Shane Warne Foundation a wake-up call for charities regulator

Cricketer Shane Warne recently admitted he was “disappointed” with the recent performance of his charity, after it was reportedit had donated an average of only 16 cents of every dollar of A$1.8 million raised from 2011-2013 to institutions that care for sick and underprivileged children.

Public criticism of the Shane Warne Foundation appears well-founded when you consider the organisation’s 2014 financial statements.

Its reporting to Commonwealth charities regulator, the Australian Charities and Not-for-profits Commission (ACNC), reveals it received revenue of A$452,711 (of which $279,198 was attributed to fundraising) and spent $281,434 on fundraising.

This results in a “cost ratio” of more than 62% – the ratio of the cost of raising funds against the proceeds of fundraising. The ratio is more than 100% if you only use the actual fundraising income in the calculation. The other major expenses were employee benefits of A$150,507 and rent of A$47,572. The charitable purpose does come into question when these figures are juxtaposed against the distribution to beneficiaries of just A$50,000.

Similar criticisms have been levelled at larger well-known charities. In 2011 the Surf Life Saving Foundation, Care Flight (NSW) and Make-A-Wish Foundation were all reported to have a greater than 50% cost ratio. Their historical distributions or spending on their charitable purposes have been much higher than the Shane Warne Foundations’s 11% of revenue.

What is the regulator doing?

To date the ACNC has largely echoed the sentiments of the for-profit sector. Its focus, in line with its requirements under legislation, has been on reducing red tape for charities and reducing its own administrative costs. This is consistent with its stated objectives of driving deregulation and simplifying reporting.

These kinds of compliance and reporting objectives do not get to the heart of the regular criticisms directed at players in the charity sector. The more fundamental issue that needs to be addressed is whether Australia needs the more than 54,000 charities registered with the ACNC, how they uniquely contribute to society and if they are for public benefit.

The objectives of an organisation are what determines whether it is a charity or not. The overarching criteria the organisation must meet is that it is not-for-profit and pursues a charitable purpose. These purposes must also be for the public benefit.

While the mission of The Shane Warne Foundation (TSWF) is laudable … “to enrich the lives of seriously ill and under privileged children and teenagers in Australia”, there is an obvious disconnect between these objectives and some of its activities, including funds distributions, over the last few years.

What’s required

Under the watch of the ACNC, “responsible persons” running charities have explicit governance and accountability requirements. So, Warne is required by law to “act with reasonable care and diligence”. He must also “act honestly and fairly in the best interests of the charity and for its charitable purposes”.

He must not misuse his position or information he gains as a responsible person, must disclose conflicts of interest, and ensure the financial affairs of the charity are managed responsibly, including not allowing the charity to operate while it is insolvent.

The accountability requirements of the ACNC only come into play if the charity has members. In that case, the responsible persons running the charity are required to: take reasonable steps to be accountable to their members, and allow their members adequate opportunities to raise concerns about how the charity is run. Like many other charities, the Shane Warne Foundation was established as a trust, so accountability only arises through regulatory disclosure and reporting requirements.

The benefits

There are two main types of tax benefits that can arise from being a charity. The first is being endorsed by the Australian Taxation Office (ATO) as a tax concession charity. This provides endorsed entities access to tax relief though income exemptions, GST concessions and FBT concessions. As at 2014 there were over 36,000 charities benefiting from one or more of these concessions.

The second benefit is for the charity to be endorsed as a “deductible gift recipient” (DGR). This allows the ATO to approve the charity to receive tax-deductible gifts and contributions. Currently, individuals and organisations can donate to nearly 18,000 charities and receive a tax break. In the 2013 tax year, individuals claimed nearly A$2.3 billion in deductions for gifts to DGRs.

Shane Warne’s charity receives benefits under both of these categories.

So …why does Shane Warne need a charity?

The questionable activities of the Shane Warne Foundation highlight the need for a more nuanced regulatory approach in terms of governance and accountability. It could be that Shane Warne is driven to help sick and disadvantaged children and teenagers. But there are also many other benefits on offer for patrons and directors of charities, including the opportunity to host “celebrity events”, and at the same time tax effectively distribute funds and provide benefits to associates.

Not all of these are for a charitable purpose. Rather than the ACNC running a one stop shop enabling even more charities to be established, the 50,000 plus charities that already exist should be scrutinised more closely to ensure their activities meet the charitable purpose and public benefit test.