Better rules for charities needed to foster giving
Hong Kong takes pride in its free-market economy, so it is not surprising that our charities have been operating in an environment with little regulation. But increasingly, questions are being raised about the lack of transparency with which many charities operate their services and accept money from donors. Some critics believe the sector has grown too unruly. Legal officials have, rightly, been looking into the matter. A charities law, a regulatory body and mandatory registration of charities are being proposed. The recommendations deserve support. Even though charity fraud is not a common crime in Hong Kong, the lack of regulatory oversight creates opportunities for abuse. Recent controversies involving the operations of a charity running a Yau Tong school and the Christian Zheng Sheng Association have raised concerns. There are now thousands of charities working for any number of causes - from animal welfare to child protection - for which they solicit donations from the public. Some 147 charities alone collected more than HK$8 billion in donations in the 2007-08 financial year. But as well as these groups, more than 5,750 others are exempt from paying taxes because of their charitable status - effectively a subsidy by other taxpayers. Yet many of them operate in the dark, so we have no way of knowing how efficiently they use the money entrusted to them by the public.
Hong Kong is one of the few developed economies that does not have a charities law. The Law Reform Commission is set to release a report recommending such a law be passed to regulate charities. Time and again, Hong Kong people have proved their generosity when disasters strike. But donors want to see their money spent well, not used to cover excessive administrative costs or, worse, line the pockets of charity operators.
Meanwhile, the Independent Commission Against Corruption will publish guidelines to help charities detect corruption and other forms of abuse. A key recommendation is to adopt a transparent system to allow the public to inspect how charities spend their money. This ought to be common sense, yet, as we report today, most of the 6,000 charities have avoided disclosing minimum information about how they spend donors' money.
The Hong Kong Council of Social Service operates the voluntary Wise Giving database, to which charities can submit information about the proportion of their spending that goes on administration, fund-raising and the cause to which they are devoted. The database is open to the public. Only 147 groups have submitted data, 11 of which had expenditure on fund-raising and administration exceeding 35 per cent. This may indicate that a majority of these charities channel money efficiently to the needy. However, they may also choose to submit the information because of their high efficiency and want to advertise the fact to attract more donors. If so, what can we conclude about the other 5,000-plus charities registered with the Inland Revenue Department for tax exemption that have not submitted figures to the database? We know even less about charities that have not registered.
Having a charities law and/or a watchdog will mean all charities have to register. We should make sure more regulation does not unduly increase compliance costs. But better regulation will increase donors' confidence that their generosity is making a difference. This will benefit responsible charities and penalise substandard ones.
南華早報 Daniel Sin and Phyllis Tsang2009-10-04 headline
Charities multiply in a legal vacuum
ICAC, law body act on groups' fund-raising
The number of charities in Hong Kong has ballooned to nearly 6,000 and charitable donations appear to be rising, yet few rules govern such groups' activities.
Now authorities are to propose more guidance for them, while legal scholars and lawyers are suggesting a thorough overhaul of laws.
The Independent Commission Against Corruption will this week announce guidelines for charities on how to plug fund-raising loopholes that could facilitate corruption. They focus on how charities manage their accounts and encourage them to disclose their accounts to donors in a fair and just manner.
The ICAC's corruption prevention department began a study of charitable fund-raising at the end of last year after several complaints.
The Law Reform Commission will release for discussion early next year a report suggesting a new law be passed to regulate charities. Commission members studying the issue said their initial findings were that a charity commission or similar body should oversee such groups and that all charities should be registered.
The moves follow controversies this summer over the accounts of charities running a school in Yau Tong and a drug rehabilitation centre on Lantau Island.
Pegasus Social Service Christian Organisation - sponsoring body of the Pegasus Philip Wong Kin Hang Christian Primary School cum Junior Secondary School - gave up running it with accounts overdue and amid accusations of maladministration, allegations over the school's outsourcing of services to the organisation and claims parents had loaned the school HK$10 million.
Carmen Leung, the school's supervisor and also the organisation's chairwoman, said the outsourcing was lawful and that "some money is lent to us".
The Christian Zheng Sheng Association was accused of using government money to fund businesses on the mainland and in Japan and Hong Kong. The association said it used its investments to fund its operations, including subsidising the Christian Zheng Sheng College drug facility on Lantau when necessary.
Bernard Chan, the chairman of a Law Reform Commission subcommittee on charities, said the city needed a proper law to regulate charities. "There is not even a [legal] definition of what constitutes a charity or a charitable purpose," he said.
An organisation may apply to the Inland Revenue Department for registration as a charity to get exemption from paying tax. Taxpayers can ask for donations to such bodies to be tax-deductible. The number of charities registered with the department rose from 3,819 in 2003 to 5,898 this year. Tax-deductible donations to charities rose from HK$2.99 billion to HK$7.03 billion over the same period. The department says it has no role to play in regulating charities or their activities. Chan said defining which groups are charities and what activities need regulating are basic issues.
"For example, if there is a charitable ball held in a hotel, should such activities be regulated? Should a church be registered because it puts a box in a meeting place to collect offerings from the congregation?"
Chan said the panel was studying how other jurisdictions, such as Britain, regulate charities. The United Kingdom Charities Act, enacted in 2006, defines a charity as a body or trust that is for one or more of 13 charitable purposes that provide benefit to the public. These purposes include poverty relief and the advancement of education, health or religion. A charities commission regulates charities. Those with annual income of ?,000 (HK$61,900) or more must register with the commission.
The commission is empowered to check whether organisations are "fit and proper" to carry out public fund-raising, which must be licensed.