I support Parliament’s decision – a few years ago now – to make certain minimum information about a charity, via a register maintained by a body called the Australian Charities and Not-for-profits Commission (ACNC), available to the public on the internet. I particularly support it because, as a Christian, I think that we should be discerning about where we give.
In fact I believe in this so strongly that I am doing the research for an internet-based resource to encourage and help Christians to give with discernment. And as it would be likely that I would suggest that a giver, in the absence of any existing relationship with the charity to which they were thinking of giving, begin their ‘due diligence’ with the information on the ACNC Register, I recently investigated the information on offer.
Unfortunately what I found was that although the legislation provides for a very useful list of things to be included in the Register, what is actually disclosed for a charity often falls considerably short of the promise.
While I was analysing the data I’d extracted[i], I received the regular ‘ACNC update’, and, given my beliefs and knowing the difficulty most people have reading financial reports, was pleased to see its promotion of guidance they say will “help the public understand the various factors they should take into account when reviewing charity’s financial information.” So I decided to use what the ACNC says in this document to present the support for my assertion of gaps and deficiencies in the Register information[ii].
Although the ACNC says in the guidance that “All charities must provide financial information in their Annual Information Statement,” this is not true: the financial information for some charities will never make it on to the Register. Charities meeting the definition of a ‘basic religious charity’ don’t have to answer the financial information questions in their Annual Information Statement (AIS) and charities that are Indigenous Corporations don’t have to even submit an AIS. So the first thing to note is that there’s around a one in seven chance that you will have to go elsewhere – the ACNC gives the choice in the guidance document – for the basic due diligence being recommended.
No AIS yet
Even for those charities that do have to submit financial information, there is a strong chance that the information you need won’t be there: many charities will have yet to submit their 2014 AIS, most because their financial year ended on 31 December, but a number because they just haven’t got around to it. These two categories accounted for 41% of the sample.[iii] Again, go elsewhere for the information, or go elsewhere to donate.
Even if there is an AIS on the register for the charity in which you are interested, that doesn’t mean that it will contain what you need. I found that in one in ten cases the AIS was either blank, or had only a single figure.
The guidance document then says that “Medium and large charities also need to submit financial reports.” So you should first check the top right-hand side of the Register under ‘Charity size’ for the charity you are investigating. If it says ‘small’, then don’t expect to see a financial report attached in the bottom left-hand side – they are exempt from having to submit one. You will have only what they have put in their AIS. And as this is merely nine figures, neither audited nor reviewed, this is a significant limitation if you are considering donating to a charity with a turnover less than $250 000 p.a. Again, go elsewhere for the information, or go elsewhere to donate.
But, yes, other charities have to submit ‘financial reports’. Section 60-10 of the ACNC Act[iv] says this. And elsewhere the legislation[v] is quite specific about what has to be included in the financial report: ‘financial statements,’ ‘the notes’ to the financial statements’, and ‘the responsible entities’ declaration about the statement and notes’. And this, along with the audit (see below), is perhaps where the Register is letting us down the most.
Notes are an essential part of any financial report. In my sample there were no notes included in the case of 10% of the charities, and for 15% there was only a Note 1.
The required declaration was missing in 15% of the cases. (In addition, a similar number had no separate declaration, and 20% were unsigned.)
When it comes to the financial statements, a majority of the charities hadn’t complied with the legislation, that is, they had not submitted the statements ‘required to be prepared by the accounting standards’ [section 60-10(1), ACNC Regulations]. This is a big deficiency against what was planned by the lawmakers.
The guidance document continues by presenting “some factors to consider when interpreting a charity’s financial information”. A few of these rely on the financial statements presenting, as is usual, the figures for last year corresponding to those for the current year. However, my sample showed that there was a one in five chance that you would strike statements without such corresponding figures.
Australian Accounting Standards
The ACNC then tells us that “All charities have to prepare their financial reports in accordance with Australian Accounting Standards and present a true and fair view”. Unfortunately this is another area where the reality recorded by the ACNC on the Register departs severely from what’s required of charities. For what I found was that, based on the crude criteria of a profession of compliance in Note 1 and the inclusion of a cash flow statement, only 40% of the charities were compliant with the Standards. Many of the others, in addition to not including this statement, either didn’t mention accounting standards, said they didn’t apply to them, or made their own selection.
True and fair view
Without compliance with the Standards, there can generally be no true and fair view. So the results for presenting such a view by charities parallel those above. However, this didn’t stop those defaulters with the Standards who submitted a declaration (see above) from signing a statement that the accounts did show such a view!
The guidance document then gives some ‘Points to consider before comparing the financial information or financial reports of charities’. The first is to see whether they are using the same accounting basis, cash or accrual. Unfortunately one in five charities, based on my sample, won’t tell you.
General purpose versus special purpose
This deficiency is greatly magnified when it comes to their second thing to consider: the question of whether or not the charity thinks it is a reporting entity, and therefore whether it is OK, as a non-reporting entity, to prepare the less onerous special purpose financial statements. For in 50% of cases they have said one thing when answering this question in their AIS but declared the opposite in their financial report. You shouldn’t have to, but at least If there’s an audit or review report (and that’s far from guaranteed – see below), you can usually rely on what it says there.
The last thing they suggest you consider is whether the financial statements are audited or reviewed, an audit being the one that provides more assurance that the statements are not materially misstated. Good point, but academic if no such report has been lodged by the charity, which will likely be the case for four out of every ten charities that you look up. That’s a very big gap in the information needed for discernment in giving. (Not only this, but it is likely that one in twelve audit reports will be unsigned.)
In the second last section of the guidance document, the ACNC tells us ‘where to find more information about the charity’s finances’: phone them, read their annual report, and visit their website. Given that the Register is promoted for public use it is reasonable to expect that you’d be able to do these things from the charity’s entry. However this is not the case.
The Commissioner is required to include ‘the entity’s contact details’ on the Register. One would think that this includes a phone number, but although there is a spot for it under ‘Charity Details’, it is more often than not blank. Presumably this is the result of the decision to only publish the phone number if it belongs to the person identified under ‘address for service’.
If the charity has volunteered its website address, then the Commissioner is required to include it on the Register. There’s a spot for it, but it’s a spot that was blank for 78% of the charities. Perhaps this is because, except in the application for registration, there’s no request for it.
There’s a similar provision about the charity’s annual report or a link to it. Annual reports are rare on the Register, again perhaps because after the registration process there is no direct invitation to lodge one. (There is one incidental invitation in each of the 2014 Annual Information Guide and Checklist: 2014 Annual Information Statement.)
It appears then that for the ACNC Register to be a reliable source of the first-stop information for discernment in giving to charities classified as either medium or large (other than basic religious charities and Indigenous Corporations), there needs to be a lot more policing of the data lodged there.
[i] The sample was every fifth charity in an alphabetical list of all Medium charities with an ACT address with a status of Registered (n = 186), extracted from the Register via an Advanced Search on 13 March 2015.
[ii] Even though Medium charities normally need a registered company auditor, I would think that Large charities, that is those with revenue of $1 million or more, would show slightly better compliance.
[iii] The incidence will be a little less than this due to the fact that a few of these charities will have submitted their AIS by now. By how much? Well, not much: For only 10% of the cases where the 2014 AIS was due was the AIS submitted earlier than the last month.
[v] Section 60-5 of the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth)
Changes: [ii] changed from “I am assuming that charities with revenue between $250 000 and $999 999, Medium charities, charities that normally need a registered company auditor, will show no less compliance than Large charities. However, if you think that the extra size makes a difference, soften the findings a little.”