Australians are generous so why are many charities facing oblivion?

Australians are surprisingly generous people.  Last year we gave a total of $12.5 billion to charity. We are so generous, in fact, that a country of 23 million people is home to more than 54,000 registered charities.

However, when you look behind this generosity, the reality for many charities is very different.  Struggling with increasing compliance demands, and a lack of volunteers, many charities are facing oblivion.

Part of the challenge they face is the regulatory demands of the Australian Charities and Not-for-Profits Commission.  Each year charities are expected to report more and more information to the regulator. 

For many small charities, the burden of meeting these demands is deterring able volunteers from taking on executive positions, which means that in many cases they have trouble filling executive positions.

While the ACNC says it wants to work with charities to help them improve, the reality is that it is making them weaker.  Capable people are increasingly unwilling to devote the time, or assume the potential liability, of running a not-for-profit organisation.  As a consequence, there has been a brain drain from many of these organisations, which are left to struggle on with less capable people filling executive positions. 

This is a recipe for disaster.

There certainly is a case for some organisations to undergo scrutiny.  The veteran organisation, Walking Wounded, is a case in point.  Earlier this year the organisation was stripped of its charity status by the ACNC after complaints to the ACNC about the organisation's activities.

Another charity to come a cropper earlier this year was the Shane Warne Foundation, which shut its doors in January.

However, the irregularities of large and high profile charities are not representative of the sector as a whole.

In my role as a Trustee of the Queensland government's Anzac Day Trust, I see the finances of around 240 veteran organisations in Queensland each year.  Some 50 per cent of these have a turnover of less than 20,000, yet they fulfil a valuable role in the communities, far beyond the amount of money they spend.  That is because many smaller charities do much of their good work through volunteer time, not the money they spend.

These organisations are struggling to survive, though. Some have as few as 10 members, but they provide an invaluable service to their local communities. With important volunteer work to be done, their ability to meet tougher regulatory requirements is almost non-existent.  Expecting them to meet the same standards as other charities turning over millions of dollars is simply unrealistic.  

The state and national regulators need to adopt a "two speed" approach to regulation. Larger organisations are where most of the financial risk lies. That is because they have the overwhelming bulk of the money. These are the entities on which scrutiny should be focused.

The smaller organisations pose very little financial risk, and should be treated accordingly. They also need to be assisted in improving their management in a less threatening way.  Many of these organisations could be much more effective if they had the luxury of working on building viable business models, but there is little in the way of real assistance for them to do so.

With charities playing such an important role in Australian life, we meddle with them at our peril.