NAO outlines risks charities face when receiving donations

The National Audit Office (NAO) has identified the issues and risks faced by charities when receiving donations as a source of income, such as reputational damage, while the Fundraising Regulator has published six changes to the Code of Practice to help charities fundraise more effectively

Charities, especially museums and galleries, are increasingly relying on charitable donations due to the reduced availability of public grant funding.

In 2015/16, 21% of museums and galleries income came from donations compare to 17% in 2012/13.

Donations cannot be managed in the same way as commercial transactions, therefore they come with different risks. The NAO said: ‘Transactions are conducted within a less formal legal framework and donors may have motives other than philanthropy, for example to achieve respectability, influence or undisclosed commercial gain.’

The risks to charities include:

  • Legal - A charity could be open to a legal challenge if they accept a donation where the donor has generated the funds through illegal activity for example.
  • Financial – if the donor cannot honour the full amount of the donation. This could be damaging if the institution was heavily relying on it to fund a project etc.
  • Reputational - if accepting the donation creates an association with an individual or entity which is perceived to be inappropriate or unethical by other stakeholders.
  • Dependency - if accepting the donation gives the donor an undue level of influence over a charity and its trustees.

The NAO found that museums and galleries generally have a good understanding of issues involved in managing donations, but the extent to which this has been developed into formal procedures and processes varies.

Charities should manage their donations through:

  • Governance, including policies, trustee awareness and involvement and ethics committees;
  • Risk management processes, including due diligence, decision-making procedures, record-keeping and resourcing; and
  • Staff and other stakeholder management, including training and engagement with donors.

Code of Fundraising Practice

On 31 July the Fundraising Regulator, which was introduced in 2016, published six changes to the Code of Fundraising Practice following a consultation. The Code changes include new requirements regarding:

  • Charity trustees
  • The fundraising ask
  • Solicitation (disclosure) statements
  • Raising concerns about fundraising practice (whistleblowing)
  • Charity Collection Bags

Fundraising Agreements and monitoring third party compliance

The code has been extended to emphasise that the Board of Trustees guidance is intended to apply to anyone who serves on a charity’s governing body and the wording on trustees has been revised to ensure there is equal weight to respective national guidance.

The general rule on asking for donations/fundraising has been extended to incorporate rules on asking people in vulnerable circumstances. The new code states: ‘Fundraisers must not continue to ask an individual for support if that person clearly indicates – by word or gesture – that they do not wish to continue to engage; or they have reasonable grounds for believing, in the course of their engagement with the individual, that they are in vulnerable circumstances which mean they are unable to make an informed decision to donate.’

Charities have been given a grace period of between two and four months to implement some of the changes, where significant adjustment will be required in training and compliance monitoring processes.

Suzanne McCarthy, Chair of the Fundraising Regulator’s Standards Committee said: ‘The revised Code is the outcome of 6 months of consultation with the sector and discussion with the public, striking a better balance for all on crucial fundraising issues. A strong Code encourages public trust and confidence in giving and helps charities to fundraise more effectively.’

The code of fundraising practice is available here.

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