Charity Checks - by Cliff CHOI Kim-wah, Business Director of HKCSS
Hong Kong is a generous community with a long tradition of making donations to help the underprivileged. It is thanks to this healthy giving culture that charities can continue to serve people in need and – just as important – plan ahead to anticipate and minimize future social problems.
A recent public opinion survey by the University of Hong Kong for the Hong Kong Council of Social Service suggested that Hong Kong residents see accountability of charities as the most important factor when making donations. This is especially so for those who repeatedly support the same charities.
It is hardly surprising that the public today has high expectations of charity accountability; just as we demand greater transparency from government and business, so people want to know whether their privately donated money is getting through to those in need.
Most people involved with charities agree that the sector needs more openness and consistency. However, they will need some help and guidance in order to embrace greater transparency together. Government and donors will need to join them in this effort.
Closer government monitoring would appear to be inevitable. Many people are surprised when they learn that there is no single piece of legislation which governs charities in Hong Kong. Nor is there any system of oversight or regulation to ensure that donations are genuinely and properly used for the purposes the charities claim.
The existing statutory definition of what constitutes a charity or charitable purpose is based on an outdated English law called the Charitable Uses Act, and it is under this law that charities can claim tax exemption. However, although the Inland Revenue Department Exemption can grant exemption from income or profits tax to approved charitable institutions, it is not responsible for monitoring their conduct.
There is also no statutory requirement in Hong Kong for charitable organisations to submit annual reports or accounts outlining their finances. Instead, the Inland Revenue Department will only call for accounts, annual reports or other documents if it is reviewing the exemption status of an organisation to ensure that it is still charitable and its activities are compatible with its objectives.
This is the nearest we get to official oversight; inspection of charities’ accounts is not mandatory under the existing law. The Law Reform Commission is reviewing the law and regulatory framework relating to charities in Hong Kong, and a consultation paper is expected to be published this year. Anyone with an interest in how charities operate should keep an eye out for this consultation exercise. We need a better system; one that ensures a more transparent and accountable charity sector that adheres to basic criteria of disclosure.
There is plenty of good international practice to follow. Ideally, a regulatory or self-regulatory system should include disclosure of each organization’s governance structure, finances, service provision as well as fund-raising rules. That is what the Hong Kong Council of Social Service encourages in its “Wisegiving” website, an on-line directory of charities. A well-run charity should have no problem implementing systems to ensure that funds are used and activities carried out transparently, effectively and properly.
Public trust is the cornerstone of charity work. Charitable organizations should be proactive in communicating with their stakeholders rather than just fulfilling a legal requirement to gain their support. It is in everyone’s interest: donors will be more willing to give if charities can demonstrate accountability. An international empirical study (Nonprofit Management and leadership, 2009) also suggested that meeting disclosure standards is associated with higher levels of public support.
Individual donors can exercise their rights as well. Before you are moved by a story and decide on a cause to help, ask whether the organization is a registered charity, read its annual reports, look at its activities and at who sits on its board of directors.
Winning trust is vital to a charity because it encourages donors to give in a planned and continuous manner. Unlike dropping a dollar or two into a collection bag on flag days, regular donors can focus on one single charitable cause, understand more about what that organization has done, and follow up the impact of the charity’s projects.
Should time allow, they may form a serious relationship with the cause and get involved in volunteer work, sharing the joy of helping others.
Of course, it does take time to understand a charity. It is like an investment in the financial markets: you need to do some research and thinking before you make a decision. After, donors will be confident to plan their giving and stay with the charity. This is the positive outcome when charities are open and demonstrate their credibility and effectiveness.
(Mr Choi is the Business Director (Sector Development & Partnership) at the Hong Kong Council of Social Service, this article was published on South China Morning Post dated 31 Jan, 2011)