Quaker Service Australia: charity review

This is a review in the series ‘Australian Council for International Development (ACFID) Members’. ACFID ‘is the peak body for Australian non government organisations (NGOs) involved in international development and humanitarian action.’ It requires Members to adhere to a Code of Conduct. ‘Quaker Service Australia’ is one such Member.

Charity response

QSA, under a heading of ‘Feedback, Comments & Complaints’, says that it ‘is committed to achieving the highest standard it can in every area of its work.’ We sent a draft of this review to them on 31 March 2020. They responded with comments on 14 April. When we replied, we asked if they wanted to change any of their comments. These were the two substantive paragraphs in the resulting email:

“Your correspondence was tabled at the latest meeting of the QSA Management Committee (the name given to QSA’s equivalent of a Board). Your comments regarding the details that should be deleted or added to the ACNC website have been noted and changes made. Thank you for drawing our attention to them.

The Management Committee’s response is that they consider that Quaker Service Australia has fulfilled the requirements of the accounting standards and other regulations currently in operation, so, offer no further comments”.

Their original (specific) comments on the review, unless they are no longer relevant because they have updated the Register or their website, along with our original responses^[1], have been included below.

Charity comment: “It is unfortunate that the website section of ‘Feedback, Comments and Complaints’ was not read more thoroughly by yourself. This would have invited you to make an initial contact with the convenor of QSA so that the issues as you see them could be addressed. The first indication we have of your opinion is via a ‘review’ of QSA conducted in a very similar format to that of other agencies reviewed and listed on your website.

Reviewer response: It was read, but that is not the method we have chosen. [Additional: the draft review was ‘an initial contact’ to QSA.]

To the review…

The name in the ACFID membership list links to the website for ‘Quaker Service Australia’. Here they seek donations from the public.

The ACNC, in their article, Donating to Legitimate Charities, gives “some things to consider to help you make sure your donation is going where it is intended”:

1. Check the charity’s name.
2. Ask for identification from anyone seeking a donation.
3. Be careful of online requests for donations.
4. No tax deduction doesn’t mean the charity is not a legitimate one, and
5. Find out more about how the charity says it uses donations.

Here’s the results for ‘Quaker Service Australia’, with #5 supplemented by the essentials of the ACNC’s What should I consider when deciding which charity to support?^[2]

 1.  A search on the ACNC Register for ‘Quaker Service Australia’ gives one result: Quaker Service Australia Limited (QSA).

QSA has the necessary provisions in its constitution to avoid having to put ‘Ltd’ / ‘Limited’ at the end of its name.

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2.  There is nothing to suggest that QSA raises funds door-to-door or in public places.

Charity comment: “Correct – QSA does not raise funds via door-to-door approaches or in public places, but via its website and within the Quaker community.”

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3.  The web address begins with a closed padlock symbol, so the website is secure [the ACNC article above].

Credit card information is not sought on the website.

Charity comment: “Correct, we wish our website to be secure.”

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4.  QSA’s ABN record (via the ACNC Register record) says that it is entitled to receive tax-deductible gifts, both as a Public Benevolent Institution, and for its funds, Quaker Service Australia Inc Overseas Aid Fund and Quaker Service Australia Inc Aboriginal Concerns Fund^[3].

The ‘Donate’ page says that ‘all donations to QSA $2.00 and over are tax deductible.’

Charity comment: “QSA has entitlement, as a Public Benevolent Institution, and as a Deductible Gift Recipient, for the whole of the organisation for both categories, to provide tax deductibility for all donations (gifts) received which are $2.00 and over.

The endorsement of Quaker Service Australia Limited as a DGR  under Subdivision 30-BA of the Income Tax Assessment Act 1997 was noted on January 29^th 2018.  Previously Quaker Service Australia Incorporated received DGR status for two funds – Overseas Aid Fund and Aboriginal Concerns Fund, and as at January 29^th 2018, QSA held a significant balance in those two funds which we were required to use for overseas and Aboriginal concerns projects. One of the funds has now been fully used and the other still has a small balance that needs to be used. When both have been fully utilised we will look into whether these funds need to be closed or not. Since January 29^th 2018 we have closed these two DGR funds to new money. All our donations now go to our general fund or if the donor nominates a specific purpose, then to a general ledger account that is used for that purpose only. We believe that the actions listed above satisfy all the legal requirements for our gift monies. Grant monies are administered in terms of the contract we have with the grantor. All of our grant monies have requirements for an annual reconciliation process which we comply with and send to the grantor for review.”

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5.  The use of your donations

Charity comment: “Your comments under this extensive section are indeed false and misleading. A change of text and review assessment is required for the following reasons:-

1. The financial report has been prepared and audited in accordance with the requirements of the Australian Charities and Not-for-profits Commission Act 2012 and the Australian Council for international Development Code of Conduct of Financial Standards.
2. The audit was conducted in accordance with the Australian Auditing Standards by an independent auditor, Lester Wills, of Nexia Sydney Audit Pty Ltd, with whom we  understand you are acquainted from past reviews of charities.”

Reviewer’s response: Neither of these things guarantees that there are things that should not be changed.  Changes made by many charities after a review are proof of this.

As context, read here what QSA does.

The audited account of how donations are used is the Financial Report 2019.  

Comments on that Report

• The auditor had to give a qualified opinion (rather than a ‘clean’ one):

• What he is effectively saying is that the directors had been unable or unwilling to implement the necessary controls over ‘more remote fundraising activities’ (whatever these are). This means that we can’t be sure that all the proceeds from this fundraising made it into the QSA bank account.

Charity comment: “In regards to the qualified opinion, we wish to make the following comment. The purpose of the qualification is to highlight what the auditors are unable to test, namely that all fundraising income that may have been collected, has been recorded in the financial statements.

Due to the current payment methods in use, there may be no audit trail that can be used to prove all the donations made were recorded. [For example, QSA receives funds each year from the proceeds of a regular garage sale. As QSA is not present at the garage sale, QSA cannot verify that all the proceeds of the sold items are forwarded on to QSA. This is one reason why the auditor sees a need to qualify the audit report.]”

Reviewer’s response: Is the garage sale a QSA fundraising event, or a non-QSA event the proceeds of which are sent to QSA?

Charity comment: “There is a specific audit guidance statement  (GS019) that provides some more detail. The guidance statement was specifically issued as this risk is common for fundraising entities. IN NO WAY CAN WE SUPPORT YOUR STATEMENT ‘that the directors had been unable or unwilling to implement the necessary controls’ – this would seem to highlight a lack of understanding of the situation, which is a surprise given your work history as outlined on your website.”

Reviewer’s response: We are familiar with GS019.  That the directors have been unable to implement the necessary controls is factual. 

• From an inability to get audit evidence on revenue from ‘more remote fundraising activities’, the auditor, Lester Wills of Nexis Sydney Audit Pty Ltd (Nexia Australia), extended the issue to ‘donations and fees’. So, from what is presumably a small percentage of revenue he increased it to 100%. And that 100% represents 52% of revenue. That’s quite a qualification on the usefulness of the financial statements.

Charity comment: “In regards to your comment ‘the auditor… extended the issue to ‘donations and fees’.  So, from what is presumably a small percentage of revenue he increased it to 100%.  And that 100% represents 52% of revenue.  That’s quite a qualification on the usefulness of the financial statements.’ This is a misleading interpretation of the qualification. The qualification highlights that the auditors are unable to test completeness of fundraising revenue as described above. The qualification refers to the donations and fees recorded as this is the line item in the financial report that the qualification relates to. It does not state that the balance recorded is not evidenced, as implied by your comment above.”

Reviewer’s response: We have neither said nor implied that ‘the balance recorded is not evidenced’.  All we said was that the item that was the subject of the limitation was ‘donations and fees’.  This is not an ‘interpretation’ of the qualification, but a repeat of the auditor’s ‘We therefore are unable to express an opinion whether donations and fees recorded for the Company are complete’.

We don’t think that the auditor has not been faithful to the guidance given in GS019.  See particularly the appendices.

• Sometime in 2018, that is, the prior year, QSA’s holding of ‘IT Equipment, furniture & Fixtures’ was reduced to zero. They don’t explain how they have operated since without such equipment.

Charity comment: “The reduction of holding of IT equipment, furniture and fixtures relates more to a change of taxation legislation and how companies write-off expenses, which now for minor expenses (to which QSA would attest to minimal expenditure as a matter of appropriate stewardship) are written off at the time of purchase.”

Reviewer’s response: QSA doesn’t pay tax.

• There is $160K, 40% of liabilities, of ‘Project funding payable’. Are these truly liabilities? How do they relate to the $268K of ‘project commitments’ that didn’t get recognised as liabilities?

Charity comment: “Liabilities – The $160k relates to amounts payable under existing agreements where the recipient has met the milestone requirements prior to year-end – that is, these amounts are valid liabilities of the QSA and represent amounts payable at year-end. The project commitments disclosed in Note 14 represent further commitments under these agreements where the milestones for payment have not yet been achieved. The funds are committed; however do not meet the requirements under the Australian Accounting Standards for recognition as a liability or expense.”

• Why was there zero ‘remuneration paid & payable to key management personnel when there was $85K last year?

Charity comment: “Zero remuneration paid – this again refers to financial reporting standards, refers to people who are members of the company and are on salary/wage. QSA’s company constitution prevent paid staff members from serving on the Management Committee. When QSA became a company, the executive administrator stepped off from the Management Committee. Therefore for the duration of the year of the audit (October 2018 to September 2019) there were no applicable salaries to report, and in the future will always be zero unless the constitution has been changed.”

Reviewer’s response: It is remuneration to management that is to be disclosed.

If you are still happy to consider a donation to QSA, here’s how it used the donations it received:

Cash spent

From the Statement of Cash Flows (with last year in the second column):

Charity comment: “Cash spent – Changes to the reporting requirements do not require the destination of the money for programs to be noted as in previous years. If anyone contacts QSA, this information would be happily shared with them, but you chose to review QSA without checking these facts. This is an error in your review.”

Reviewer’s response: The comment is not about the destination of program money.

Charity comment: “Your representation of insufficient information on ‘cash spent’ is misleading. The ‘Statement of profit or loss and other comprehensive income includes’ sufficient detail of how the donations and grants have been expensed in the year as discussed below.”

Reviewer’s response: The record of expenses is not a substitute for information on cash outgoings.  The two statements give different information.

No further information is given on this figure. So, we don’t have enough information to understand where the cash went.

Charity comment: “The disclosure in the cash flow statement is per the requirements of AASB107 – ‘Cash Flow Statements’ and is not designed nor required to replicate the detail of the ‘Statement of profit or loss and other comprehensive income’ on a cash-basis. The ‘Cash Flow Statement’ provides grouped categories of expenditure by operating, investing and financing activities.

A reconciliation of surplus/deficit to cash flows from operating activities is not required under ‘Australian Accounting Standards – Reduced Disclosure Requirements’.

Expenses per the Statement of profit or loss and other comprehensive income totalled $907,794. The movement in Trade and other payables and Provisions totalled $82,469. The combined figures total cash payments of $990,263.

Reviewer’s response: We agree that the Standard does not require the replication of the expenses detail.  However, has QSA complied with paragraph 14?

Although we think paragraph 5 supports some comparison with accrual information, the study of the Standard prompted by QSA’s objection may mean that we change the phrase ‘especially in comparison to the expenses’.  [Subsequently removed].

Cash unspent

Past donations have contributed to QSA being able to hold $1.23 million in cash and funds available at short notice. For only $162K do they explain the need.

Charity comment: ‘Cash unspent – The timing of donations and expenditure will rarely coincide. QSA has liabilities totalling $402,497 at year-end and project commitments of a further $268,257 (total committed funds of $670,754). The cash and liquid assets have been built over many years of operations and we consider it prudent to hold some surplus funds to allow the QSA to continue to operate in periods where there may be no or low donations. This is highlighted through the current COVID-19 pandemic where donations to charities are expected to be severely impacted.”

Resources consumed (i.e. accrual)

This, from the Statement of Profit or Loss and Other Comprehensive Income, is how the activities translated into expenses:

The destination of the money for programs is not given.

Charity comment: “The disclosures on the face of the ‘Statement of profit or loss and other comprehensive income’ follows the mandated format as specified in the ACFID Code of Conduct and AASB 101.”

Reviewer’s response: The Code does not overrule the law.

The only formats in AASB 101 are examples and cannot overrule the black letter law.

So, again we don’t have enough information to understand what happened to the donations received^[4].

Charity comment: “AASB 101 Neither AASB101.85 nor 101.112 as you have referenced require the disclosures of the destination of the international programs. ACFID and the AASB have mandated disclosures that they believe are required for financial reports to provide users with sufficient information. The QSA website contains further information on our activities.”

Reviewer’s response: Both 85 and 112 are ‘mandated disclosures’.  It is then a matter of opinion as to whether your disclosure complies.  It is our opinion that it doesn’t, especially given the current sensitivity about sending money overseas.

Charity comment: “To ensure that funds reach the intended recipient organisation and is used for the purpose for which it is given, we draw your attention to the ACFID Code of Conduct and to the relevant clauses contained in the Department of Foreign Affairs and Trade accreditation procedures and in the clauses of its contract with accredited agencies. In each case, there are standards of operation to ensure that funds are used as intended and by the intended recipient organisation, and each accredited agency is rigorously assessed on these points at regular and frequent intervals. Your review is in error.”

Reviewer’s response: Something in the Code cannot make up for something that should, reasonably, be in the Financial Report.  The External Conduct Standards support the need for this disclosure.

There is nothing in the Financial Report 2019 on how QSA ensures that (a) the money reaches the overseas organisation, and (b) it is used for the purposes given.

These were the directors who were responsible for the Financial Report 2019:

Gary Duncan

John Dundas

Richard Gibbons

Miriam Goodwin

Mary J de Merindol

Christine Sergeant

Since this time, the ACNC Register shows that Pia Rierson has joined.

Only five of these seven people are shown as directors on the website.

The board is responsible to the members. The number of members is not reported; however, it appears that, from the constitution and the Management Committee’s Report, there is provision for 12 members other than the directors.

Impact

Nothing systematic found on QSA’s impact.

End of review.

1. A few minor stylistic amendments were made. ↑

2. A section in the article, Donating and Volunteering:

   • Focus on the nature of the charity’s work, its beneficiaries and the impact the charity is having in the community.
   • Is it clear what the charity is trying to achieve and how its activities work towards its objectives?
   • Would you like to spend your money, or time if volunteering, to support these objectives?
   • Is the charity being transparent about its activities?

   ↑

3. ‘Inc’ is in these names instead of ‘Limited’ because up until 28 April 2017 QSA was an incorporated association rather than a public company. ↑

4. The need is supported by paragraphs 85 and 112 of the Accounting Standard Presentation of Financial Statements [www.aasb.gov.au]. ↑