CPA Australia NFP Conference 2018

Wednesday 7 March 2018

Improving the charity market in Australia: let the data speak

The Hon Dr Gary Johns, ACNC Commissioner

The ACNC Act is currently under review. I speak, therefore, with an eye to the future and in the interest of healthy debate in an important part of Australian society: the charity sector.

As a regulator, among other things, my job is to provide information to help the public understand the work of the charity sector and to support the transparency and accountability of the sector.1 The information I provide may also drive change in the sector to ensure that more of the charity dollar fulfils its purpose.

The advantage of taking charge of the Commission at this time is that I inherit a mature agency with five years of experience and five years of data. I intend to use that experience and data to good effect. I intend to place as much data as possible into the hands of donors so that they can help drive the sector to greater efficiency and effectiveness.

There are numerous pathways to better regulation of the charity sector, and each has limitations.

Legislation and the common law may be powerful instruments to clarify, as examples, the definition of government entity, or activities charities can and cannot undertake while maintaining purpose, but these are very slow instruments of change.

Similarly, a dedicated accounting standard for charities and national acceptance of a single definition of charity would be big reforms, but they too are slow.

Not forsaking these important instruments and debates, what can we use now to effect some change beneficial to charity?

I believe the best way is to place data, which by law I gather from charities, in the hands of the public. It is up to the public – donors, members, volunteers, and taxpayers ­- to decide what it wants to do with the data.

I want to share with the public the regulation of charities by lowering the cost of finding relevant data.

The reason for placing data in the hands of the public is to improve the market for charitable intentions: that is, to help drive every charity dollar further.

Some are uncomfortable with the concept of a charity market. In giving to a cause, donors buy assurances from charities that they, the charity, will do as they say. The charities use images and data to sell their wares, to save a child in Africa, to rescue a stray dog, to save the planet. Donors buy those assurances. To me, that is a market.

In this market, does a donor know whether one provider could do a better job than another? If they had better information would donors switch?

A recent US study suggests they might. The study found that, if they had evidence of better performance, about 14 per cent of donors might switch from their current charity. Donors reported that the most important pieces of information were ‘how the organisation would use the donation’, and the amount of ‘good’ it would do.2

A recent Australian survey suggests that Australian donors too might respond to better information.

Some 48 per cent of those who do not presently give indicated that better information on how the money would be spent would influence their future giving.3

In another Australian survey, approximately 70 per cent of respondents answered that it was highly important for a charity to disclose three pieces of information: donation use, proportions spent on the cause, and outcomes achieved.

Further, 57 per cent of donors ‘strongly agree’ that they trust charities that are transparent about how they use their resources.4

Not all donors will change their donating habits when presented with better metrics, but some will, and their choices may create a better market. Most donors want to know how much of their dollar hits the mark – whether that ‘mark’ is efficiency, or effectiveness, or whatever they value.

We know, however, that few donors are willing to pay for the information. Our challenge is to lower the cost of accessing the right metrics.

Suitable metrics

So far, the Commission has been able to provide the market with a geography lesson. The Charities Report, for example, describes the landscape of charities: mainly, size, type and location.5 But, it does not help a donor decide which charity is best.

The Charity Register, for example, is a valuable tool to find a charity you already know, to verify its registration and some of its characteristics.

But, it does not help a donor compare charities that operate with the same purpose, or administer to the same people or causes.

Different constituencies want different things, and each has implications for metrics, and regulation.

  • Some accountants want a dedicated accounting standard.
  • Some lawyers want a nationally accepted single definition of charity.
  • Some fundraisers want a national regulatory framework for fundraising.

These changes would enable comparable metrics, and, incidentally, reduce regulation. On the other hand:

  • Some charities want less government regulation, but more money from government (50 per cent of charities receive government funds), which may require more regulation.
  • Some philanthropists and other donors want to find the best charity for the cause they support, which may require more information, if not ‘public’ regulation.
  • Some academics want measures of charity impact, which requires more information, if not ‘public’ regulation.

So, how do I fulfil these wishes, and fulfil the objectives of the ACNC Act, and not blow the budget?

Here are my four starting points.

  • First: progressively make readily available to donors data presently gathered by the Commission.
  • Second: enable donors to find like charities on the ACNC website.
  • Third: refine data to ensure donors can make valid comparisons of charity performance. At present, if donors had the time and money, they could use existing data to compare charities, but much of the data, for example, on financial performance, is not comparable.
  • Fourth: seed questions that donors could ask of responsible persons to ensure that they are considering their purpose and their activities.

For example, we could ask if a board has contracted a fundraising company and whether it has disclosed the terms of the contract to members. I would report the answers, that is, the yes or no answers. I would not have any role in setting fundraising standards or publishing the contracts.

Until now, the ACNC has concentrated on the small numbers – approximately 3,000 registrations and a handful of revocations following investigations each year. This work must continue, but 55,000 charities submit an AIS. It is this data that should be shared with the broadest number of people in a way that may assist their donor decision.

Objectives

Is the desire to share data consistent with the objects of the ACNC Act? The simple answer is yes, the more complex answer rests with the search for measures that might breathe further life into the ACNC objectives.

The ACNC Act has three objectives; to maintain ‘public trust’ and ‘confidence’; to support a ‘robust’, ‘vibrant’, ’independent’ and ‘innovative’ sector; and, to promote reduction in regulatory obligations. In a submission to the five-year review of the Act, I have suggested two new objects be inserted around the effective use of resources, and accountability. The suggested new objectives are the same as those for the Charities Commission of England and Wales.

These are objectives, not powers. They would not give the Commission any new or more power.

The powers of the Commission derive from the statutory definition of charity in the Charities Act, 6and powers in the ACNC Act which drive registration; standards of governance in the ACNC regulations,7 which drive compliance; and, data in the Annual Information Statement.

Apart from freeing my hand to inform the sector of decisions that I make, there is little else that I require in the way of new powers. I have no desire to run a charity. However, the Act states that the Commissioner must have regard to ‘the maintenance and promotion of the effectiveness and sustainability of the not‑for‑profit sector.’ 8

Sustainability is an Alice in Wonderland word. It means different things to different people. To some, it means getting a three-year grant from government instead of a one-year grant. To others, it means running an efficient organisation, regardless of sources of income.

A recent Community Council of Australia paper argued the case for mergers and collaborations [aka acquisitions] on the grounds of sector efficiency and effectiveness.9 In a second paper, on the best use of assets, they called out ‘lazy balance sheet[s]’.10

Is anyone suggesting that the sector should not seek to be efficient and effective?

The new objects would serve to remind the sector that as much of the donor dollar should be used to achieve its purpose.

This is a matter of the performance of charities in a market.

There is the express intention of object two to enlighten the public about all manner of descriptors: robust, vibrant, independent and innovative.

The second object is laudable, but it does not indicate how a regulator should proceed in support of the object.

Is a ‘vibrant‘ charity sector one that has a great deal of merger and acquisition activity, or one where there is substantial turnover of charity personnel, or where the average age of charities climbs, or diminishes, with time?

In what sense is the sector ‘independent' when government is the principal payer? Save the Children Australia chief executive officer Paul Ronalds, wrote that "Ten new organisations are created each business day, ... To put it simply, there are too many. Donors are growing tired of being hassled by endless charities with similar causes."11

One observer from an Australian survey suggested that government should say, "enough is enough … you must ensure that there’s no other organisation in Australia that is doing what you’re doing."12

It is most unlikely a government would do such a thing. But, better information would help.

If mergers and acquisitions are a sign of dynamism, as Ronalds has suggested, there appears little of it in the charity market. Since December 2012, only 400 charities in Australia have voluntarily revoked their registration with the ACNC because of a merger or acquisition.

We intend to undertake, in conjunction with RMIT, a survey of registered charities, to find out how many charities have considered mergers and reasons why these have or have not proceeded.

Donors might drive ‘dynamism’ if they had a way of searching like charities. And, when they do, they are bound to ask the obvious question, ‘which one is best?’

Robust suggests strength. It is sometimes linked to ‘capacity development’. But whose responsibility is capacity development? Is this a call for more government support? Or should more able people take over from less able people?

Discussion and measurement of each of these objects may enlighten the perennial debate around the question: what is the right number of charities? By the way, the answer lies somewhere between one and 24 million.

As one charity closes another opens. Indeed, almost 3,000 charities open their doors every year, and nearly 3,000 close their doors or, come off the register each year. This is perhaps one sign of dynamism in the market.

Big trends in the market

The second objective requires much better metrics to give it life. And it needs to be understood in conjunction with the third objective: regulation reduction. One charity recently informed me that it had several hundred ‘acquittals’ each year. This probably reflects the fact they win several hundred government contracts each year.

Consider this case study. 

Known as a ‘Charitable fundraising organisation’, the organisation is a mid-size charity that started life 30 years ago courtesy of the efforts of several doctors’ partners. Their concern was for the after-patient care of their partners’ charges.

They raised money through cake stalls and the like. Now, the entity is a $10 million per year business, with government ‘operating grants’ of $9 million. The remainder is receipts from customers. In 2016, there was $200,000 in donations and bequests (I suspect mainly bequests), 200 volunteers (although no assessment of the value of volunteers), and more than 80 staff.

The published description of what the organisation does is generic, and not particularly helpful. My knowledge of the organisation is that nurses visit people in their homes, and they do a mighty good job. The CEO spends time applying for government grants and does a mighty good job.

The Directors' Report reads as follows:

"The long-term objectives and strategies consist of pursuing opportunities for commercial alliances … mergers and acquisitions." And, to "Be a provider of choice for consumers in [the] new consumer-directed care market."

How is this organisation different to any not-for-profit or, indeed, for-profit provider?

And to "Influence policy and program development for social change and social inclusion." What is this other than a business development statement?

And the success indicator is to "Increase funding and [the] client base."

This case study is not uncommon in the charitable sector. Therefore, the first piece of data that I want to post on each charity’s record is the proportion of money that the charity receives from government.

The market is not a single charity

The Commission is the premier data collection agency for Australian charities. It collects information on registered charity governance and finances to ‘understand the work of the sector’.

Note that the advice to the Commissioner mentions the sector, not each charity.

In November 2017, Claire Rogers, CEO of World Vision, said "Transparency is at the heart of the donor relationship." I agree. Donors trust charities to do what they promised. But, there is a considerable difference between a single charity and its relationship with its donors and 55,000 charities and their relationships with their donors and potential donors.

A donor may be satisfied that their charity does what it said it promised, but what if another could do better? What if many charities compete in one field, but few in others?

These are questions of the performance of the charity market, not a single charity. Indeed, how does one interpret a charity’s performance other than by comparison with similar charities?

Data is available to inform the market of these wider questions, but not in a form that donors can readily use.

At present the Commission is not allowed to present data in a form different to the collected form through the Annual Information Statement. This will require a change to regulations to allow discretion to take presently collected data and place it in a useable form.

While the website is used to verify the registration of a charity, it cannot be easily used to search charities of comparable purpose. To solve this problem the Commission aims to apply to all registered charities a taxonomy of not-for-profit purposes so that a donor could search among charities that do similar things. This has the potential to reveal overlaps and gaps in the market.

This is hardly radical. It is possible now to compare like charities and charity financial performance. The data is published on the ACNC website. Few do such work, however, because it is too inaccessible. Perhaps it is just as well because the indicators of what charities actually do, and the people or things they assist, and how, are not clear. And the lack of uniformity in accounting standards means that financial data cannot fairly be compared.

A fit-for-purpose accounting standard of reporting for Australian charities such as the UK’s Standard of Recommended Practice, or New Zealand’s specific accounting standards would give the Australian charity market an important tool for transparency. There is some progress on that front, for example, income for not-for-profits standard will be mandatory beginning 2019. Further development, however, is a matter for the Australian Accounting Standards Board. 

The National Standard Chart of Accounts (and data dictionary) would help unify the way in which small and medium charities especially account for their transactions. While all government agencies have agreed to use it in their requirements of charities, and about 10 per cent of, mainly grant funded, charities use it. The complete rollout to that class of charities is some years away.

What the Commission can do is use financial data that it gathers through the Annual Information Statement to better effect. Publication of simple comparable data may stimulate the development of a standard of practice for the sector. Simple metrics can be used to stimulate debate.

Whether they can be as powerful as the Holy Grail measures, such as ‘how much of the donation was used for purpose?’ or ‘what was its impact’ is debatable, but AIS based measures can be done soon.

Trust

While AIS data can be used to lead debate on better use of resources, governance standards and financial disclosure are designed to seek out, or indeed prevent, misuse of resources.

The object of the governance standards system is to provide a minimum level of confidence that registered entities ‘meet community expectations about managing their affairs and the use of public money, volunteer time and donations.’13

Risks associated with the governance standards are matters such as private benefit, fraud, tax evasion, money laundering, harm to beneficiaries, especially to vulnerable children and adults, disqualifying purposes such as political advocacy or illegal activity, and so forth.

The primary sources of a complaint are the public, persons in a charity, other government agencies, media, and employees and beneficiaries.

It costs a great deal to investigate compliance breaches. In 2017 the ACNC revoked the charity status of 26 organisations following investigations into their activities and operations. This was a 30 per cent increase compared to 2016. Since the ACNC was established, it has revoked the charity status of only 59 organisations following investigations.

If I were able to double resources to compliance, the numbers would remain small.

But here too, there may be a better way: using data. We are presently trawling five years of data, searching for trends, vulnerabilities, and likely indicators of things that may go wrong.

Increasingly, the Commission may generate a great deal of its intelligence on risks in the sector.

When we find disconcerting trends, we would alert classes of charity. This would be less resource intensive and proactive, identifying problems before they hit.

Finally, seeding debate with simple questions such as: ‘has your grant-making charity attempted to measure the impact of programs it funds?’ and, ‘If so, has the board informed members and donors of the measures?’ should spark debate in the broader community.

In some ways the charity sector is a sleeping giant. With data, gathered by law, I aim to wake it and let it produce more charitable works.

The Hon Dr Gary Johns, ACNC Commissioner, speaking at the CPA Australia NFP Conference, March 2018, in Melbourne

  • 1 Australian Charities and Not-for-profits Commission Act 2012(Cth), Section 10-5.
  • 2 Hope Consulting. 2012, Money for Good, page 16.
  • 3 The Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology, 2017. Giving Australia 2016: Individual Giving and Volunteering. Prime Minister’s Business Community Partnership, page 27.
  • 4 Australian Charities and Not-for-profits Commission, 2017. ACNC Public Trust and Confidence in Australian Charities 2017, pages 2-3.
  • 5 Australian Charities and Not-for-profits Commission, Australian Charities Report, 2016
  • 6 Charities Act 2013 (Cth).
  • 7 Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Australian Charities and not-for-profit Regulation 2013 (Cth).
  • 8 Australian Charities and Not-for-profits Commission Act 2012 (Cth), Section 15-10(d).
  • 9 Community Council for Australia, 2016. Owning Our Future: Mergers and Collaborations, page 3.
  • 10 Community Council for Australia, 2015. Owning Our Future: Better Using our Assets, page 11.
  • 11 Paul Ronalds, The Charity Sector is Stronger When it Works Together, Pro Bono. 5 February 2018.
  • 12 The Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology, 2017. Giving Australia 2016: Individual Giving and Volunteering. Prime Minister’s Business Community Partnership, page 30.
  • 13 Australian Charities and Not-for-profits Commission Act 2012 (Cth), Section 45-1.