Where is your charity donation going?

Are gimmicky gifts from charities really helping their cause?

Cause for concern?

Want to know how much of your charity gift actually ends up in the hands of the needy? Unfortunately, consumers who want the stats on how much of their charitable donation will be consumed by the charity's overhead costs don't have much to go by. And they haven't for a while.

A whopping 81% of the 240 donors we surveyed in a 2008 CHOICE investigation didn't know exactly where their money was going, and 94% placed a high importance on being able to find out. Not long after that story was published, a Senate investigation found the mishmash of regulations in the sector "forms a significant barrier to transparency".

Gimmick overload

Expenses probably aren't the most important consideration when deciding which charity to donate to, but for some consumers, the appearance of excessive spending by a charity, including gimmicks and giveaways designed to entice further donations, can make them less likely to donate.

One CHOICE member, Lance Boucher, received a request package from a major charity that included a pen fashioned into a magic wand. And, to make matters worse, he'd had no previous connection to the charity and didn't know how it got hold of his details. "My wife and I receive many such requests, and these days they're often accompanied by labels, notepads, a pen, even a pocket key light. Considering the costs of production, packaging and distribution, we wonder how much of one's donation actually reaches the specified beneficiaries."

A number of CHOICE staffers have had similar experiences in the lead-up to the holiday season, with items including personalised pens and address labels, notepads and charity-themed toys and trinkets.

Boucher says giving annually to a few chosen charities has led to an onslaught of unsolicited requests. "We – and, we suspect, many others – are increasingly reluctant to give for fear of being targeted for further harassment."

Boucher's view appears to be well founded. Of the 85 respondents to our Facebook call-out, 83 said such freebie gift packages had a negative impact on their willingness to give and called into question how the charity was spending its donations. Here's a sample of some of the posts:

  • Kerrie F: "If they can afford to send stuff out to me, they obviously do not need my money."
  • Bruce W: "I assume the receipt of a gift is meant to make me feel guilty enough to make a donation. But it doesn't, because it smacks of manipulation. The charities, I think, need to rethink their approach to fundraising."
  • Imants E: "Baiting me with free gifts does not work. I keep their offerings in a box for 12 months in case they want them back, after which time I ditch them."
  • Decima F: "I object to my contribution being used to solicit further donations. I want it to be used for the purpose for which it was intended."
  • Rachel W: "Receiving something I don't want or need makes me angry about the waste of resources. I deregistered from one organisation because of the obviously copious amounts of money spent on their mail-outs."
  • Catherine S: "It's a very irritating trend. Pens, address labels, key rings, gift tags, greeting cards, cute animal photos and bottlebrush seeds are among the things that have arrived with a request for a donation. Very guilt-provoking, but I have got to the point of not donating in the hope it will reduce this practice."

But apparently the gimmicks work

Despite what we've heard from consumers, Rob Edwards, CEO of the self-regulatory industry body Fundraising Institute Australia (FIA), told us the freebies are having the intended effect. "They've been highly effective in encouraging donations, with some charities reporting the response rate to their donation appeals increasing by up to 20%," he says. "This has had a very positive impact on the level of assistance to those in need."

Edwards insists consumers should be tolerant of unsolicited material from charities and "recognise their motivation is to help some very worthy causes and people in genuine need". But he also adds that charities must abide by the federal Privacy Act like any other organisation, which holds that consumers must be clearly informed about whether their personal details will be kept and how they will be used as well as be given a chance to opt out of having their details passed on.

Edwards advises that "anyone who wishes to remove themselves from the database can simply inform the charity they received the information from".

Federal intervention

A government regulation scheme, the Australian Charities and Not-for-Profits Commission (ACNC), may shed some light on the information blackout surrounding charities' finances. By the end of the 2014 financial year, registered charities with an annual revenue of more than $250,000 who choose to take part in the ACNC project will be required to adopt its financial reporting framework and contribute to the ACNC's free and searchable online public register. The first financial reporting period is 2013-2014. The register is intended to be a one-stop information resource covering all registered charities – a handy tool for consumers who want to be as savvy about their giving as they are about their buying.

In theory, this is a major improvement over having to search through multiple websites that may or may not have the information you're looking for – all the more so if the register addresses the issue of administrative costs. Registering with the ACNC project is voluntary, but declining to take part may mean donors won't be able to claim a tax credit for the charities in question. As well as some recent early sign-ups, more than 56,000 charities that were registered with the ATO were automatically transferred to the ACNC registry, but given the choice to opt out.

Wrong focus?

According to some who've been involved in the ACNC project, comparing overhead costs doesn't help consumers make the right choice. Emma Tomkinson of the Centre for Social Impact released a framework paper suggesting which kind of information charities should need to submit to the ACNC, and dismisses the idea of choosing charities according to which has the lowest administrative costs.

"Making decisions solely based on this is ill-advised and does not encourage strong charities that deliver quality services," Tomkinson told CHOICE.

"It may instead encourage creative accounting, using volunteers as office staff and specialist practitioners to perform administrative duties, and under-investment in administration and other central costs. Consumers who are concerned about charities delivering the maximum dollar amounts to the intended recipients should instead be looking at charities that deliver the best results for their intended recipients."

The self-regulator

Members of the Fundraising Institute Australia (FIA) are bound by its Principles and Standards of Fundraising Practice Code of Ethics and Professional Conduct, which the organisation calls "the fundraiser's guide to ethical, accountable and transparent fundraising". Consumers can contact the FIA to check if the regulator thinks a complaint against an FIA member is warranted. If so, complaints must be made in writing and specify which parts of the FIA code have been breached (the code is available from the FIA).

For "unsatisfactory conduct", consumers have three years after the incident to lodge a complaint. Under the code, fundraisers "must not engage in activities that bring the profession of fundraising into disrepute", but need only disclose overhead costs "where possible". Overhead costs aside, Edwards told CHOICE that charities "are accountable to donors by way of regular reports back to them on the impacts their generous donations are having".

He declined to address whether marketing tactics such as free gifts are handled by outsourced companies, but the FIA's code of ethics mainly focuses on the obligations of fundraising operations to the charities that hire them. In addition to checking for available information at acnc.gov.au, we recommend calling FIA on 1300 889 670 if you have a question or concern about a charity or to make sure any charity you're considering is a member. Unhelpfully for consumers, a full FIA member list isn't publicly available on its website.

CHOICE verdict

The Department of Treasury has told CHOICE the ACNC register is meant to be a work in progress. Its functionality is set to expand as more charities sign on and share more information. While a strict focus on administration costs may be a misleading approach for potential donors, we think charities should find a way to address consumer concerns about how their money is being spent, particularly if it's being spent on what some consider gimmicky giveaways that undermine the charity's credibility and discourage donations.