-exemption status ("public" non-profits) to prepare an annual report which includes a full financial statement and put it on a website," Dr Flack said. "It's the simplest and easiest way. It does not involve new bureaucracies or new forms of legal identities. The information is there for those who want it."

(Credit: News Limited)

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