A PWIT perspective on the Giving Funds reforms

Sean Barrett, a member of the Pay What It Takes (PWIT) Steering Committee and former CEO in the philanthropy and for-purpose sectors, reflects on the Federal Government's Giving Fund reforms. PWIT thanks him for his insight and debate on the important subject of philanthropic giving.

Debate over philanthropic funder behaviour and how much is being distributed has been ignited by the Federal Government. Two initiatives will help improve philanthropic funding and maintain faith in the system.

The push to force greater philanthropic giving is in danger of focussing too much on the dollars and not enough on grant-making organisations and philanthropists spending the money wisely.

The Federal Government is considering changing the rules forcing Giving Funds (formerly public and private giving funds) to increase minimum giving from 4 or 5% to possibly 8% of corpus value each year.

To gain the greatest impact from such a reform, giving funds should also change their funding paradigm. Currently too few pay the true and complete running costs of charities, which limits the effectiveness and financial sustainability of charities.

Work done by Social Ventures Australia and the Centre for Social Impact found that the charity sector is in a so-called 'starvation cycle' where funders' unrealistic expectations about how much it costs to run a charity are reflected in those organisations spending little, or hiding what they do spend, and this perpetuates funders' unrealistic expectations.

The Productivity Commission report 'Future foundations for giving' found that: “Administrative expenses are not an accurate reflection of the performance of a charity.  An overemphasis, among donors and other stakeholders, on the amount of revenue that charities spend on administrative expenses can lead to incorrect conclusions about charity effectiveness and create perverse incentives for charities.”

The frustration for charities is that many on the Boards of grant-making organisations come from business; and what business operates without overheads for IT, HR and rent? Recent research found that companies with revenue similar to small-to-medium size charities pay between 25% and 48% of revenue on overheads. Charities are lucky to get 10% overhead funding from many grant-making entities.

The Pay What It Takes movement, a coalition of leaders from philanthropy and charities, is promoting a new giving paradigm which includes funding for overheads.  A quality charity sector delivering quality services is underpinned by quality-funded-operations.

The second necessary initiative is greater transparency in philanthropy if public faith in the system of tax advantages given to giving funds is to be maintained.

Philanthropic foundations insist on accountability and evaluation on the part of those they fund.  It is time for reciprocity.

The Australian Philanthropic Benchmark gives charities an opportunity to give anonymous feedback to funders on their performance.  The APB has struggled to get traction and take-up.  While there are more than 2000 private foundations, at best 12 have participated in the APB, despite its work being featured at the national conference of Philanthropy Australia, the peak body.

The value of the APB is that it addresses the power imbalance in philanthropy: the funder has the money, and therefore the power.  The anonymity of the APB gives charities a chance to give feedback without fear of losing funding.

Foundations who have used the APB report it helps improve their performance because they get honest feedback on how they can sometimes inadvertently hinder a grant recipient's performance.

If widely adopted, the APB can give a picture of performance in the sometimes-opaque world of philanthropy, and emphasise what best practice looks like. This can only help the wider community have faith that the tax advantages given to philanthropy are delivering returns.

Pay What It Takes principles, and the Australian Philanthropic Benchmark represent two initiatives which will ensure that any increased flow of dollars from philanthropy has the greatest possible impact in the community.

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