'Auditors can tell you whether spending is stated accurately but they can't check the internal controls. For example, how can you be sure stationery bought for the organisation is value for money? However, charities with good internal controls may spell out tendering requirements and procedures.'

Procurement of supplies is particularly vulnerable to abuse, Wong says. 'Digging into such accounts is likely to anger people with a stake in it, such as some long-time staff. But I wouldn't hesitate to report to the committee or the ICAC if I spot any dishonesty. I won't let people pocket the donations that are supposed to go to the needy. Those people should be sent to jail.'

Charities and non-profit groups may operate as trusts or registered societies. However, they come under the scrutiny of the Social Welfare and the Inland Revenue departments only when applying for fund-raising permits or for tax exemption.

It's a growing number. Groups granted exemption swelled from 3,819 in 2003 to 4,832 this year. Organisations applying for tax-exempt status must present the Inland Revenue Department with documents showing it is a trust or a registered body, its accounts and a list of charitable works that it undertakes. But since monitoring charities isn't a major part of their duties, tax officials only check the groups' accounts once every four years to verify their activities.

'You can't rule out the possibility that some organisations simply try to raise as much money as possible during that period until they are disqualified,' Wong says.

Welfare officials require first- time fund-raisers to present a confirmation letter from organisations they are benefiting before issuing a permit, while tax-exempt groups must present a letter of approval from the tax department. Welfare officials also issue groups with guidelines on improving financial transparency and accountability, but adopting the measures is voluntary.

A source familiar with welfare groups says a tax-exempt charity was recently found to have spent as much as 90 per cent of its revenue on administration, mainly for staff salaries and hiring personnel for fund-raising activities. Although a relatively small group, having a celebrity-studded committee means its appeals bring in considerable cash. The charity's chief executive was reportedly sacked for poor management and his duties were temporarily assumed by the chairman, the source says.

Meanwhile, individual donors and welfare groups are raising concern over suspect fund-raising drives. The Social Welfare Department designates Saturday mornings as charity flag days, with occasional approval for collections on Wednesday. Welfare groups are also required to obtain the department's permission for other public fund-raising events such as charity sales.

Last year, officials referred 56 cases of public charity drives conducted without approval to the police - almost triple the number in 2004.

Officers issued five warning letters to organisers and two people were convicted.

'Even one case is too many,' says Cliff Choi Kim-wah, business director of the Hong Kong Council of Social Service, which represents 329 welfare agencies. 'They tarnish the reputation of the sector and erode public support for groups which are honest and law-abiding.'

Choi also attacks some outfits for paying elderly people or young students a commission to go on collection drives as they are more likely to get sympathy. 'Such practices are appalling and unethical, and we don't allow our members to do that,' he says.

Small, lesser-known charities are most vulnerable to doubts raised about dubious charities. Wai Ji Christian Service, which has served the mentally challenged for 27 years, finds it increasingly harder to get donations. 'It's difficult to quantify the harm from unscrupulous groups. There's already stiff competition among agencies [for funds]; now we face an added threat from those who break the rules,' says Sandy Ma Sau-lan, a Wai Ji programme co-ordinator.

'On flag days, some people quiz us about the organisation. But it's better for people to ask questions than simply walk away. At least we can have the opportunity to explain our mission and services,' Ma says.

Contributors often call the Community Chest to verify the authenticity of collection drives, but channels such as e-mails, postal and websites appeals are hard to police.

Like many people, Aaron Wan Chi-keung is often flooded with postal appeals. But the seasoned charity volunteer knows which to discard.

'Letters tend to come with tokens such as coins, rice and chopsticks. They bear similar names to big charities in order to confuse people who are unfamiliar with the welfare sector,' says Wan, a former member of the Social Welfare Advisory Committee. 'I always remind my wife to check with me before sending money to ensure our donations go to trustworthy groups.

'At the moment, there's not much donors can do. If people aren't sure about a group, they should check its website or Inland Revenue's list of tax exempt organisations. But to protect public interest, the police and the Social Welfare Department must crack down on unscrupulous practices.'

To help identify genuine charities and check abuse of funds, supporters such as Wong call for the setting up of a registration system, which would require groups to open their books for inspection.

But he concedes registration isn't a panacea. It's hard to tell from annual reports alone whether donations have been properly managed or if staff are overspending. 'Audited reports can't reflect whether the organisations have implemented controls to keep spending at reasonable levels,' Wong says.

Major charities tend to establish better control systems than smaller groups which may not have the manpower. 'But [mismanagement] problems aren't exclusive to small agencies; loopholes occur in big outfits too. It is difficult to rely on the board of directors to monitor daily operation as members are mostly volunteers,' Wong says.

Some call for the government to tighten its grip on agencies to avoid abuses of donations, but Choi says capping administration costs would hamper the work of welfare groups. Although there isn't an international standard, he says charities with full-time staff typically devote 30 to 40 per cent of their funding to administration.

Excessive government scrutiny would impose additional administrative costs on welfare groups at a time when they are raising money to expand services, Choi says.

The Hong Kong Council of Social Service has been quick to see the need for charities to show greater transparency and retain public trust. Four years ago it initiated a Pledge on Donors' Right programme under which signatories vow to be more accountable by opening books to inspection on request, and addressing contributors' queries on their operations. About 150 member organisations have signed up.

The second prong to the council's transparency drive is to nurture smart donors. Hence a major public education drive this year which will teach people about the kind of information they should require from charities before donating. Tightening government control isn't enough, says Choi.

'We're keen to involve donors to help directly as volunteers to serve the needy. This way, donors can get a feeling for our work rather than by simply sending a cheque.'