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April 18, 2012

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Professional audits, more reporting due for city's charities

CHARITY organizations in Shanghai will be required to hire professional auditing firms to examine their finances each year, and those failing to comply will face penalties and criminal investigation.

The fledgling law is the outgrowth of clamor from the Chinese public after China's charity foundations faced repeated scandals last year. The idea is to increase transparency and to prevent charities from spending improperly or using their funds for profit-making purposes such as investing in real estate deals.

The organizations must hire the watchdog-licensed auditing firms to review how the raised assets are managed and spent each year, according to a draft of the law. The charities will be obliged to publicize the outcome of a charitable fund-raising event no later than 15 days after it ends.

The new draft also requires the fund managers to publicize details of the fund assets' growth - such as bank interest - along with the fund's total value and spending at least twice a year. The provision is meant to prevent charity funds from hiding the growth in value of their assets.

Besides charities facing penalties of up to 30,000 yuan (US$4,759) in cases of violation, fund managers guilty of embezzling or profiting from the charity's assets will face criminal charges and prison terms, according to the draft.

The local civil affairs bureau must establish a public hotline to invite tips about foul play in local fund-raising activities, according to the current draft.

A spate of scandals involving public charities, including the China Red Cross Society, has tarnished the credibility of charities around the country. Public donations plunged substantially last year after the scandals, according to annual reports released by some major charitable groups.


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