Shane Warne Foundation not alone in charity spending ambiguity

It’s the A$100 billion question most Australians don’t know the answer to: just how are our donations to charity being spent?

KPMG’s independent audit of the Shane Warne Foundation has once again raised the issue of inadequate regulation and transparency of the charity sector.

While Shane Warne has said the Foundation has got “nothing to hide” and critics of his charitable work can all “get stuffed”, he, along with other high profile philanthropists, need to understand all Australians have a financial stake in the running of registered charities and should be asking questions.

Charities receive tax concessions and those donating to charity also, in most cases, receive a tax break for the money they donate. In a sector that was worth more than A$100 billion in 2014 this is a significant contribution from the community as well as a substantial reallocation of public money.

The Shane Warne Foundation is being closed down and will pay its final cheque this Friday, March 18. But after running for more than a decade, it is still not answering the biggest question - where has ALL cash donated gone?

The Foundation says it has distributed A$3.67 million to date, and that all its accounts have been fully audited by KPMG, but neither has been able to explain what happened to large sums of donated cash.

A low bar

The KPMG audit commissioned by the Foundation and Consumer Affairs Victoria only sought to establish whether the Foundation complied with certain sections of the Fundraising Act 1998. The audit only assessed whether those reporting requirements were met and whether the Foundation had appropriate internal controls in place. The report concluded that the Foundation failed on both those counts.

The lack of internal controls or appropriate business practices has made it impossible to draw any conclusions about any fraud or error from the Foundation’s books. This lack of attention to appropriate business practices along with the failure by regulatory authorities to monitor appropriately for an extended period of time allows those responsible for the Foundation’s financial affairs to escape being called to account.

Three glaring problems

However, the Shane Warne Foundation saga highlights three key issues. First is the inadequacy of governance arrangements in charities. There is no requirement for charities to have someone financially competent involved in their running. However well meaning, charities, like all other businesses, need to adopt appropriate business processes and practices when dealing with donations.

The second is the inaction of regulatory agencies to step in quickly. Despite failing to meet state government requirements to lodge and submit financial information in a timely manner, the Foundation remains registered.

The Shane Warne Foundation is not the only charity to remain registered and operating despite non-compliance with reporting requirements. High profile vitamin manufacturer Swisse’s charity, the Celebrate Life Foundation, has never filed required information but still remains registered with the Australian Charities and Not-for-profits Commission. There is no evidence to support its claims of raising more than A$1 million since 2012, nor any information publicly available about how any money it has raised may have been spent.

Finally, the regulation of charities focuses on the “income” side of their operations. Like in the case of the Shane Warne Foundation, there is no strict regulation on the way donations to charities are spent. So, as an example, under current arrangements it is entirely appropriate for the Foundation to only distribute 11% (A$50,000) of income in 2014 on its stated charitable purpose. However in that same year it spent more than A$281,000 raising A$279,000.

The 2014 Australian Charities Report released in December 2015 showed that of the more than A$95 billion spent by charities in 2014, more than A$51 billion was spent on employee expenses, a bit over A$4 billion on grants and donations and the remainder on “oher”. What comprises “other” is a question the sector needs to be accountable for.

Greater transparency is required in this multi billion dollar sector to understand how our donations are being spent.