Charity Trustees have a responsibility to manage their charity’s resources effectively and to put in place appropriate financial planning strategies. When you are managing financial risk, have you considered whether your charity has a balanced portfolio of income? Are you confident your charity is financially viable or are you too heavily reliant upon legacy income?

There are many different types of funding options available to charities and, along with the usual payments of gifts, grants and donations, you could consider hiring a professional fundraiser. The Charities (Protection and Social Investment) Act 2016 introduced new rules that were designed to raise fundraising standards and protect donors, charity supporters, and the public. In this article, we outline some fundamental issues you should be aware of if you are considering (or are already) engaging someone to raise funds for your charity.

If a charity:

  • engages a person or organisation to solicit money or property in the course of a fundraising business (i.e. where somebody is paid to fundraise on behalf of a charity); and
  • engages a fundraiser who receives at least £10 per day; or £1,000 per year in connection with that fundraising activity;

the relevant person or organisation is a ‘professional fundraiser’.

The relationship between your charity and the professional fundraiser must be governed by a written agreement: not just to protect your charity’s commercial interests but to meet your legal and regulatory obligations.

Before choosing to work with any particular fundraiser, you should be confident that they understand your charity and its values. Can you trust the professional fundraiser and their staff to represent your charity properly when engaging with the public? Will the professional fundraiser take the necessary steps to protect your charity’s reputation? You should also consider whether the fundraiser has adequate resources and experience to deliver on their promise. Are they used to working with organisations of your size or with your objectives? Does the professional fundraiser have a good reputation and know what you expect of them?

Once you have chosen an appropriate professional fundraiser, the fundraising agreement must (as a minimum) confirm:

  • the names and addresses of the parties;
  • the date and length of the agreement;
  • how the agreement can be terminated and varied;
  • the objectives of the fundraising agreement and how these will be achieved;
  • the division of proceeds where there is more than one charity benefitting from the fundraising; and
  • how much the professional fundraiser will be paid as well as how that is determined.

In addition to the written agreement, there are a number of practical steps to manage your on-going relationship. You will need to consider whether the arrangement is good value for money and satisfy the Board of Trustees that the relationship does not expose the charity to undue financial risk. Have you considered a form of financial guarantee so that your charity does not pay out more in fees or commission than it will receive in funds? Can you exit the contract easily if the fundraising campaign is unsuccessful?

The most effective fundraising arrangements involve frequent and detailed monitoring of the professional fundraiser’s activities to ensure that they are acting in your charity’s best interests, meeting their contractual obligations and demonstrating value for money. How can you be sure that the public receives the right message about your charity’s purpose and activities? Does the charity have access to sufficient rights and information? How will the parties work together to fix mistakes if the worst should happen? For example, if a member of staff loses sensitive personal data or bank details, can the fundraiser easily retrace their steps and recover the data? Who is responsible for the cost of any fines or other financial penalties?

We recommend that (in addition to taking legal advice), charities seek specialist tax advice to ensure the charity complies with the fundraising and accounting framework, and to understand the tax implications associated with raising funds through a commercial subsidiary.

If you would like further information about your duties as a trustee or to discuss the future plans for your charity, please contact a member of our Charities team. To discuss a potential fundraising agreement or other contractual relationship, please contact a member of our commercial team. You can also find more information on the Charity Commission website, which includes materials explaining what charities and trustees should consider when fundraising from the public.

For further information

Please contact Emma Watt

Trading companies – fit for purpose?
Trading companies – fit for purpose?

Many local authorities have assessed that a trading subsidiary or trading structure could be beneficial as part of generating income or the service delivery matrix.

Contract management pitfalls – payment
Contract management pitfalls – payment

In the second part of our series on contract management pitfalls, we look at the risks and opportunities presented by payment mechanisms in construction contracts.