Mainland charities must respect transparency, or suffer

Institutions that rely on public trust must be aggressively transparent about their finances

PUBLISHED : Sunday, 16 December, 2012, 12:00am
UPDATED : Sunday, 16 December, 2012, 3:35am

The media spotlight again swung back to the mainland's transparency challenged charitable institutions last week after a citizen journalist exposed a multibillion yuan accounting gap at a government-backed children's foundation.

Citing research by the citizen journalist, Zhou Xiaoyun, The Beijing News reported on Tuesday that the China Charities Aid Foundation for Children (CCAFC) paid out a whopping 4.84 billion yuan (HK$5.96 billion) last year even though it reported receiving only 80 million in donations.

In fact, the organisation has raised just 231 million yuan since its founding in 2009 - half of that from individual donors. Zhou even accused the group, which is affiliated with the Ministry of Civil Affairs, of money laundering.

The charity moved quickly to play down the revelations, blaming much of the accounting gap on a misplaced decimal point that mistakenly inflated the costs of its bank investments schemes tenfold from 475 million yuan to 4.75 billion yuan.

But the admission did little to quiet criticism about the CCAFC and the lack of transparency and accountability in general in the mainland's scandal-scarred charitable sector. For one, a decimal shift would still leave the organisation with a huge donation-to-expenditure gap.

Moreover, As Zhou told the Legal Evening News, the disclosure did not explain how CCAFC's management, regulators and external accounting firms failed to catch such a simple error.

"Are your accountants and accounting firms you've hired accredited professionals or are they just some useless decoration?" Zhou asked the group's press officer during a live-streamed debate on Yicai.com the same day.

CCAFC appeared on the programme in an apparent effort at damage control. The press officer offered few explanations, but promised that 68 pages of bank transaction reports would be posted online to allow public scrutiny.

The charity retreated from the pledge the next day, promising instead to assemble a panel of auditors, legal professionals and journalists to review its books and write a "systematic and detailed report" on their findings.

The Legal Daily said in commentary that such an accounting error was inexcusable, disrespectful to donors and a threat to the credibility of all charities.

"Even it's a blunder with a decimal point, it's without a doubt no small mistake as it exposed how flawed the accounting systems at some of our charitable organisations are," the paper said.

Professor Deng Guosheng, who heads Tsinghua University's NGO Research Centre, told Xinhua that mistakes on the foundation's accounting reports show how little mind mainland charitable organisations pay to disclosure.

"It's also demonstrates that much more needs to be done to regulate them," Deng said.

Donations to mainland charities are estimated to have fallen by a fifth to about 80 billion yuan last year, after the country's largest charitable organisation, the Red Cross Society of China (RCSC), was struck by a series of financial scandals and public embarrassments.

Doubts about the RCSC, which is independent from the Red Cross, have led to widespread distrust in charities and calls for donors to withhold their money.

Citing statistics from the China Charity and Donation Information Centre, Xinhua reported on Friday that the RCSC received only 2.87 billion yuan in donations last year - a drop of nearly 60 per cent.

Wen Jun, a sociologist from East China Normal University, told Xinhua on Friday that the mystery surrounding mainland charities' spending was the main reason for the lack of public trust.

"Some of them are used to operating behind a closed door as they have the backing from the government," Wen said.