Replies to LegCo questions

LCQ14: Regulate fund-raising activities launched for charitable purpose

Following is a question by the Hon Mak Kwok-fung and a written reply by the Secretary for Health, Welfare and Food, Dr Yeoh Eng-kiong, in the Legislative Council today (June 18):

Question:

To help people affected by the Severe Acute Respiratory Syndrome, various organisations have set up funds and organised fund-raising activities. In this connection, will the Government inform this Council:

(a) how the present legislation regulates fund-raising activities launched openly for charitable purpose;

(b) the measures in place to ensure that these organisations will use the fund raised for the purported purpose; and whether it will consider requiring these organisations to release details of the fund accounts on a regular basis; and

(c) whether it will consider setting up a statutory body to co-ordinate and standardize the management of and payment from various non-governmental charitable funds; if so, of the details; if not, the reasons for that?

Reply:

(a) There is legislation to control charitable fund-raising activities in public places and the associated issue of maintenance of order in public places. Section 4(17)(i) of the Summary Offences Ordinance requires a person or organisation to apply for a permit to conduct any collection of money or sale or exchange for donation of badges, tokens or similar articles in a public place for charitable purposes from the Director of Social Welfare. Contravention of section 4(17)(i) is an offence punishable with a fine of $2,000 or imprisonment for three months.

Anyone who wants to conduct a lottery can apply for a licence from the Commissioner for Television and Entertainment Licensing (CTEL), under the Gambling Ordinance. The licensing conditions prescribe the maximum duration of a lottery sale. The conditions also prescribe that lottery proceeds should not be appropriated for the private gain of any individual, all lottery tickets should be serially numbered, and prior written permission of the CTEL is required for sale or offer for sale of lottery tickets on public streets. Contravention of any licensing condition is an offence punishable with a fine of $50,000 and imprisonment for two years.

(b) In issuing permits under section 4(17)(i), the Social Welfare Department (SWD) imposes a set of administrative controls to, inter alia, promote accountability and transparency of charitable fund-raising activities.

In particular, to ensure that charitable fundraisers use the funds raised for the purported purpose, SWD imposes a set of administrative controls, such as -

(i) no person will benefit improperly from the proceeds of the activity;

(ii) within 90 days of the last date specified in the permit, the permittee shall cause the money received from the public subscription, less any expenses incurred, including expenses in printing and stationery, to be applied or to be credited to the bank account, for the purpose for which this permit is issued; and

(iii) if the money raised is donated to any organisation or institution solely for charitable purposes, copy of a receipt from the latter organisation is required.

As regards requiring charitable fundraisers to release details of the fund accounts, there are also pertinent administrative controls, such as -

(i) the account of the fund-raising activities covered by this permit is to be audited by an accountant or firm whose name appears in the List of Professional Accountants or in the list of firms of Certified Public Accountants published in the Gazette of the Government of Hong Kong Special Administrative Region by the Registrar of the Hong Kong Society of Accountants under Section 32(1) of the Professional Accountants Ordinance, Cap. 50;

(ii) a certified copy of the audited account with auditor's opinion thereon shall be forwarded to the Director of Social Welfare within 90 days of the last day specified in the permit; and

(iii) where the monies donated are to be spent outside Hong Kong, the audited account together with auditor's opinion shall be published in at least one local Chinese Language newspaper and one local English Language newspaper within ninety days of the last day specified in the permit and copies of the said newspaper cuttings shall be forwarded to the Director of Social Welfare at the same time.

The audited accounts of the Permit regime cover basically the fundraising activities. For a Permit activity which raises money for donation to a fund, SWD ensures this is carried out by asking for the production of the receipt issued by the fund concerned.

In addition to the above, a person who solicits funds from members of the public for a particular purpose is a trustee of the funds who collects and holds them upon trust for those purposes. If he applies those funds for another purpose he may, subject to proof, be guilty of obtaining money by deception. At common law, a trustee may be made personally liable if he commits a breach of trust and as a result the trust or charity suffers loss.

Under section 3 of the Registered Trustees Incorporation Ordinance (Cap. 306), the duly appointed trustees of any body of persons or charity may apply to the Registrar of Companies (the Registrar) for incorporation of the trustees. The certificate of incorporation, if any, granted by the Chief Executive shall be subject to any conditions imposed in the certificate and may be cancelled or amended by the Chief Executive at any time.

The trustees incorporated under Cap. 306 are required to notify the Registrar of any change of principal office or trustees in accordance with section 9. The Registrar shall maintain a register of all such corporations which shall be open to public inspection. Documents of the incorporation registered with or kept by the Registrar, including the deed or instrument creating the trust, statement of its property at the date of application for registration and names and residential addresses of the trustees are also open to public inspection upon payment of the prescribed fee.

Trustees of trust or charitable funds may be trust companies registered under the Trustee Ordinance (Cap. 29). These trust companies are subject to the control under Part VIII of Cap. 29. Under section 95, the Financial Secretary may at any time appoint an inspector to investigate the affairs and management of a trust company if it appears to him that there are circumstances suggesting that the trust company has committed a breach of trust. Any director, officer or servant of a trust company who refuses to produce to the inspector for examination all books, accounts etc. relevant to such investigation which are in his custody or control shall be guilty of an offence.

While there is no general requirement for trust or charitable institutions to submit their accounts to the Government for scrutiny, they may need to submit relevant information, including books and accounts, for an assessor or inspector's consideration under Part IX of the Inland Revenue Ordinance (Cap. 112) if they wish to claim the tax exemption in respect of charitable institution or trust of a public character under section 88 of Cap. 112.

If a registered charity is also a limited liability company, it will be required as a matter of course to comply with all the statutory disclosure requirements of the Companies Ordinance (Cap. 32).

As regards a lottery, the organizers are required to send to CTEL a statement of all moneys received from the sale of the lottery tickets and every disbursement made from the moneys so received, within 28 days of the lottery draw. The organisers are also required to submit an audited account to CTEL at the end of the relevant financial year to account for the use of the proceeds from the lotteries should the proceeds be used for meeting the operating expenses of the organisations concerned. In cases where the proceeds are to be donated to other charitable organisations, official receipts from the recipient organisations are required.

(c) Our policy objective is to improve the transparency and accountability of charitable fund-raising activities so that the public can make an informed choice, without stifling these activities by imposing onerous and costly bureaucratic requirements on fund-raisers.

The Administration has carefully considered and eventually ruled out establishing further statutory controls at this time. This is because it is unnecessary in the local context and would entail the establishment of a sizeable bureaucracy and would require substantial resources to operate effectively. The significant compliance and enforcement costs would not only stifle charitable fund-raising activities, but also discourage the public from making donations, as the compliance costs would reduce the actual amount of donations to assist potential beneficiaries.

Instead, we have mapped out a medium-to-longer term policy. In brief, we will continue strengthening administrative controls over charitable fund-raising activities with a view to enhancing their transparency and accountability. This package of enhanced administrative measures consists of a reference guide of best practices for charitable fundraising and a public register of charities which pledge to adopt the guide on a voluntary basis. It is expected that the reference guide will be finalised by end 2003 and the public register put in place in 2004.

End/Wednesday, June 18, 2003
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