With an unprecedented influx of charitable donations for the bushfires in Australia, Leah Russell shares key considerations for both charities and donors.
The bushfires in Australia have shown the generosity of the Australian and International community in supporting the people and animals affected by the devastation. The estimated donations to charities for the bushfires in Australia is unprecedented, with current estimates at so far estimated at $200 million. In these circumstances, many charities are receiving donations, often significantly more than planned.
The overwhelming generosity is more than welcomed and appreciated by charitable organisations to support the rebuilding of communities in the short and long-term. However, a sudden growth in donations can bring some new and complex challenges for these charitable organisations.
The Not-For-Profit sector is already one of the most highly scrutinised and complex business models that comes with complex regulation, reporting and accountability to the public. During this time, charities must determine the best approach for appropriately distributing donations - that meets the immediate needs of the community, as well as balances their future needs. They must also achieve this at a time where there’s often considerable public attention on the charity and pressure for them to act quickly.
With this in mind, I’m sharing some key considerations for charities of all size and scale when distributing funds. As well as ways donors can help ease and understand the burdens placed on charities.
1. Who are the people and/or organisations that will receive the funds?
One of the most important questions charities face is, ‘who will receive the donations?’ In the case of the recent and ongoing bushfires in Australia, many people and businesses are affected directly and indirectly, for example:
- People who have their lost home and businesses as a direct result of fire
- People and entities indirectly impacted by the loss of flow-on business.
In addition, charities must take into account the timing of the donation.
This creates a challenging situation. The charity must determine if they should distribute the donations only to those who are affected by the bushfires, up to the timing of the donation - or should everyone who is, and may still be impacted?
As the season of bushfires in Australia has not ended, this decision can put charities in a difficult situation, as those already affected require financial support urgently, leading to our next consideration…
2. When should the donations be distributed to those affected?
Upon receiving donations, charities are often under considerable pressure to provide aid to those affected quickly – especially in the case of extreme natural disasters, such as bushfires, cyclones, flooding etc. However, deciding the right course of action to aid those affected while best utilising the limited resources available is not always clear and can take time.
Charities, therefore, face complex questions such as should they use all the donations to support the immediate needs of people and businesses or allocate a portion of those funds to long-term rebuilding? If the latter, then how much should be allocated to long-term goals and what sort of activities need to be undertaken to achieve these long-term goals?
Determining what each community needs and how best to implement it takes research and time.
For many charities, especially smaller ones, this can be hard to determine. A failure to communicate intentions clearly - especially for long-term goals - can attract criticism if the public sees the charity as being inactive or slow to respond.
3. What is a reasonable administration cost incurred by the charity?
Depending on the type of goals and activities of the charity, the effective implementation and delivery of the donations often involve an administrative cost to the charity. While these administrative costs are vital in ensuring that the charity can achieve its goals, it’s important that charities closely monitor and clearly communicate these costs in order to ensure they are meeting the expectation of their donors.
In addition, charities should also consider their longevity. Charities need to be strategic in their decisions and must communicate their strategy widely. Furthermore, their investment policy must ensure there are optimal returns, they preserve capital and also have a continual stream of cash flow – while still meeting their compliance obligations. I’ve also discussed the importance of reserves and reserve policies for charities in another article here.
What should charities do?
The answer to all these questions will vary for each charity as it often depends on the wording of the appeal and the charities’ strategic goals. However, it highlights the importance of Boards and Management putting clear policies and procedures in place when setting up specific appeals and for general fundraising.
Finally, it’s vital that the charity effectively and clearly communicates with its donors and future donors who they are supporting. Transparency is paramount and the public wants to know that each charity is doing the right thing.
At BDO, we have extensive experience in working with Boards and Management to review policy and procedures in light of challenging and complex situations, ensuring that your charity is well placed for unexpected events. Some of the issues that we advise your charity on include, proper governance practices, fiduciary responsibilities of not-for-profit boards, complex compliance issues affecting not-for-profits and compensation and benefits strategies. For more information, please see our solutions for not-for-profits or contact Leah Russell.