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Charities: how to sort the good from the bad?

 

Charity scams are running rife: top tips you MUST know

 

In any industry, there are strong performers and weak performers. The charity sector is no different. Giving to just any “charity” is not a guarantee for helping those less fortunate. If you aren’t careful, you may just put money in the pockets of corrupt individuals. 

There are a number of techniques that can be applied to help you sort the good from the bad. This involves checking the legitimacy of the charity, ensuring leadership isn’t corrupt and making sure funds are used for their purpose.

Is the charity a legitimate charity?

Some of the worst charities are those that give you the impression they are charities, without actually being charities. Never assume a charity is legitimate – no matter how professional they might look. You may come across these fraudulent groups from social media advertising asking for funding for an important cause. The video might be incredible. Or, there might be a fantastic gala event raising money for charity. 

A quick and simple way to ensure your charity is a genuine charity is by a simple search with the charity regulator – the Australian Charities and Not For Profit Commission (ACNC). Here you will find out if they are a registered charity. If they aren’t listed, start asking questions or avoid them completely. 

Is the charity’s leadership corrupt?

Legitimate charities can be run by individuals with bad intentions. There are a number of ways to find out if the charity you want to donate to is being led by corrupt individuals. Once you have found the charity on the ACNC’s database, note the names of their directors and conduct the following searches:

  • Search the Australian Securities and Investment Committee (ASIC) banned and disqualified list.  This provides a list of individuals that have been:
      • disqualified from involvement in the management of a corporation
      • disqualified from auditing self-managed superannuation funds (SMSFs) and
      • banned from practising in the Australian financial services (AFS) or credit industry.
  • If they’re operating an international charity, search the Department of Foreign Affairs’ (DFAT) Consolidated List. This is a list of all persons and entities who are subject to targeted financial sanctions under Australian sanctions law.

Quickly review their financial records

The final check to sort the good from the bad is to review the charity’s financial records. Check that the accounts have been audited to ensure they are reliable records. Then, review the notes to find out if there are any related party transactions. If there are, consider the extent to which the related party is benefitting from the charity’s operations and if it is reasonable. Keep in mind that the vast majority of charity directors do not receive director payments and that most related party transactions can be avoided. In other words, if there is a significant transaction, it is usually a red flag and a sign of a bad charity. 

Conclusion

There are, without a doubt, corrupt charities that lower the reputation of the entire sector. There are also exceptional charities that are delivering critically needed work and making significant progress against their mission. When looking for a charity to give to, make sure you can sort the good from the bad, and donate only to the best.

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