Returning Donations

Returning Donations

Our recent blog outlined the new Charity Commission guidance on returning and refusing donations. We thought it might be interesting to work through a few examples of situations where the principles in the guidance need to be applied. All these scenarios are fictional but the sorts of situations our clients experience.

Scenario 1: an anonymous donation arrives in the charity’s bank account

Charities can from time to time have a sum arrive in the bank account that does not identify the donor. The donor may have religious reasons for wishing to remain anonymous. Should the charity attempt to refuse the donation?

According to the Charity Commission, charities can accept anonymous donations, provided:

• trustees look out for suspicious circumstances; and
• extra safeguards are put in place.

Suspicious circumstances could include:

• donations from unidentifiable sources;
• Donations rendering the charity a vessel for potential money laundering, either by returning or passing the money on;
  • where the donation is from an unknown body or international source where financial regulation or the legal framework is not as rigorous as the UK; and/or
  • where a charity is asked to provide services or benefits on favourable terms to the donor or a person nominated by the donor.

What extra safeguards should be put in place for an anonymous donation?

• Firstly, any anonymous donation that exceeds £25,000 must be reported to the Charity Commission in the form of a serious incident report.
• Secondly, the Commission has produced a useful tool with key questions for knowing your donor, including where the donor is anonymous. All charities should have robust screening procedures in place.

The most useful guidance we recommend in this area is the Charity Commission compliance toolkit, particularly chapter 2, Due Diligence, monitoring and verifying the end use of charitable funds. There are various checklists and tools which may be of interest.

Scenario 2: a resident of a care home wishes to make a donation

The new guidance explicitly sets out that where a donor does not have the mental ability to decide to donate, the charity must refuse the donation. If a donor lacking capacity has made a donation, that donation must be returned.

But how is a fundraiser meant to know whether or not someone has capacity to donate? The Commission’s guidance points you towards The Institute of Fundraising’s guidance Treating Donors Fairly: Responding to the needs of people in vulnerable circumstances. This document gives a very practical and achievable perspective on identifying vulnerable donors.  Fundraisers are not expected to assess someone’s capacity, which can vary by area and day – that is a complex matter left to professionals. However “we want to help fundraisers be aware of some of the signs or indicators that they may pick up on in any interaction with an existing or potential supporter which could mean that individual is in a vulnerable circumstance.” The guidance sets out signs to look out for that a donor may be having difficulty processing information or in a vulnerable circumstance.

It is definitely worth giving this Institute of Fundraising guidance a read – it covers a wide range of useful issues in this area.

Scenario 3: an environmental charity receives a donation from an oil company

The starting point for any donation should be ‘take it’! However, the Commission’s guidance does permit charities to refuse donations where to do so would be in the best interests of the charity. How can we determine whether refusing the donation really is in the best interests of the charity? The guidance gives a really practical, thought-provoking set of considerations for trustees. Two pertinent matters to help decide this question are:

• the extent of any potential conflict between the donation and your charity’s purposes, and how likely and serious this is.
• the risks involved in accepting or keeping the donation, and how likely and serious these are. For example, the risk of reduced support for your charity or harm to its reputation, particularly amongst its supporters or beneficiaries, but also with its other funders, stakeholders, employees, and volunteers.

Trustees must balance these sorts of questions against the consequences of refusing the donation, both in terms of the impact on the charity’s operation but also any reputational damage that may stem from refusing a donation.

Our analysis of this matter is that because there is such a direct conflict between the charity’s objects and the source of the donation, and because reputational damage from accepting the donation could be substantial, we think that to refuse this donation might very well be in the best interests of the charity.

Scenario 4: a emergency services charity receives a donation from a collection at a fox hunt

This is a real scenario. In January the RNLI was approached by a fox hunt in Ireland wishing to carry out a collection for the RNLI at its New Year Hunt. The RNLI declined the offer. The RNLI explained that since fox hunting, an activity that elicited strong opinions, was illegal in the majority of supporter’s countries, they would refuse the donation. Looking at the guidance it is clear that the charity made a well thought out, reasonable assessment of the impact the donation would have amongst its donors (remembering that the RNLI is 90% funded by donations) and judged that the damage would outweigh the benefits of the donation.

This decision was more nuanced than any of the other examples above. The guidance explains that trustees should never allow “ours or others’ personal motives, opinions, or interests to affect your decision” – something which can be very hard to do. In a speech last year, Orlando Fraser chair of the Charity Commission explained that the regulator would step in to block decisions to refuse donations that were “materially irrational”, when “it is apparent that the motivations for a return or refusal are simply the personal worldviews or preferences of the relevant trustees, rather than the best interests of the charity.” If RNLI had not been able to point to legislation banning fox hunting, and the real impact acceptance would have had on its donors, a personal dislike of foxhunting would not have been a sufficient reason to refuse a donation.

Scenario 5: a charity has received a donation from a group that has been involved in a scandal

This also really happened! In 2018 an investigation found appalling treatment of waitresses at a high-profile fundraising dinner organised by a charity called the Presidents Club. The charity raised millions for children’s charities but following a Charity Commission investigation ceased operations. A large number of charities were left in receipt of potentially tarnished funds. The Commission’s new guidance was issued in response to this crisis In reality no charity has returned funds to the Presidents Club, possibly due to the Charity Commission’s relatively mild assessment of the crisis. The trustees were judged to have insufficient risk assessments and safeguarding procedures in place. They had misjudged their responsibility for delegated matters – rather than knowingly sanctioned the events. The balancing exercise set out in the Commission’s new guidance would clearly have been of use to the poor trustees trying to decide what to do with their Presidents Club funding!

If you have any questions about a scenario such as the above, do get in touch with Neil Burton [email protected]