Rules of the game

An estimated $1.6 billion in donations flows into the accounts of charities and other non-profit groups each year. Another $6.4 billion in revenue comes from government grants and contracts, sales and other income.

Despite the size of the sector, charities have operated for decades with minimal regulation and few requirements to disclose how they spend their money.

Charities Act

In 2005, the Charities Act was introduced to shed more light on the sector. The Act sets up the Charities Commission. It's responsible for maintaining the Charities Register, a public list of organisations which have a recognised charitable purpose - broadly defined as the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.

Annual returns

The Charities Commission is also responsible for ensuring that every registered charity files an annual return disclosing its income and expenses. But the information that charities are required to provide in these annual returns falls well short of what's required in other countries.

In the US, large charities (income more than US$100,000 or assets more than US$250,000) have to report their fundraising expenses - including any fees paid to professional fundraisers - as well as provide a detailed breakdown of all other costs. Big UK charities with income over £100,000 also have requirements to disclose fundraising costs.

This separation of costs makes it possible to calculate a charity's fundraising efficiency ratio - the amount spent on fundraising as a percentage of the amount of money raised. This kind of information helps donors work out where their money is going and how much of it actually gets through to the cause.

Our regulations don't require this level of detail. The Charities Commission's Chief Executive, Trevor Garrett, says annual returns really just provide "basic statistical information". He says the Commission can strengthen the requirements, although this is not something it's yet looked at in any detail. We think it should. We'd like to see requirements similar to those in place in the US and UK.

Our online poll

Our recent charities poll also found members would like to know more about how charities spend their money. Just over 500 people completed the poll: 80 percent said they'd like charities to tell them how much is spent on fundraising and 87 percent wanted to know how much is spent on administration.