Report urges caution when donating

The Australian Competition and Consumer Commission has released an independent research report on commission-based fundraising in the charity sector.

Research into the Commission-based Charity Fundraising Industry in Australia is part of a 2017 compliance and enforcement focus on consumer issues arising from commission-based sales.

By Frost & Sullivan, the report is based on interviews with three fundraising agencies, one industry association, 14 charities and 13 individuals who work or have recently worked in commission-based fundraising.  More than 500 individual donors who had recently been solicited and made a donation took part.

‘This year we have looked closely at misleading behaviour driven by sales commissions, including those paid to third-party marketing firms, particularly in industries that enjoy a high level of trust and where commissions may not be expected,’ ACCC chairman Rod Sims said.

‘The charity sector plays an important role in delivering services and funds often to vulnerable members of our community.  However, like all Australian businesses, charities need to ensure that consumers are well informed, and there is transparency […] when third parties or commissions are involved.’

The report found that some charities operated on a model in which third-party marketing firms earn fees for each donor that signs up from face-to-face or telemarketing approaches.  The fee is commonly calculated by a multiple (typically eight to 17 times) of the monthly donation to which the donor commits.

‘Not all charities use third-party fundraising agencies, but this research raises some concerns about the level of transparency by some charitable organisations around these relationships and disclosure regarding the size and structure of fees paid to these agencies,’ Mr Sims said.

‘We found it surprising just how many multiples of the monthly donations some charities were paying third-party fundraisers for face-to-face [and] telemarketing services.’

Under this model, some contracts between charities and agencies include a ‘claw-back’ feature so that fees are refunded to the charity should donors cancel within a certain time period (most commonly three months).  About half of donors cancel within the first 12 months.

The ACCC does not regulate the charity sector but has a role to play in ensuring commercial fundraising agencies that charities use are meeting their obligations under Australian consumer law. 

‘The ACCC will continue to engage with the sector and is urging charities to increase transparency to consumers when [using] the services of commercial fundraising agencies,’ Mr Sims said.

‘Consumers who want to donate are advised to contact the charity and ask how they can donate directly.  It’s important to note that this report does not explore other forms of fundraising a charity may [use], such as postal mail-outs, online campaigns, lotteries [and] fundraising activities carried out by the charity itself.’

If consumers are contacted or approached by someone representing a charity, these are the types of questions they might want to ask:

  • Do you work direct for the charity or do you work for a fundraising agency?
  • Are commissions paid on my donation? and
  • If I sign up to a monthly donation, how are commissions or fees paid on my donation?