Ruling calls on foundations to come clean

The mainland plans to make charitable foundations more transparent and credible by forcing them to disclose their income, spending and use of donations, according to a draft regulation released by the Ministry of Civil Affairs.

Released for public consultation until May 3, the ruling seeks to regulate the foundations’ acceptance and use of donations, their business and corporate activities and their disclosure of financial information.

The regulation was drafted amid plummeting public confidence in charity organisations on the mainland after a series of scandals involving the Red Cross Society of China last year, including one involving an expensive lunch paid for by the organisation in Shanghai, and another over a senior official of the Kunming branch using society funds for personal spending. Additionally, a woman known as Guo Meimei , who falsely claimed to be working for the organisation, posted pictures online showing off luxury cars and handbags, sparking a public outcry before she admitted to lying. But investigations did reveal that the Red Cross’ name had been used for commercial gain.

The number of charitable foundations on the mainland has grown by 20 per cent a year for the past six years. There were 2,500 last year, with total assets of more than 60 billion yuan (HK$73.6 billion). They received 33.7 billion yuan in donations last year and spent 25.6 billion yuan, according to the ministry.

It said the foundations were still at the initial stage of development and had many problems, such as substandard internal management, unsound self-discipline, low credibility and a lack of transparency.

“After generalising and studying the major problems, the regulation has been drafted to provide guidelines for the conduct of public interest charity organisations such as foundations and to promote standard operation and transparency,” the ministry said.

Ma Xin , a ministry official in charge of non-government organisations, said the regulation sought to ensure that the public interest was upheld in every link of the chain, with foundations stepping up internal controls and regulation and taking responsibility for public donations.

The draft regulation says foundations should not to use public donations to pay administrative expenses unless previously agreed with the donor, and that operating costs should not exceed 10 per cent of overall spending in any year.

Foundations would be required to regularly publicise details of income and spending after fund-raising for emergencies, including donated income, donated materials and all the costs related to public interest projects. Such details should be made public every three months and announced in full after the project was completed.

The Red Cross Society of China moved to improve its transparency and image by publishing information on donations and expenditure online in August, but that action prompted further questions about the system’s credibility.

The draft regulation would also forbid foundations from using their names or public interest projects for commercial purposes, promoting and selling company products or brands and providing credibility or quality guarantees for companies.

pinghui.zhuang@scmp.com