Fundraising by agency lacked transparency and was misleading to the public
Only 5.5% of donations over 3 years went to the end cause - Charity Commission found minimal funds made available to support hospices
On 28 August 2014 the Commission opened a statutory inquiry into the charity after concerns raised by members of the public and other charities about the charity’s fundraising practices and limited direct charitable expenditure. The Commission identified serious regulatory concerns regarding the charity’s management and administration, specifically relating to the charity’s fundraising and the proportion of public donations received by the charity.
The inquiry found that there was poor governance and poor financial management of the charity and its affairs by the trustees which was mismanagement and misconduct. The inquiry examined the agreement that the charity entered into with a fundraising agency in 2012, for 7 years. The inquiry established that the terms of the agreement substantially favoured the fundraising agency and that it was difficult to see how the decision to enter into this agreement was in the charity’s best interests.
The inquiry found that the mailing material sent to the public did not contain a solicitation statement which explained how a donation would be used, the percentage of those funds that would be received by the charity or how much would be consumed by the costs and fees of the agreement. The inquiry found that the direct mailing material therefore lacked transparency and did not enable the donating public to make an informed decision when donating to the charity.
The inquiry found that in the 3 reporting years since the charity entered into the agreement (2013-2015), the charity’s gross income was £1,448,258, with direct donations to hospices amounting to just £78,925. This represents a very low percentage of approximately 5.5% of the total income being applied in direct furtherance of the charity’s purposes.
The Commission’s inquiry, in a report published today, concluded that there was misconduct and mismanagement in the administration of the charity.
The Commission also concluded that:
- there was evidence of both poor governance and poor financial management of the charity and its affairs
- the former trustees entered into fundraising activities which were not in the best interests of the charity and subjected it to high fundraising costs over a long period of time
- the public were misled into thinking more money would have made its way to the charity and been used to make grants and support hospices
- even money that come to the charity was subject to high administration and governance costs
- the trustees failed to manage the risks and failed to comply with their legal duties and responsibilities as trustees
The Commission recognises the difficult position that the current trustees faced when they assumed responsibility for a charity in a fragile financial position and which was already committed to the 7 year agreement with the fundraising agency but to address these serious regulatory issues the Commission used its powers and directed the current trustees, on 11 May and 4 July 2016 under Section 84 of the Charities Act 2011, to complete two action plans: a ‘governance and management’ action plan and a ‘fundraising’ action plan. The full actions are disclosed in the report but include taking action to review charity’s expenditure, overheads and fundraising.
The current trustees have already taken steps to rectify some of the issues identified. The Commission approved the form and content of a new solicitation statement and verified the financial figures referred to in the statement, which the charity has agreed will be displayed on all new fundraising material. The charity has also negotiated a reduction in the costs from the agency.
The Commission will continue to monitor the charity’s compliance with these action plans. The Commission has reported its findings regarding the fundraising agency to the Fundraising Regulator.
Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission, said:
This case is a clear reminder to all charities of the importance of their legal responsibilities when fundraising. This is a case where we believe poor financial oversight and a failure to adequately control costs and overheads was an instrumental factor in the deteriorating financial position and where a fundraising arrangement was not only not in the charity’s best interests, mean that the public believed more money was going to charitable causes than was the case.
“We have recently warned charities to avoid entering into fundraising arrangements that include one or more of the following characteristics:
- arrangements with a third party fundraiser which bear all the hallmarks of a professional fundraiser arrangement, but which are structured to avoid the legal rules; the fundraiser may be described as an adviser or consultant in the contract even though in reality they are really controlling the solicitation of funds on the charity’s behalf - these arrangements can also mean that it is not clear to the donor that the fundraising is being delivered by, or with the significant involvement of, a third party at a significant cost to the charity
- medium or long term contracts that have very limited termination or adjustment provisions
- arrangements in which the charity only benefits from the arrangement at the very end of the contract term, and where there is the possibility that the charity will not benefit at all
- arrangements where the fees received by, or payments made to third party fundraisers damage public trust and confidence in that charity
We have made clear we expect charities to comply with relevant legal rules, including those designed to make third party fundraising arrangements transparent to donors, supporters and the public. The public expect and deserve to know how their donations will be spent and to what extent the charity is benefiting.
Trustees must comply with their legal duties when overseeing their charity’s fundraising, as set out in the in the Commission’s guidance - Charity fundraising: a guide to trustee duties (CC20).
The full report is available on GOV.UK.
Notes to editors
- The Charity Commission is the independent regulator of charities in England and Wales. To find out more about our work, see our annual report.
- Search for charities on our online register.
- Information and advice is also provided by the Fundraising Regulator on its website www.fundraisingregulator.org.uk including information about the new requirements for contracts between charities and third party fundraising organisations which came into force on 1 November 2016.
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Published: 21 December 2016
From: The Charity Commission