NON-PROFIT ORGANISATIONS (Guidelines on raising funds)

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NON-PROFIT ORGANISATIONS:

(Guidelines on raising funds): 5.

Dr Mohamad Maliki Bin Osman asked the Deputy Prime Minister and Minister for Finance (a) whether there are clear guidelines for non-profit organisations on raising funds from the public and on the utilisation of these funds; and (b) if there are, what is the monitoring mechanism in place to ensure compliance with these guidelines and thereby to ensure public confidence in such organisations.

The Second Minister for Finance (Mr Lim Hng Kiang) (for the Deputy Prime Minister and Minister for Finance): Mr Speaker Sir, it is important to have clear guidelines on the raising and utilisation of funds to maintain public confidence in our non-profit organisations and their programmes. There are essentially three questions the public is most interested in. First, what methods are used to raise the

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money? Second, how much of the charity dollar is used to raise funds? And, finally, how is the money spent or saved?

The Government launched the Council on Governance for IPCs in January this year to look at best practices for IPCs. IPC stands for Institution of a Public Character. IPC status is conferred under the Income Tax Act. IPCs are authorised to accept tax deductible donations from the public. They are regulated by IRAS or by central fund administrators, which are organisations authorised by IRAS to grant IPC status to other organisations whose objectives are similar to theirs.

The Council is chaired by Ms Lim Soo Hoon, Permanent Secretary of the Ministry of Community Development and Sports. It has seven members from the people sector with wide experience in the local charity scene, and three members from the public sector. The Council is studying ways to better improve fund-raising practices and ensure that IPCs' use of funds is transparent and in line with international best practices. It is working on a code of best practices for the IPCs, and will also recommend how existing fund-raising regulations could be refined to better support informed giving.

Let me now describe what the current rules are, which the Council will improve upon, as appropriate.

First, on fund raising methods. Today, we do not regulate fund-raising methods, except when fund-raising is conducted in public places. This is then regulated by the Police under the House to House and Street Collections Act. Under the House to House and Street Collections Act, any individual or organisation wishing to solicit donations in the streets or other public places is required to obtain a licence from the Police. One of the conditions is that fund-raising expenses must not exceed 30% of the total funds raised. Enforcement comes under the Police.

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Second, on fund-raising efficiency. IRAS also imposes a 30% limit on all fund-raising expenses by IPCs. The 30% limit is stipulated under Income Tax Regulations 2004 and enforcement is by IRAS and the central fund administrators.

Third, on effecitive use of funds. Currently, there are no benchmarks for measuring the effectiveness of IPCs as they cover a wide range of activities and charitable sectors. The Council on Governance for IPCs will be studying this matter. All IPCs are required to submit their audited financial accounts to IRAS and their central fund administrators every year. IPCs are also required to post their financial reports online, hyperlinked to IRAS' website, so that the public can better scrutinise their use of funds. This requirement to post financial information online began in 2002. At that time, only about 15% of the IPCs or 170 of the bigger IPCs were required to post their key information online. However, from 1st January 2004 , all IPCs are required to post their financial information online to allow free public access. Today, all 821 organisations with IPC status have done so.

Donors have an important role to play in demanding accountability for the way their donations are used. They should be aware of the financial needs of different IPCs, choose the charities they wish to support, and be satisfied about how their donations flow through to the beneficiaries. IPCs, on the other hand, must understand that increasing accountability to the public is critical for ensuring a continuing flow of donations for their causes. The Government believes that charity dollars will go up with informed giving.

Dr Mohamad Maliki Bin Osman (Sembawang): Sir, can I ask the Minister what is the basis for the 30% cap on the funds that can be used for fund-raising

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expenses? Does the Minister think that this is high, eg, if we take a donation of $6 million which allows the organisation to use up to $1.8 million just for fund-raising expenses alone? What is the basis and whether this is high in his opinion?

Mr Lim Hng Kiang: Mr Speaker, Sir, our general approach to regulating the charities is to adopt a very light approach. I think we do not want to over burden the charity sector with very tight regulations. As Members know, the charity sector comprises a wide range of causes. Some are very small organisations, others are larger organisations. So, when we had this rule of 30% for fund-raising expenses, we were looking more at the majority of charities, which are much smaller organisations, and therefore to stipulate a 30% rule is not unreasonable, because the amounts they raise are small and the costs of overheads of raising funds are also high. But, of course, if the organisation is large, then I will agree with the Member that 30% seems on the high side. We urge all organisations to always look carefully at the amount they spend in raising each donation dollar and to make sure that this expense is kept as low as possible.

Mr Sin Boon Ann (Tampines): Sir, do I take it that it is also not within the remit of the Council on Governance to determine how much a charity or an IPC can keep as its reserve in its accounts in order to meet its future expenditures?

Mr Lim Hng Kiang: Sir, as I mentioned, there is a wide range of charitable causes. Some require long-term commitments when they take on the role of looking after their beneficiaries and, therefore, it is prudent for them to have a sensible policy, especially those which are able to raise sufficient funds that will see them through multi-year projects. So, we do not have a specific rule on how much chari

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ties should set aside for their reserves. But we urge all charities to disclose this adequately in their statments.

Mr Charles Chong (Pasir Ris-Punggol): Sir, could the Minister tell us whether the National Kidney Foundation is in full compliance with all the current guidelines that he mentioned just now in the collection and utilisation of the funds that it receives from the public?

Mr Lim Hng Kiang: Mr Speaker, Sir, the NKF is in full compliance with the regulations.

Mr Sin Boon An: Sir, while I understand that the Minister wants the IPCs to have some say in how they want to use the money, surely, within the spirit of good governance, would they not want also to give an indication of how they plan to spend the money, so that they will know how much money they are going to keep, what they are keeping the money for the future, to give an indication why so much money is kept?

Mr Lim Hng Kiang: Sir, I would not disagree with that motherhood statement. We would like all charities to disclose fully. I think what the Member is probably referring to is the NKF. As the NKF has explained in their press releases, when they take on a kidney dialysis patient, it is not for one month, it is not for one year. They are committed to the patient for the rest of his life. And I think it is a very prudent policy for them to maintain sufficient reserves to keep the organisation going for many years. If we look at the reserves of the NKF in relation to their annual expenditure, their annual expenditure is in the region of $50-$60 million, and their reserve is about three or four years' worth, that, in my opinion, is not unduly large.

Ms Braema Mathiaparanam (Nominated Member): Sir, could I ask the Minister when will the Council of Governance

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come up with the improved set of guidelines? Secondly, what is the assurance that we can have under the current system of guidelines? I heard the Minister's anwer to Mr Charles Chong on the computation of the beneficiary dollar. What goes into that computation under the current set of guidelines, and how will this be improved upon under the revised system?

Mr Lim Hng Kiang: Sir, the Council has started work recently and I think they have made good progress. They understand the need for their rules, code of conduct, practices and regulations to be completed as soon as they can. I think they are working very, very hard. I do not know what the deadline they have given themselves. But I can assure Members that Ms Lim Soo Hoon is diligently working and I am sure she will put up the rules for consultation and implementation as soon as the Council is able to.

As for the definitions, I think we will try to improve the definitions as we go along. But I would like to urge Members to understand the charitable sector. It is a wide range and I think it is very hard to have one set of rules to regulate everybody. Sir, I still believe that our approach of regulating with a light touch is the right approach. I do not think we want to over regulate this sector.

Dr Mohamad Maliki Bin Osman: Sir, recoginising the fact that there are many different types of organisations with different sizes, and picking up on what the Minister said just now, I would like to ask again whether there is a need for us to have a different set of caps in relation to what they can use for fund-raising dollars. Because if we have a large organsation and the guideline is still 30%, how do we know that they are using it excessively or not excessively if, at the end of they day, they say that they are within the 30% guideline?

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Mr Lim Hng Kiang: Sir, ultimately, it is up to the donors. When you give your donation dollar, you must check how the organisation you are donating to is spending the money. And if you are not happy, then you donate to some other more worthy causes. I think the idea is to put the disclosure out and for donors to decide for themselves.

Ms Braema Mathiaparanam: Sir, could I ask the Minister what would be the terms of reference for this Council in terms of transparency issues as well as in terms of how space can be created for the smaller charities?

Mr Lim Hng Kiang: Sir, the general term of reference of the Council is to look at the corporate governance of charities. I think the Council, having drawn from representatives from different parts of the charitable sector, has a very good feel of what is needed, and I think it will look at the interests of the smaller charities as well as the interests of the larger charities.