View from the Media: The Mysterious Decimal Point

This week we revisit the China Charity Aid Foundation for Children’s “decimal point” incident from the end of last year. The reverberations caused by this controversy are perhaps surpassed only by the infamous 2011 “Guo Meimei” incident in terms of arousing public misgivings concerning public foundations’ financial management.

The “decimal point” incident began on December 10, when Weibo user Zhou Xiaoyun accused the three-year old, government-backed China Charity Aid Foundation for Children (中华少年儿童慈善救助基金会) of laundering money, noting a discrepancy between the more than RMB 4.8 billion in the foundation’s bank account and the roughly RMB 80 million accepted in charitable donations. In response, the foundation explained that this discrepancy arose from an accounting error that mislabeled RMB 475 million as RMB 4.75 billion. To corroborate the foundation’s actual holdings, third-party auditor Beijing Zhong Li Cheng Accountants Firm was hired to complete an evaluation within a week, and on December 20 announced that they had found no evidence of foul play.

Despite the assurances of CCAFC and the results of the independent audit, many expressed suspicion concerning the veracity of these claims, as well as other related issues including transparency, accountability, and resource allocation. Later, other rumors began to circulate concerning CCAFC’s donation of RMB 18 million to the Chenglong Charity Foundation (成龙慈善基金会), accusing the organizations of using backdoor measures to avoid the limitations on administrative costs set forth by the government. The CCAFC responded to some of the above allegations in a letter which accompanied the audit report, announcing the adoption of new measures such as establishing clear rules and regulations for financial management, forming a “Special Societal Supervision Committee,” and organizing an “Open Public Day” to familiarize the public with their activities and operations.

Whether or not some form of malpractice did occur, the incident has led to some serious self-reflection among Chinese non-profit organizations concerning the failings of their own financial management systems. Several articles evaluated the weaknesses of finance departments in nonprofits, including the fact that employees are often retirees from the business sector, and rarely possess training in the complex accounting tools required for non-profit financial management. As an article by the Philanthropy Times points out, this is not the first time that non-profit transparency and accountability issues have been addressed by the sector; the One Foundation’s USDO Self-Regulation Bar (壹基金USDO自律吧) was intended to promote NGOs’ financial transparency. Critics of the project, however, have suggested that it was a superficial band-aid covering up a severe lack of technical skill, and that organizations will have to find more effective measures to ensure their staff are properly trained.

The controversy was yet another blow to the reputation of China’s non-profit sector, which was still recovering from the 2011 “Guo Meimei” incident in which an employee of the China Red Cross flaunted her extravagant lifestyle on Weibo. While these scandals have primarily involved GONGOs, they cast doubt on the legitimacy of charity and non-profit organizations, and discourage the public from making charitable donations. This distrust has the potential to be quite damaging to the nascent sector, impacting not only organizations with the capacity to obtain government service contracts, but smaller organizations which rely largely on private donations. Viewed from a more positive perspective, however, one might also argue that these incidents serve as markers of the non-profit sector’s “growing pains,” as it learns to incorporate the transparency and accountability that the public expects, and to professionalize its financial management operations. In either case, it is clear that certain principles and standards must be adopted, or public donations to these organizations will be severely affected.

For reference, please view the following Chinese-language articles:

基金会财务的三重困境
(http://roll.sohu.com/20130326/n370385550.shtml)

一个小数点引发的中国慈善风波
(http://finance.jrj.com.cn/opinion/2012/12/13073814814586.shtml)

儿慈会不存在洗钱行为
(http://www.xfrb.com.cn/dzb_cs/newsf/2012/12/26/1356493411.htm)

一个小数点引发的慈善风波
(http://news.hexun.com/2012-12-12/148941926.html)

“小数点”事件暴露公益机构财务漏洞
(http://gongyi.sina.com.cn/gyzx/2013-02-18/095341164.html)

Associate Director, China Development Brief (English)

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