Hot Topic
The Charities Act, fundraising costs, and charitable purposes
Are there rules about how much of the funding raised by charities must be spent on their cause?
Do charities have to publish their accounts?
Are charities allowed to employ fundraising agencies and pay them?
Can the Charities Commission look into a charity or its fundraising?
What is "reasonable" for a charity to spend on fundraising?
Who monitors fundraising agencies?
How can I be sure that my donation gets to the charity I gave it to?
How can I be sure that if a fundraiser contacts me, my donation is actually going to the charity?
Are there rules about how much of the funding raised by charities must be spent on their cause?
Charities are sometimes asked “how much of the money donated to you is spent on your cause and how much goes to admin and other costs?” Charities balance the need to keep costs low with the need to provide the best possible outcomes for their beneficiaries.
Of course, there are always costs associated with raising money and providing services and these will vary according to the nature of the different charities and the work that they do and also the decisions that those running the charities make. Examples of the range of costs a charity could incur, include purchasing sausages for a sausage sizzle or prizes for a raffle, through to paying nurses or counsellors to provide services to the sick.
There is no law or rule of thumb about how a charity spends donations that have been given to it for the general purposes of that charity. Charities are free to make their own choices about such things as paying staff, buying supplies (for example stationery), paying rent, paying for power and phones or any other costs used in delivering its services.
The Charities Act prevents “private pecuniary profit” which means charities registered under the Act must not be established for private financial gain.
However, in order to carry out their charitable purposes, charities may purchase goods and services, and pay for such things as salaries and wages at normal market rates. The Commission must be satisfied that all money and benefits flowing from a charity are directed towards advancing its charitable purposes.
If you are concerned about how a charity is making its spending decisions and how much of your donation has been applied to a charity’s cause you should first contact the charity and ask them to provide you with information.
Anyone with concerns or complaints about any aspect of a particular charity should talk directly to the charity or to the Commission.
Do charities have to publish their accounts?
Charities that are registered with the Charities Commission must file an Annual Return each year, showing details about the hours their paid and volunteer staff worked, their gross income and expenditure, and their assets, liabilities and equity. They must also provide a copy of their financial statements.
This information is published on the publicly-available Charities Register.
Are charities allowed to employ fundraising agencies and pay them?
Charities are free to enter into contracts with fundraising agencies, or make any other business arrangements to further their charitable purposes.
The amount that a charity pays to do fundraising activities, or the amount of a donation that a fundraising agency must pass on to a charity, isn’t set by law. This is a decision made by the individual charity.
If you would like more information about whether a particular charity is using a fundraising agency and how much it is paying the agency, we suggest you contact the charity directly for that information.Can the Charities Commission look into a charity or its fundraising?
The Charities Commission has recently established a monitoring and investigations team, to scrutinise charities’ activities and the information they provide, to ensure that they are not engaged in “serious wrongdoing” and that they continue to meet the requirements of the Charities Act, and are wholly charitable in their purposes and activities.
The Commission can look into a charity’s fundraising if it believes that there is dishonesty involved, a conflict of interest, or the possibility of the charity being really set up for private financial profit, or if it thinks the charity isn’t fulfilling its charitable purpose.
The Commission’s monitoring team makes its own enquiries and responds to complaints or information it receives about charities where there is evidence to suggest that there may be a breach of the Charities Act.What is “reasonable” for a charity to spend on fundraising?
There are no hard and fast rules about this. Again, this is something that individual charities make their own decisions about.
Sometimes “fundraising” drives are not about getting donations, they are about developing relationships with donors who could give to the charity over a period of years.
A charity may also undertake fundraising that has “up front” costs – for example developing a campaign to encourage people to leave money to it in their will, and maintaining a relationship with people who agree to do this. Although the charity may have an immediate cost (for the campaign), it will take time until that cost is recovered, and the charity receives the benefit from the bequest.
Sometimes too, charities may arrange fundraising activities – such as raffles – and although they incur a cost for the raffle prize, they may not sell enough tickets to cover their cost and make a profit.
These are examples of fundraising activities that a charity may undertake that have an element of “risk” in terms of how much money they will receive for their cause. There are no rules restricting the range of activities that a charity can choose to use to raise money.
Who monitors fundraising agencies?
The Fundraising Institute of New Zealand is a voluntary professional body for individuals employed in or involved with fundraising, sponsorship and events in the not-for-profit sector. Its aim is to promote and uphold professional and ethical fundraising and encourage the development of philanthropy in New Zealand.
Its members are required to conform with a Code of Ethics, and codes of practice laid down by the Institute.
How can I be sure that my donation gets to the charity I gave it to?
- If you made a donation directly to a particular charity, they will have received 100% of your donation.
- If you donated via a fundraising agency, the fundraising agency may have an arrangement where they only pass on a proportion of your donation to the charity or the charity may pay them for doing the fundraising – this could be a percentage of the amount raised or another amount (eg an hourly rate). The amount they pass on or pay the agency depends on the contract they agree with the charity.
As a starting point, you may wish to look at the charity’s Annual Return information on the online Charities Register. Their Annual Return and financial statements will tell you how much income they received from donations and other sources, and how much they spent.
If you would like more specific information about your individual donation, then we suggest you contact the charity directly, using the contact details available on the Register.
How can I be sure that if a fundraiser contacts me, my donation is actually going to the charity?
We would suggest that if you are contacted by a fundraiser for a charity, that you ask them:
- how much of your donation actually goes to the charity itself
- whether the fundraiser is an external agency or part of the charity itself
- how much of the donation goes to any external fundraising agency
- when the charity will receive the money
- what your money will be used for.
If you are not satisfied with the answers, then you may prefer to contact the charity directly to make a donation.
You may also want to ask the fundraiser if the charity is registered with the Charities Commission (and for its registration number), to be sure it complies with the Charities Act.
If it is, you can look up information about it on the Charities Register. On the Register, you can see the charity’s rules, the names of its officers, and its contact details. You can also see a copy of its annual returns and its financial statements, if they have been filed.
If the particular information you want isn’t on the Register, you may prefer to contact the charity directly, or check their website.
How do I work out from a charity’s Annual Return (on the Charities Register) how much it spent on its cause?
Background to Annual Returns
The Charities Act requires charities registered with the Charities Commission to file an Annual Return and as part of that, attach its financial accounts.
Newly registered charities don’t have to file an Annual Return straight away or provide financial accounts with their application
Charities registered with us are required to file Annual Returns no later than six months after their balance date.
Annual Returns received and Annual Return due dates are shown on each charity’s register page.
Each Annual Return filed by a charity, including a set of financial accounts for the corresponding year, is shown on the charity’s register page.
Accounting standards and auditing
The Charities Act does not require any standard of accounting and so each charity can present its financial accounts in any way, or format it chooses. This means that charities can show similar information in different ways.
For example – one charity may choose to show each donated amount over $1000 as a separate donation, another may choose to show one total amount for all donations received. Both ways are acceptable. One charity may include the cost of printing brochures to promote a service in the cost of providing that service, another might separate out the cost of printing the brochures and record that cost against printing or admin. Both ways are acceptable.
Accounts do not have to be audited for the purpose of the Charities Act. However, some charities are required by their rules or other Acts to have their accounts audited. In some cases these are the versions of accounts that are sent to us but we can accept accounts whether they are audited or not.
Financial information reported in the Annual Return
The Annual Return asks for information to be provided in a template form under the headings Statement of financial performance and Statement of financial position..
The Statement of financial performance part of the form shows income broken down into categories such as grants, donations/koha, membership fees and so on. It also shows expenditure broken down into categories such as salaries and wages, grants paid and so on.
The Statement of financial position part of the form shows the assets, liabilities and equity of the charity.
The Annual Return asks for information about the number of paid employees –full time and part time, and how many hours of work they are paid for.
The Annual Return asks the charity to express as a percentage the amount spent overseas in the financial year.. This refers to money spent delivering its charitable purposes not purchasing goods or services for use in New Zealand.
Understanding the information
By looking at the information in the Annual Return together with the financial accounts of the charity you can see how much income the charity received during the financial year and the sources of that income, as well as how much money the charity spent during the year broken down into various categories.
It is important to remember that charities can present their financial accounts in any way or format they wish. The Charities Act does not require any particular format or standard so both documents should be read together to get a clearer picture.
Why doesn’t the Commission just show a “ratio” of how much income a charity received, compared with its expenses?
Because charities can show their financial information in a number of different ways, a “ratio” dividing income by expenditure may give a very misleading picture of many charities finances. It is also important that you ask the charity for information about its activities to understand what its spending decisions may have been during the year.
In the UK, charities whose income is more than ₤1 million must now show as part of their annual return how much of it was directed to their charitable purpose. However, the UK has agreed accounting standards for charities, and the charities themselves enter the ratio information into their annual return (rather than the Commission working it out).
The New Zealand Commission may look into making some changes to the information charities provide to the Commission (and the public) once it has received a full “cycle” of Annual Returns from charities, and has a better picture of charities’ size, resources, and reporting capabilities. (So far, of the more than 23,000 charities registered with the Commission, only around a quarter have had their Annual Return fall due).
Members of the public looking at charities’ financial information on the Register should look at both the Annual Return and the financial accounts to see how much income the charity received during the financial year and the sources of that income, as well as how much money the charity spent during the year broken down into various categories.
In all cases, if you have further questions, the best thing to do is to contact the charity directly asking for further information about their funding, activities and finances.