Fair Trading Act (Soliciting on Behalf of Charities) Amendment Bill Submission

The Fair Trading Act (Soliciting on Behalf of Charities) Amendment Bill proposed to introduce new reporting requirements for third party organisations who collect money on behalf of charities.

The Foundation's submission supported the Bill's aim to provide increased transparency and public accountability around the cost of fundraising, but submitted that:

  • The Bill's requirements for disclosure are ambiguous.
  • Definitions of third parties and collectors are too broad.
  • Transparency should relate to all costs of fundraising.

Full text of submission

Introduction

This is the Blind Foundation's submission on the Fair Trading Act (Soliciting on Behalf of Charities) Amendment Bill.

The Blind Foundation

The Blind Foundation (the Foundation) is New Zealand's primary provider of vision-related habilitation and rehabilitation services to blind and partially sighted people. The Foundation's vision is empowering and supporting blind and partially sighted New Zealanders to ensure that they have the same opportunities and choices as everyone else.

Founded in 1890, the Foundation is one of New Zealand's oldest charitable organisations. Around 60% of the Foundation's annual income is obtained through charitable donations and legacies.

Fair Trading Act (Soliciting on Behalf of Charities) Amendment Bill

The Foundation fully supports the Bill's aim to provide increased transparency and public accountability around the cost of fundraising. Providing the public with better information about how their donated dollars are used allows New Zealanders to make informed decisions about which charities to support.

However, the Foundation considers that the Bill in its current form has some less well-defined areas that need to be considered:

requirements for disclosure are ambiguous.definitions of third parties and collectors are too broad.

In addition, the Foundation submits that transparency should relate to all costs of fundraising, and suggests that requirements for annual reporting to the Charities Commission should be strengthened and made more consistent.

1. Requirements for disclosure are ambiguous.

With the Bill's current wording, it is unclear how disclosure costs would be calculated. To improve transparency, any disclosure requirement would need to be unambiguous to ensure that all collectors disclose their fees on the same basis.

The wording in section 26B would work well in the case where a third-party collector requests a one-off donation and is paid a direct percentage commission on each donation. However, other models are common - for example, third-party fundraisers are commonly used to recruit donors for recurring donations. The following examples show that calculating a percentage is not straightforward:

A donor signs up to donate $10 per week, and the collector is paid $50 to sign the person up. The charity's fundraising model assumes that each weekly donor will continue to donate for a year. Would the collector disclose that they are being paid 500% of the first payment, or around 10% of the first year's payment?A call centre is paid $1 per call to request $10 donations. They are paid for every call, regardless of their success. Would the collector disclose that they are being paid 10% to each caller, or calculate a percentage based on the overall cost including failed calls?A call centre is paid on a flat fee rather than on commission, and their contract includes performance bonuses. The collector could not accurately disclose the percentage retained until all donations were collected.

In many cases it would only be possible to calculate the percentage retained by the collector after all donations are collected, so it would not be possible for a third party to disclose an exact percentage "before the donation is accepted by the collector." as required in section 26B(3).

To improve transparency, disclosure should include all fees paid to the collector. If the Bill required collectors to disclose only direct commission, not all of their fees, then collectors could structure their contracts without direct commission to remove the requirement to disclose. This would not improve transparency for the public, and would not be in the best interests of the charity, as it may lead to less flexible contracts.

It would be straightforward for a collector to disclose that they are a third party, not employed directly by the charity, and that they are being paid for their services. The Foundation would support this level of disclosure requirement. If a third party is required to disclose a percentage retained, greater clarity would be required to ensure all third party collectors are reporting in the same way.

2. Definitions of third parties and collectors are too broad.

As the Bill is currently worded, the definition of "collector" is defined very broadly. "A person who is not an employee of a charity, who in the course of trade acts on a professional basis on behalf of any charitable entity" could include any third party organisation engaged by a charity. In addition, collectors are required to disclose "if a portion of the fund is retained by any third party, including the collector".

Third parties covered under these requirements include organisations hired to directly ask individuals for donations, but could also include:

creative agencies and software vendors who create print and web materials that request donations.organisations which coordinate volunteers for street appeals.call centres receiving donations by phone.banks receiving donations and charging bank fees.

Though not all of these organisations "request funds" as defined in section 26A, the collector must disclose if any portion of the donation is retained by a third party. Although it may not have been the Bill's intention, the effect is that third party collectors may be required to report on all third party costs of fundraising. Collectors may not have direct relationships with other third party organisations, so this requirement would increase the administrative burden on charities. If this is not the intention, the Bill should clarify which third party costs must be disclosed.

3. Transparency should relate to all costs of fundraising.

The Bill only targets costs of third party organisations used for fundraising, but donors are interested to know the charity's total cost of fundraising - that is, how much of their donated dollar is used for the cause they are donating to.

In many cases, using third-party organisations to collect funds is more cost-effective for charities than using in-house staff - this is often the reason that third parties are used. Increasing requirements to disclose third-party costs reporting requirements should not penalise charities who use third parties by making their costs seem higher than charities who use in-house staff.

Charities are currently required to provide annual financial statements to the Charities Commission. The Foundation submits that regardless of the outcome of this Bill, another way to increase public transparency around the cost of fundraising could be to strengthen annual reporting requirements to include consistent and standardised information related to the cost of fundraising, including the use of third parties.

Further information

Please direct any questions to:
Moira Clunie
Insights, Policy & Advocacy Manager
Phone: (09 )355 6938
Email: mclunie@blindfoundation.org.nz

Blind Foundation
Private Bag 99941
Newmarket
Auckland
NEW ZEALAND

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