What should a charity do with an unwanted donation?

The media fallout from the Presidents Club Charitable Trust’s recent fundraising dinner prompted a number of present and past recipients of donations from that charity to state they would refuse further donations and return past donations already received. But how easy is it for a charity to refuse, or even return, a donation?

The overarching principle for trustees to apply in both instances, of course, is that decisions they make must be made in the best interests of the charity. What constitutes the best interests of the charity will vary depending on the charity, but the decision making process will remain the same.

Refusing a new donation

Broadly speaking, only in very rare circumstances will it be in the charity’s best interests not to accept a donation that can be applied in pursuit of its charitable aims.

However, in some cases the reputational damage from accepting a donation may outweigh the benefit of use of the funds received. For example, acceptance of one questionable donation may have an adverse effect on the charity’s ability to raise funds from other sources in the future, if the reputational damage is sufficiently severe. In such circumstances, trustees may decide to refuse a donation.

Returning an old donation

The same considerations around reputational damage apply to returning an old donation, but if a charity has already accepted a donation, its return may well require the consent of the Charity Commission as an “ex gratia” payment. This is a payment that a charity is not legally obliged to make from the charity’s funds, but that the trustees have agreed they have a moral obligation to make.

A well drafted donation agreement, however, may often provide for the return of a donation if certain circumstances arise that will adversely impact on the reputation of the recipient charity. Commission consent may not be required for a donation’s return in these cases, depending on the precise terms of the agreement.
 

Whether refusing a new donation or returning an old donation

In coming to the decision to refuse or return a donation, the trustees should make sure they are sufficiently informed, and carefully consider all relevant factors. These will likely include:

• The value of the gift 
• The details of the controversy involved 
• The impact on the charity’s work of the loss of funds 
• The risks and benefits of the decision generally

The specific factors to be considered will vary depending on the individual circumstances of the charity involved.

Trustees should also take expert advice as appropriate. This could include legal, accountancy or public relations advice, for example. It may also be appropriate to consult with key stakeholders, if time allows.

Importantly, in case of any future challenge to the decision, trustees should ensure appropriate minutes are kept of the decision making process, and any reports to the trustees to help them come to a decision are retained.

It should also be remembered that it is perfectly possible for the trustees of two different charities to come to different decisions about acceptance of a similar sized donation from the same donor, and for both those decisions to be within the range of decisions that a reasonable trustee body could make.
 

What should all charities now do to be in a position to deal with donation problems in the future?

Charity trustees should ensure:

• They have a policy in place setting out the circumstances in which their charity will accept or refuse a donation. 
• Anyone who is in a position to accept a donation on behalf of the charity is:
  • familiar with the donations policy, and, importantly, the circumstances in which a possible donation should be referred to the trustees for further consideration 
  • carrying out appropriate due diligence on prospective donors to the charity – see the “Know your donor” checklist from the Commission’s compliance toolkit for the kinds of questions they should be asking themselves and the prospective donor. 
• If the due diligence on a prospective donor suggests the donation represents proceeds of crime or is related to terrorist financing, this is reported to the appropriate authorities, and a “Serious Incident Report” sent to the Commission. 
• If the value of a donation is significant, they put in place a donation agreement to govern the donation, including terms relating to the return of the donation in appropriate circumstances.

Doing so should put the charity trustees in a good position to deal with a problematic donation, if the situation should arise.