A tool to reinforce trust, perceived performance and donation intentions
Western Sydney University
The Australian Charities Report (2022) highlights the significance and contribution of charities to Australian society and its economy. In 2020, nearly 50,000 Australian charities employed 1.38 million people (10.5% of the Australian workforce) and managed 3.4 million volunteers to deliver social goods and services. While total revenue in the sector increased on the previous year by $10 billion (to $176 billion), expenses rose by $10.2 billion (to $167.8 billion), an increase of 6.4% compared to a 6.0% increase in revenue.
The report further shows most of the sector’s revenue was received by the largest charities in Australia: extra-large charities (Total revenue ≥$100 million; representing 0.4% of all charities) received 50% of the sector’s total revenue, the ten largest charities alone received 13% of the total revenue, while the 50 largest charities accounted for 33%. This implies most charities (65.3% of them being small and 15.7% being medium) receive very little of the sector’s revenue – a fundamental resource for the operating capability and sustainability of these organisations.
The ability of not-for-profit organisations (NFP) (including charities; estimated at 600,000 organisations) to attract revenue inflows (including donations) and sustain operations is dictated by trust. However, frequent negative publicity from a handful of organisations increases concern about charitable abuse, erodes public trust in NFP conduct, and harms the intention to donate for the whole sector. Consequently, NFPs are increasingly faced with requests for improved transparency and accountability towards their use of donations. To further their objective of increasing public trust in the operations of charities and the broader NFP sector, regulators emphasise greater transparency and accountability from these organisations.
A study by Ghoorah et al., (2021) investigated links between donors’ perceptions of financial disclosures, trust and donation intentions. The study surveyed actual and potential individual donors residing in Australia, during the second half of 2017, resulting in 400 responses. This sample is divided equally between male (51.2%) and female (48.8%), and those who haven’t donated (51.5%) and those who have (48.5%). Over 65% of respondents were aged between 18 and 44 years, and more than 50% worked full or part-time. Nearly 60% of the sample had a diploma as their highest educational qualification at the time of the study.
The survey collected information on donor’s perceptions of financial disclosures (in terms of the decision-usefulness of these disclosures) and their attitudes towards NFPs (in terms of their perceived reputation, donation intentions, and trustworthiness), among others. The questionnaire used a 5-Likert scale, where 1 represented “Strongly Disagree” and 5 represented “Strongly Agree”, for statements including: “The financial statement information published by Australian not-for-profit organisations are easy to understand”; “Australian not-for-profit organisations have a reputation of being trustworthy”; and “I believe the financial information provided by Australian not-for-profit organisations”.
The study found no statistical difference in donors’ and non-donor’s perceptions towards the decision-usefulness of financial disclosures, the reputation of a NFP, and the trustworthiness of the organisation. The study also noted no difference between donors’ and non-donors’ donation intentions. In short, these findings indicate donors’ and non-donors’ perceptions and attitudes are similar toward NFPs.
In assessing links between donors’ perceptions of financial disclosures and their donation intentions, the study found:
- The perceived decision-usefulness of financial disclosures by a NFP positively influence donor perceived reputation of the organisation,
- Donors’ perception of the reputation of a NFP favourably influences their trust in the organisation, and
- Donors’ trust in a NFP has a significant direct link to their donation intentions towards the organisation.
This indicates donors are influenced to donate to a NFP by the impact of financial disclosures on their perceived reputation and trustworthiness of the organisation.
These findings suggest when donors perceive the financial disclosures of a NFP as being decision-useful (that is, assisting donors to make rational decisions around resource allocation), these disclosures have a signalling function to donors towards the credibility and legitimacy of the NFP to operate in society. This favourably influences donors’ perception of the reputation of the NFP, their trust in the organisation, and eventually their intention to donate.
By providing strong empirical evidence of positive links between donors’ perceptions of financial disclosures, perceived reputation of a NFP, trust in that organisation, and eventually their donation intentions (i.e., their inclination to donate to the NFP), the study by Ghoorah et al., (2021) challenges that donors have a limited interest in financial disclosures. The study affirms that disclosures function as a signal to the commitment of a NFP to transparency and public accountability. Donors perceive this as a demonstration of organisational honesty, reliability, and mission-integrity: fundamental criteria for donation intentions and our mission.
Meaning donors need signals to help them identify organisations deserving their support.
Doctor Ushi Ghoorah is an academic researcher who specialises in the financial disclosures, governance, and accountability of not-for-profit organisations (NFPs). She holds an advisory panel membership on the Australian Accounting Standards Board (AASB) and collaborates with Australia and New Zealand Third Sector Research Inc. (ANZTSR), CPA Australia and Accounting and Finance Association of Australia and New Zealand (AFAANZ) where she is currently chair of its NFP special interest group. For her academic contributions she is a recipient of the Western Sydney University Dean’s medal.
Integrity, honesty and unbiased assessment are at the core of Giving Guide’s mission. The charity sector is important to the economy and culture of Australia, We believe independently assessing the accountability, transparency and effectiveness of the sector beyond what is currently available is important to it's future.
Giving Guide anticipates enhancing the level of governance and transparency in the Australian charity sector. An independent charity advisor would benefit the sector by helping charities consider exceeding the existing governance standards of the Australian Charities and Not-for-profits Commission (ACNC) to the benefit of donors.
Find a Charity
Let's change charity
Please get in touch, let us know your thoughts on how you think we can improve the charity sector in Australia.