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Charities & Not-For-Profits Law in Australia

A Charity’s Reputation – How to Manage the Risk

Posted in General, Liability & Risk

For charities that invite and rely upon donations from the public, their reputation and the public confidence in them is fundamental to their livelihood and success.  Bad press of any kind can lead to a significant reduction in donations, embarrassment for supporters of the charity, and may even invite investigation by regulatory bodies into the charity’s management.

A timely example of the impact of negative publicity can be seen in Sydney Morning Herald’s investigation into the Small Miracles Foundation.  The foundation in question provides grief counselling to parents that have lost their baby.

Risk to reputation can be managed by transparency, proper record-keeping and reporting and having proper staff management practices

The article reported:

  • allegations from a number of parties, including the charity’s accountant, alleging the charity’s “mismanagement” and refusal to give access to financial records;
  • allegations of unfair dismissals made by former staff; and
  • confusion as to who runs the charity and that detail of board members, management or staff are not available on the charity’s website.

Whether or not the allegations are correct, they are serious.  They have the real potential to drive away donors and result in further undesirable consequences.

The example above is addressed by NSW state laws: in NSW, the soliciting or receiving of money for a charitable purpose is considered a “fundraising appeal”. Such activities are automatically governed by the Charitable Fundraising Act 1991 (NSW).  The receiving or soliciting for donations would fall within this definition.

Section 47 of that Act provides that an authorised charity must provide to any person who requests it, any audited financial statement of its last financial year as well as the names of the organisation’s members.

Therefore, the failure to keep and manage records properly and have such records available for inspection may not only damage a charity’s reputation, it may also risk legal sanctions being imposed.

Charities can minimise the risks associated with negative publicity and promote accountability by:

  • being transparent about their use of donation funds;
  • keeping proper accounting records of how funds are managed;
  • including summaries of annual financial statements and reports on the charity’s website; and
  • having proper staff policies and employee management practices in place, to ensure employment and staff matters are properly handled.

Charities are strongly advised to ensure they have proper record-keeping and reporting practices and management systems in place.  If necessary, external professional financial and legal advice should be sought.