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.