ADDRESSING THE AUDIENCE: Actor-turned-businessman Li Yapeng, co-founder of the Smile Angle Foundation, at a charity event on July 27, 2013 (LIU CHANGLONG)

According to the SAF, it is not an independent legal entity, but a program under the RCSC, hence its audit information was included in the RCSC's annual audit reports, and was made open according to the Foundation Information Disclosure Methods released by the MCA.

The Foundation Information Disclosure Methods, which became effective in January 2006, states that foundations are to submit their annual reports, fund-raising information and charitable project information to supervising government departments, and publish the information in a format designated by the supervising government departments.

On February 18, the SAF posted a message on its official microblog on Sina Weibo, a twitter-like microblogging service, saying that all funds raised by the foundation had gone into the account of its supervising organization according to government regulations.

"From 2009 onward, we have published annual audit reports on our official website. Large-sum financial support to the SACH in 2012 was also listed," said Liu Xuanguo, Vice President of the RCSC, on February 26.

Liu went on to say that more than 53 million yuan ($8.57 million) has been allocated to construct the hospital, and so far, the RCSC has already audited the fund used twice. "Our supervision over the SAF was adequate," Liu said.

Legal experts attribute the controversy over the SAF's financial transparency to the fact that several regulations promulgated by the State Council, the MCA and local governments have varied the requirements on information disclosure of non-governmental organizations including foundations.

"These regulations are not consistent," said Jin Jinping, a legal professor of Peking University. She said that the transparency required by some local rules is higher than requirements in laws and state regulations.

Legal intervention needed

The 2014 Blue Book on the Rule of Law published by the Chinese Academy of Social Sciences on February 24 pointed out that a lack of financial transparency is a major issue for China's charity management.

Tian He and Zhao Qianling, two researchers with the Institute of Law at the Chinese Academy of Social Sciences, penned the charity section of the blue book. During the process, they randomly checked information disclosures by 15 charitable organizations.

Their study showed that only five of the 15 charities published audit reports in 2012, and only two disclosed the total number of donations received.

In 2010, the China Charity and Donation Information Center under the MCA surveyed 99 charitable organizations, and found that around 75 percent of them disclosed little or no information at all. One fifth of them did not have official websites, and 43 percent of them did not update their websites regularly. About 40 percent did not release annual reports or financial statements.

In 2013, the center again surveyed 1,000 charitable organizations to score their transparency, and found that charities had become more transparent than they used to be. Nonetheless, nearly half of the public surveyed by the center was not satisfied with the degree of transparency of charitable organizations.

A lack of an overarching charity law is one reason that charities do not attach much importance to disclosing their financial information, according to the 2013 China Charity Transparency Report published by the center.

The report suggests that the government publish a binding information disclosure standard as soon as possible, and charitable organizations should be required to disclose information of their stakeholders including donors, recipients and service providers.

The MCA proposed enacting a charity law in 2005, and began to draft the law in 2006. In November 2013, the law was listed in the legislation plan of the Standing Committee of the 12th National People's Congress.

While commenting on the probing of the SAF, Zhan Chengfu, head of the MCA's Social Welfare and Charity Promotion Department, said that charitable organizations should disclose information and the public should have the right to know.

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