Basic Transparency Is not Enough

 

Chinese philanthropy has been developing quickly in recent years. As a result, public attention to the transparency of charities is on the rise, especially after the incident of Guo Meimei. The public is urging charities to disclose information about their finances, projects and administration, so that they are able to judge whether they are credible or not.

Many charities have disclosed their financial statements in order to prove that they are trustworthy. Some third-party evaluators have brought out new criteria to measure charity transparency. Recently, the 2011 Forbes list gave out the 25 most transparent foundations in China ‰ÛÕ this was the first time the issue of foundation transparency has been a focus. The Foundation Transparency Index (FTI), released on 29 August by the China Foundation Center, Tsinghua University and other institutions, gained widespread attention. ‘Transparency’ has now become a buzzword and seems to be becoming the most important standard for judging a charity.

In fact, transparency is essential but not sufficient for a charity to show its integrity and efficiency; financial statements are often difficult for people without a financial background, and interpretation is not an easy task. Lower expenditure and fees do not necessarily mean the foundation or project is more successful.

Take the case of One Foundation, founded by famous movie star Jet Li, which held a conference in Beijing at the end of 2009. It released its annual report at the conference, with detailed financial and operational statements ‰ÛÕ quite transparent indeed. However, it aroused suspicion unexpectedly. Some details revealed in the report even brought a crisis of trust for the foundation. Figures showed that the China Global Philanthropy Forum project cost a total of RMB 2.5 million, and that expenditure of the Network Public Platform was up to RMB 2 million. Both figures were widely seen as too high, as was the third-quarter administration expense (RMB 1.57 million), which accounted for almost 20 per cent of the total expense (RMB 7.96 million).

One Foundation felt obliged to make an explanation after the controversy was ignited. It set out in detail the expenses of the forum and the platform and made clear that most of the fund came from corporate sponsors. It also published its yearly figure for administration expenses as a proportion of overall expenditure, which was 4 per cent, far lower than the 10 per cent limit required by the government regulation. Moreover, it provided information on general sources and directions of the foundation’s fund, together with five key principles in using it. Thus, the public misunderstanding generally cleared up.

If One Foundation had released this interpretation of the figures and relevant financial principles together with the figures, the misconstructions wouldn’t have happened, nor would the remedy afterwards have been needed.

At my foundation, World Future Foundation, we have decided to actively include our financial and operational principles in our annual reports. The rules include: donors have to pay the fees themselves when attending activities held by the foundation; working staff are not allowed to stay in five-star hotels or travel business class on a business trip, nor do they receive per diem allowances. Meanwhile, we select the best local service providers, such as lawyers, auditors and public relations firms, without considering too much the cost.

The public will have a deeper understanding of the charity when they receive principles like this, showing how the money was spent, rather than the figures alone. The purpose of information disclosure is to enable people to keep track of charities’ funds and choose reliable and efficient institutions to support, rather than simply setting out raw figures, which can be misreading. Charities should take the responsibility of explaining themselves to the public.

Therefore, raw figures provide only a basic criterion for assessing a charity. What we really seek is true transparency – disclosure of financial principles and interpretation of the figures. This will clear the mist between charities and the public.

This article was posted on November 26, 2012 on Alliance Magazine.

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