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Holding charities to account

Their number and the donor dollars they receive are on the rise, but non-profits have been slow to disclose information on how they are run

The recent verdict in the breach of trust case against City Harvest Church leaders has shone the spotlight on the use and misuse of charity funds.

In the last decade, several high-profile controversies - kicking off with the National Kidney Foundation (NKF) saga of 2005 - have resulted in increased scrutiny by the Commissioner of Charities (COC) as well as enhanced support for non-profit groups to improve their governance.

However, many charities have been slow to disclose key information about how they are run.

All charities are required to submit to the authorities an online checklist, in which they self-evaluate how well they have followed COC guidelines, and to do so within six months of the end of their financial year (FY).

But the most recent Charity Governance Report by the Charity Council, which advises the COC, showed that just over half of charity groups submitted the checklist for FY2013.


ST ILLUSTRATION: CHNG CHOON HIONG

The rate among non-Institution of a Public Character (IPC) charities, that is, charities whose donations are not eligible for tax deductions, was even lower - at 42 per cent, down from 52 per cent the previous year.

It's clear that charities need to buck up when it comes to transparency. Donors, on their part, also need to step up the pressure and insist on being kept informed before they pledge their monies.

But what's standing in the way of such changes?

CHARITY LANDSCAPE

The number of charities and amounts donated each year continue to climb.

Last year, there were 2,180 charities, up from more than 1,800 a decade ago. Seven in 10 of the charities are small ones with annual receipts of less than $1 million.

Religious groups make up about half of the charity sector; another 10 per cent are in the "others" category, which includes charities that promote animal welfare and environment conservation.

About 15 per cent are social and welfare charities, and the rest include those in the health, arts, sports and education categories.

As for donations, they rose to $2.5 billion in 2013, up from $1.8 billion in 2009.

With donor dollars continuing to pour in, it could be that few charities feel the pressure to improve their governance and transparency.

Yet, that is not a sustainable approach. It leaves the door open to murky practices. And surveys by the National Volunteer and Philanthropy Centre (NVPC) show that every scandal is invariably followed by a drop in donations, not just to the charity involved but to the sector as a whole.

An NVPC survey in 2006, for example, found that public trust in charities dipped to 28 per cent from 55 per cent after scandals at three charities: NKF, Singapore Anti-Tuberculosis Association and Singapore Association of the Visually Handicapped.

All three put in place proper procedures within two years and are back on their feet.

GOVT'S 'ROD AND STAFF'

The Government on its part cannot go overboard in regulating charities. In 2007, it beefed up regulations significantly. The Charities Act was amended to give the COC more legislative teeth, including the power to de-register charities. A set of governance guidelines for charities to follow, on matters including finance, fund raising and potential conflicts of interest, was finalised.

That was also the year the Voluntary Welfare Organisations-Charities Capability Fund (VCF) was set up to help charities improve themselves.

In the years that followed, charities complained of being over-regulated, with the president of one organisation comparing the situation to "using a sledgehammer to swat a fly".

Since then, the COC has adopted a "more balanced approach", said Mr Willie Cheng, who has chaired the boards of several charities and penned books on the sector. "The authorities," he said, now "regulate with a lighter touch than what the rules allow them to. Unless there is deliberate wrongdoing, they tend not to throw the book at charities".

If the COC can be compared to a shepherd guiding the sector along, then it would seem he has been using his staff more than his rod to nudge his charges into shape.

On transparency, for example, the COC asks charities to self-evaluate and to submit a checklist online. But its approach is one of asking charities to "comply or explain" why they cannot abide by the guidelines, and compliance is not mandatory.

Its comprehensive code of governance is also tiered, with IPCs and larger charities having more stringent guidelines. For small charities with annual receipts of less than $50,000, they have just seven items to check against.

And if charities lack funds or capacity to get their books in order, there is help from the VCF but fewer than half of the groups have, since 2007, tapped the monies on offer.

There are four types of VCF grants available. The VCF Shared Services Grant can be used for charities to outsource their payroll, finance and accounting functions to a third-party service provider. But as at the end of last year, only 6.6 per cent of the VCF used went towards this grant.

There is also skilled help, such as accountants and skills-based volunteers who offer consulting services to charities and can advise on how to enhance efficiency.

Since 2013, one of the most popular professional accountancy programmes here - the Singapore Qualification Programme - has also made it compulsory for its candidates to do 40 hours of pro bono work in finance or accounting.

Where the COC can improve is in bringing help closer to charities and making information more accessible. For those that cannot afford to send staff to workshops, the COC could provide more case studies of best practices in charity governance, or links to external vendors which offer accounting help pro bono or at a low cost.

Former Nominated Member of Parliament Chia Yong Yong, who is also president of SPD which supports people with disabilities, suggests a tiered approach be adopted when giving the grants, "so that size of the charities and the complexity of issues they face are also taken into consideration".

Meanwhile, the COC's approach must be proportionate. While it should help those charities weak in governance to grow stronger and not over-regulate, it must not go the way of Britain, where the charity regulator has been criticised for ineffective enforcement, and public confidence in charities has fallen.

The UK Public Accounts Committee, in charge of overseeing government spending, gave a damning report card on the Charity Commission last year, saying it had been slow in pursuing investigations and removing errant charity board members.

MINDSET SHIFT

To be sure, good governance comes at a cost. But the low take-up rate of grants on offer to access skilled help suggests that lack of funds and skills is not the main obstacle, but rather the mindset of those running charities.

That is also reflected in the dismal response to the Charity Council's efforts to recognise charities which practise good governance through the Charity Governance Awards it launched in 2012.

The following year, just 35 nominations were received in a sector of about 2,000 charities.

Aware that some charities might find the nomination process complex, the council released a detailed guide that included a section explaining the benefits of taking part in the awards. Winners receive cash prizes and free publicity, and all groups that take part stand to learn from the competition process, it said.

Yet, charities do not seem persuaded that the awards are a good way to promote good governance by inspiring others to emulate one's best practices.

When the awards return next year, a new Charity Transparency category will be introduced to recognise those with good disclosure practices, though it remains to be seen how much interest that will stir.

While no one will quibble with charities' focus on their good work, non-profit leaders must also take the long view and put in place structures that will help their organisations remain in sound financial health.

As social service veteran Gerard Ee, who also chairs the Charity Council here, put it: "If a charity wants to sustain itself, there is no other alternative but to have good governance in order to get support from the community."

For the sake of a charity's donors, volunteers and beneficiaries - and for the sake of public confidence in the sector at large - charities should step up to higher standards of not only doing good, but doing good well.

A version of this article appeared in the print edition of The Straits Times on November 05, 2015, with the headline 'HomeFront Holding charities to account'. Print Edition | Subscribe