Below is a list of terms that are common within our reporting and throughout the sector. Click the listed terms below to read more on their meaning.
Administrative costs are those expenses associated with back-office administration or other activities that are deemed non-charitable but enable the charity to carry out its charitable objects. Also called core costs, these might include rent on office space, office equipment, travel expenses, even staff salaries.
There is currently no standard method for reporting admin costs so the exact definition for individual organisations can vary according to their accounting methods. In 2011 the Charity Commission shelved plans to develop an admin costs index following resistance from the sector.
The Articles of Association is a type of governing document that creates a company. Charities which are also companies must be registered with Companies House as well as the Charity Commission. The Articles of Association set out the purpose of the organisation and the roles and responsibilities of trustees.
Charitable companies are not the same as commercial companies; the constitution is always written in a way that ensures any profit is reinvested in its charitable aims.
An audit provides independent confirmation of the financial affairs of a charity.
An auditor must verify that a charity’s accounts give a true and fair view. Along with commenting on the accounts, the auditors review the trustees’ report. The trustees report explains what the charity is trying to do and how it is going about it. It should demonstrate whether a charity has achieved its objectives for the year and show its plans for the future.
All organisations with an income over £500,000 and incorporated charities with gross assets greater than £2.8m and income greater than £10,000 are required by law to have an annual audit from a registered auditor. Charities below the amounts above can choose to have an audit or an independent examination.
An independent examination is less rigorous than an audit and can be done by anyone who the board reasonably believes has the ability and practical experience to carry out a competent examination of the accounts.
The scope of the audit depends on the status of the charity, and this will also determine the type of any report that has to be given. It is essential that the auditor should understand the legal structure of the charity and recognise what is included within the audit scope.
Cashflow is the movement of money in and out of an organisation, project or financial product over a period of time (usually a financial quarter or year). It is a vital financial tool for all entities and is primarily used to asses an organisation’s liquidity. It can also be used as a tool to assist with investment appraisal for a specific project or financial product. For example, it can be used to determine a project’s rate of return using financial models such as internal rate of return and net present value.
Trustees monitor cashflow to ensure that the charity has enough money to continue operating. This is important as it is possible for a charity to be profitable and yet not have enough liquid cash to pay a large bill when it is due.
The Charities Act 2006 introduced the concept of this new legal form for charities which means they have to register with the Charity Commission but not Companies House. It was created for charities that wanted some of the benefits of being a company without some of the burdens and is aimed at small to medium-sized charities that employ staff and/or enter into contracts.
Charitable Incorporated Organisations (CIOs) would be able to enter into contracts in their own right but their trustees will normally have limited or no liability for the debts of the CIO.
CIOs are already being registered in Scotland and the Charity Commission in England and Wales is expected to start registering CIOs in October 2012 once the new legal framework has been approved by Parliament. However, the implementation of the CIO has been subject to repeated delays so don’t bet your house on it.
This kind of lifetime legacy is available to donors in the US, as an alternative to charitable remainder trusts.
In lead trusts, donors give assets to a charity which then invests and monetarises the gift, receiving an annual income from the donation. When the donor dies, rather than the property going to charity, the charity distributes the asset to the individual’s heirs. The main tax incentive for lead trusts is a reduction in the inheritance tax paid on the death of the donor.
A charitable remainder trust is a type of lifetime legacy.
It allows donors to transfer assets – such as shares, property, artworks etc – to a charity. The donor will still be able to have control over the asset and may still receive an income from it, such as rent on a second home. When the donor dies, the charity receives the full value of the asset.
Charitable remainder trusts are split into two different types. The difference between annuity trusts and unitrusts is that the donor cannot make additional contributions to the former, but can to the latter. Unitrusts also offer various payments, whereas the owner of an annuity trust receives a fixed income.
Another type of lifetime legacy is a charitable lead trust.
An organisation that has charitable status is one that was set up purely to fulfil its charitable purpose. Such institutions are a form not-for-profit organisation, which together make up the voluntary, or charitable, sector.
The Charities Act 2006 defines a ‘charitable purpose’ as being one that is for the public’s benefit. Eligible criteria include the prevention and relief of poverty, or the advancement of education, religion, sport, health, arts, culture, heritage, science, environmental protection, or animal welfare.
Anyone can set up a charitable trust if they want to set aside some of their income or assets for charitable purposes. It is governed by a trust deed which sets out the trust’s aims and objectives, the roles and responsibilities of trustees, the procedure for appointing trustees and the organisation’s investment policy. A trust is registered with the Charity Commission or the Office of the Scottish Charity Regulator and must submit a copy of its annual accounts each year.
Charitable trusts can receive donations tax-free, either through claiming gift aid or payroll giving schemes. They also do not have to pay tax on investment income, corporation or inheritance tax.
The Charity Commission is the independent regulator of charities in England and Wales and is responsible for upholding public trust and confidence in the sector. It is a non-ministerial government department and part of the civil service and is required to report to Parliament each year on its performance.
It provides advice and support to charities through online publications and a helpline. It has powers to investigate fraud and dishonesty in charities. It has the power to freeze a charity’s assets if it finds wrongdoing, and although it is not a prosecuting authority it can work with the police and Crown Prosecution Service to bring charges.
The Charity Commission also maintains the public Register of Charities and most charities in England and Wales must register with it. All charities with an income of more than £10,000 must send the Commission their accounts within ten months of their year-end to be published on the Commission’s website.
Chugging is a colloquial expression used to describe face-to-face fundraising. Short for ‘charity mugging’ it expresses a negative implication that street fundraisers ‘mug’ passers-by for direct debits.
In recent years an anti-chugging movement has gained momentum in the UK. A Twitter account called @Chuggerwatch was launched in 2011 offering a place for people to vent their spleen about the fundraising practice. Several local councillors have been taking action to get chugging banned in their areas.
Street fundraising throughout the UK is regulated by the Public Fundraising Regulatory Association, which writes face-to-face fundraising agreements, known as site management agreements, with local councils.
Civil society is the space outside of the public sector and the private sector, and generally comprises groups of people that associate together to advance a common interest or cause.
The NCVO’s Civil Society Almanac adds that civil society is defined by values – the values associated with the ‘good society’ which aims for social, economic and political progress.
It encompasses registered charities and local community groups, which are together known as the ‘voluntary sector’ or sometimes ‘third sector’, but civil society also takes in constitutional forms other than these, such as co-operatives and mutuals, industrial and provident societies, sports clubs, trade unions, housing associations, political parties, faith groups, and credit unions.
It is a term that is used more widely in the developing world but has gained traction in the UK recently since the NCVO named its biennial ‘state of the sector’ research report the Civil Society Almanac; Plaza Publishing rebranded as Civil Society Media, and the new coalition government renamed the Office of the Third Sector in the Cabinet Office, the Office for Civil Society.
The Almanac estimates there are around 900,000 civil society organisations (CSOs) in the UK, and that they had combined income of £170.4bn in 2009/10.
Community foundations are charities that provide advice on philanthropy to individuals or organisations looking to make a donation to a local cause. They also create endowments to manage donated funds and can help to manage projects to ensure they have the outcome the donor intended.
The Community Foundation Network (CFN) is the national association of community foundations. It was established in 1991 and in 2006 became a strategic partner of the Office for Civil Society. It also developed an accreditation scheme for community foundations that has been endorsed by the Charity Commission.
A Community Interest Company (CIC) is a relatively new form of company, introduced in the early 2000s, which aims to combine commercial operations with social purpose.
The constitution of the CIC contains ‘asset lock’ provisions which ensure that the assets of the CIC are used to further the community purposes for which it was set up. It can make profits but these must be used in a way that benefits the community it was set up to serve.
The community benefit test is a less stringent test than the public benefit test is for registered charities, and directors of CICs can receive a reasonable remuneration, unlike charity trustees who are usually unpaid.
A CIC can take several forms: private company limited by shares, private company limited by guarantee or public limited company. CICs are governed by Companies Act legislation and the CIC Regulator, and a CIC cannot also be a charity.
Established in 1998, the Compact is an agreement between government agencies and the voluntary and community sector in England that aims to improve their relationship for mutual advantage and community gain. It recognises shared values, principles and commitments and sets out guidelines for how both parties should work together.
It is widely recognised that in the first ten years of the Compact, the government paid little more than lip-service to the agreement. But in 2008 it established the Commission for the Compact, a non-departmental public body responsible for overseeing the Compact and ensuring its codes of good practice are adhered to. However, this body was abolished in the ‘bonfire of the quangoes’ in 2010, and now Compact Voice is the body that works on behalf of the voluntary sector to try to ensure that the government adheres to the principles of the Compact.
This is a type of classification for a private company. Limited-by-guarantee corporations are used primarily for non-profit outfits, while still having a legal ‘personality’. Usually there are members who act as guarantors, in the absence of share capital or shareholders.
One typical stipulation the guarantors enter into is to contribute a nominal amount if the company is ultimately wound up. If the company limited by guarantee wishes to distribute its profits to its members it can, but this would make it ineligible for charitable status.
Co-operative organisations are ones that are owned and managed by the people who use their services – this can be customers, employees or tenants. The concept has been around since pre-industrial Europe and there is a wide range of co-operative organisations including voluntary, housing, retail, banking and agricultural. The John Lewis Partnership and the Co-operative Group are two of the UK’s best-known co-operatives.
In January 2012 Prime Minister David Cameron announced a new Co-operatives Bill that would come before Parliament before the next election and give public-sector workers new rights to create mutuals and co-operatives.
The United Nations has declared 2012 to be the International Year of Co-operatives.
Councils for Voluntary Service (CVS) – sometimes called Councils for Voluntary Action - operate in England as umbrella organisations for local charities in a particular area. They provide their members with services and support such as training courses or advice on applying for funding, as well as hosting networking events. CVSs also have an advocacy role and help facilitate communication between the voluntary and community sector and the local authority.
The national body for CVS is the National Association for Voluntary and Community Action (Navca).
A covenant is a formal promise to undertake or to not undertake a specific action. In relation to the charity sector it is most commonly used in the issuance of bonds and outlines what both parties, the issuer and bondholder, may or may not do in certain situations, within the contract (indenture). For instance the covenant may specify that a bond is not callable – therefore the bondholder may not request their initial investment in the bond back before it has reached maturity.
A covenant may also be used in any other formal financial arrangement.
A financial endowment is money or property that has been transferred to an organisation and then managed through a foundation or trust. It may come with certain pre-conditions about how it can be spent or invested.
An endowed charity is one which has some assets held in a trust. The trustees must invest the endowment to get the best return on the investment. In October 2011 the Charity Commission published new investment guidance (CC14) which enables charity investors to make social and ethical decisions when investing.
Ethical investing generally refers to measures taken during the investment process to avoid investments that directly or indirectly promote what are seen as negative outcomes, such as arms proliferation or environmentally damaging enterprises.
This negative screening is what is mostly commonly thought of as ethical investing, but it also increasingly includes shareholder activism whereby shares are taken, or retained, in a company in an attempt to influence company strategy and effect a positive change in corporate behaviour.
Face-to-face fundraising is the technique of getting people to sign up to give a regular donation (either a direct debit or standing order) by talking to them in person. This can be done on the street or by knocking on doors. The practice is self-regulated by the Public Fundraising Regulatory Association (PFRA) which has produced a rulebook for each type of fundraising. It has also introduced infringement points for organisations breaking the rules, and fines for organisations that clock up a certain number of points.
The finance director (FD) is the head of the finance department in an organisation. He or she is responsible for financial planning and managing financial risks. This includes preparing the charity’s annual accounts which must be submitted to the Charity Commission. Many charity FDs also have responsibility for other functions such as IT and human resources.
Most FDs have a background in accounting and report to the chief executive and board of trustees. The post is sometimes called director of resources.
Civil Society Media publishes a monthly magazine for people who hold this job, called Charity Finance.
The gift aid scheme is effectively a top-up scheme for donations to charity by individuals who pay UK tax.
Basic-rate taxpayers, ie those that pay tax at the rate of 20 per cent, who gift aid their donation, effectively sanction the charity to reclaim for itself the tax the donor paid on the value of that donation before they made it. However, higher-rate taxpayers (those that pay tax at the rate of 40 per cent or higher), are able to reclaim the tax for themselves on the higher-rate element of the tax paid if they wish, instead of giving it to the charity. But they can also give this amount to the charity too, if they choose.
In HMRC’s own words, “gift aid donations are regarded as having basic rate tax deducted by the donor. Charities take your donation - which is money you’ve already paid tax on - and reclaim the basic rate tax from HM Revenue & Customs (HMRC) on its ‘gross’ equivalent - the amount before basic rate tax was deducted.”
In effect, a £10 donation from a basic rate taxpayer is worth £12.50 to the charity, because the gift aid is calculated as 20 per cent on the gross donation of £12.50.
Gift aid was originally intended for cash donations only. Since 2006 however, HMRC has allowed tax on the income earned by charity shops acting as agent for the donor to be reclaimed, although to operate effectively, the charity needs HMRC-approved systems to be able to record and track the progress of each item from receipt to sale, and confirm with the donor that the donation should still go ahead.
Charity campaigners want the government to introduce an opt-out form of gift aid rather than the current opt-in model.
The Giving White Paper was published in May 2011; the government’s latest effort to increase public philanthropy. Its publication announced the launch of two new funds. The first was a £30m Local Infrastructure Fund to build the infrastructure of organisations supporting frontline civil society organisations; the second a £10m Social Action Fund to fund pilot programmes exploring new ways of giving.
Governance is how an organisation is governed. In charities the trustee board is responsible for ensuring that it has good governance procedures. This means ensuring that there is consistent management, cohesive policies, appropriate guidance and robust processes for decision-making.
Civil Society Media publishes a bi-monthly magazine called Governance to help trustees run their charities effectively.
The governing body is the group of people responsible for running an organisation. In charities this is the trustee board; they may be referred to as trustees, directors, board members, governors or committee members. They are responsible for the general control and strategic direction of the charity.
The governing document is a legal document that sets out how the charity will operate. It should cover what the charity’s purpose is, what powers it has, who will run it (trustees), how changes to administrative procedures are made, what happens if the charity decides to wind up and the charity’s internal arrangements for meetings, voting and looking after money.
In order to register with the Charity Commission an organisation must have a governing document, as the Commission is required to make copies of the trusts available for public inspection and this is usually done by making the governing document available with addresses of trustees blanked out. There are different types of governing document including a trust deed, constitution, memorandum and articles of association, will, conveyance, Royal Charter, Scheme of the Commission or other formal document. The Charity Commission provides advice on what sort of document is most appropriate and has a selection of model documents to use as a guide.
A number of umbrella bodies have agreed approved governing documents with the Commission which are specific to their members’ type of charity. A full list is available on the Commission’s website but to obtain a copy, charities must go directly to the umbrella body.
The Health and Social Care Bill 2010-2012 provides for the abolition of NHS Primary Care Trusts and Strategic Health Authorities and for the transfer of commissioning to new GP-led clinical commissioning groups. The Bill was introduced in 2010 but faced opposition from groups within the NHS and the government had to put it on hold while it carried out further consultation with health service unions. It gained royal assent on 27 March 2012.
Some in the sector say that this could see more civil society organisations winning contracts to deliver NHS services. In June 2011 NCVO and the Kings Fund produced a report, titled The voluntary and community sector in health - Implications of the proposed NHS reforms which outlined the opportunities and challenges for the sector.
Impact reporting, also known as impact measurement or impact analysis, demonstrates a charity’s success in achieving its charitable objectives and has become an increasingly crucial tool to help charities attract funders or support.
As the government has become less inclined to provide grant funding, instead favouring contracts for public service delivery, the importance of impact measurement has been amplified for charities wishing to demonstrate contract-worthiness.
Incorporation of a charity means establishing it as a company instead of as a trust or association. This means that the charity has a separate legal personality so it can hold property and enter into contracts in its own name. It also offers trustees limited liability - this means legal claims can be brought against the charity and not individual trustees. Individuals can still be held accountable if they act negligently, continue trading when the organisation is insolvent or they commit a breach of trust. Situations where they are covered include employment of staff, acquisition of property and the expansion of services offered.
An industrial and provident society is a legal entity for a UK charity or business which can conduct any legal business except investment for profit. The Co-operatives and Community Benefit Societies Act 2003 introduced the concept of an asset lock which can be used to prevent specified assets being used for unintended purposes. The Charities Act 2006 brought charitable IPSs under the regulation of the Charity Commission and they are now required to register with the Commission and with the Financial Services Authority (FSA).
An in-kind donation is a non-monetary gift given by an organisation or service-provider to a charity. In-kind donations can be given in return for a service or benefit provided by the charity, or as a one-way donation. Examples of in-kind donations include pro bono work, such as charge-free advisory services; the lending of equipment for events; or advertising space.
The Insolvency Act 1986 uses the phrase “unable to pay its debts” but there is no official statutory definition. In practice, a charity is insolvent if it is unable to pay its debts when they are due or the value of its liabilities exceeds the value of its assets. If trustees suspect that a charity is, or is in danger of becoming, insolvent, they should seek professional advice. To protect a charitable company from its creditors a court may place it in administration and an authorised insolvency manager takes control to save part of the organisation, or come to an arrangement with creditors and get a better realisation for the charity’s assets than if it had gone straight into liquidation.
Liquidation or winding up is the last resort. For a charitable company a court can order the compulsory liquidation of the organisation following a petition from a creditor or the charity itself can voluntarily place itself in liquidation. For unincorporated charities liquidation is normally voluntary and in accordance with the charity’s governing documents.
The Charity Commission publication Managing Financial Difficulties and Insolvency in Charities (CC12) provides advice and guidance to charities worried about insolvency.
Internal audits are carried out to monitor the adequacy and effectiveness of an organisation’s internal controls so that they can be improved. It can include any aspect of the charity’s work such as retail, risk management, purchasing and tendering, personnel compliance, IT security, governance, payroll, gift aid and event management.
The ‘last man standing’ rule is derived from the issue of multi-employer pension schemes. This is when a group of companies are responsible for the final pensions of a group of employee schemes; in the event that all the others become insolvent, the final company is designated the ‘last man standing’, and is left to cover the pension liabilities of the group as a whole.
One of the most infamous cases of the last man standing rule having a great impact on a charity is that of the Wedgwood museum. The High Court ruled in April 2012 that its Wedgwood collection can be sold to fill a £134m pension fund gap. The Wedgwood Museum is a charity, but was deemed to be connected to the Wedgwood group for pension purposes, which had museum staff participating in the pension scheme.
There are four main legal forms that charities can take. They are:
- a trust where the governing document is a deed or will;
- an unincorporated association, where there is a written constitution or rulebook;
- a company limited by guarantee governed by memorandum and articles or association; or
- (if it was set up after 2009) articles of association and charitable incorporated association governed by a constitution.
Which form to adopt depends on the size of the charity, its aims and objectives and how it was set up. The Charity Commission publication Choosing and preparing a governing document (CC22) offers further advice.
Lifetime legacies describe a group of tax-efficient giving instruments, designed to unlock wealth from assets while a donor is still alive, while allowing donors to retain a commercial interest in the property.
The person holds onto his or her assets, for example shares or artworks, for today but commits to give them to a charity at some point down the line. This means the gift can accrue tax benefits in the present but not actually be given to the charity until perhaps several years later.
The government releases the tax today, perhaps as gift aid, on the strength of this promise. The donor may profit if the donation reduces a capital gains tax burden, but if it is eligible for gift aid then both donor and charity can benefit. Recipient charities also benefit from being able to plan in donations for the future.
The best-known form of lifetime legacy is a charitable remainder trust. In the US donors can also opt for a charitable lead trust.
Major donors are individuals who give a charity a significant amount to charity. Generally this is considered to be a donation of more than £5,000. Most large charities have major donor programmes to identify, contact, cultivate and look after potential major donors.
Before the Companies Act 2006, charitable companies had to submit two main documents to Companies House – the memorandum and the articles of association. Companies set up after October 2009 only have one main document – the articles of association which now incorporates aspects of the memorandum such as outlining the objects of the organisation. Companies set up before October 2009 do not need to do anything. Companies still need to have a memorandum but it is now a very short document expressing a wish to form the company.
Mutuals are organisations that are based on mutuality; unlike co-operatives members do not make a financial contribution but the members get financial reward through a customer relationship or as an employee. There are no shareholders and members have the right to vote on decisions with profits often being reinvested in the organisation.
The objects, also referred to as the aims or charitable purposes of the organisation, must be charitable and for the public benefit. The objects are usually set out in the charity’s governing document and explain why it has been set up, but not how it intends to meet its aims. The Charity Commission has a selection of model objects on its website which new charities may adopt if they are appropriate.
An overhead expense or operating cost is something that is necessary for the running of the organisation but is not directly associated with the services or products offered by the charity. They include accounting fees, advertising, depreciation, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone bills, travel and utilities costs. Overheads are also referred to as admin costs.
A patron is someone - in many cases a celebrity - who pledges their support to an organisation. No money is involved in the relationship between the individual and the charity (unless the patron chooses to make a donation).
Patrons can benefit charities by raising awareness of the cause in the media or by introducing them to influential people.
Payroll giving is a way for employees to make donations to charity directly from their pay. Because the donation is taken before tax the employees get tax relief on the donation. Employers need to sign up to an approved payroll giving agency which will manage the process of distributing donations to the employees’ chosen charities. HMRC keeps a list of approved payroll giving agencies on its website, all of which are charities. Most will deduct about 4 per cent of the donation to cover the administration costs of running the scheme.
Peer-to-peer fundraising is the method of supporters raising money from friends and family. Often this is done via sponsorship for completing a challenge such as running a marathon. In recent years several companies, notably JustGiving, Virgin Money Giving and BT MyDonate, have launched online sponsorship platforms that enable individual fundraisers to set up a webpage to promote the cause to their online social networks and collect money online.
Professional bodies or associations are organisations for people working within a particular field. They often have charitable status. They are created by a Royal Charter and aim to support people working in that profession and uphold professional standards. Many offer some sort of accreditation through membership which for some professions (eg medical) is a requirement in order to practice.
In recent years charities have become increasingly likely to provide public services on behalf of central or local government or other statutory bodies such as healthcare trusts. Although public spending on the voluntary sector accounts for only 2 per cent of total government expenditure, since 2000 the sector’s total statutory income has grown faster than overall public spending. According to the 2012 NCVO Almanac, the sector now receives more than a third of its overall income from statutory sources.
The Charities Act 2006 states that all charities must be able to prove that they exist for the public benefit. From April 2009 charities had to declare in their annual report how they meet the public benefit test. The Charity Commission provides advice to charities on what sorts of activities are considered to benefit the public or a section of the public.
A quorum is the minimum number of members of a particular group required to undertake the activity determined for that group. For charities this typically relates to the number of trustees that must be present at board meetings in order for business to proceed and decisions to be made.
The quorum is different for every charity and should be outlined in the charity’s governing documents; however the Charity Commission recommends that the quorum for a meeting of charity trustees is a minimum of one-third of their total number plus one. If any meeting is held with numbers fewer than the quorum, no decision should be made in that meeting. Also the majority or totality of the quorum should be in agreement before any decision is passed by the board.
Regular giving is the term used to describe people who donate the same amount each month either through a direct debit or standing order. Charities are keen to encourage people to become regular givers rather than making one-off donations as it provides a steady income stream and enables charities to plan.
In financial terms the reserves are the amount of money the charity has but is not using. Reserves are part of a charity’s unrestricted funds. Although most charities hold money in reserve it is important to get the balance right, as if too much is held in reserve then the charity may not be meeting its objects as effectively as it might; but if it has too little then the sustainability of the charity may be put at risk.
The Charity Commission provides advice on developing a reserves policy in the publication Charities and reserves (CC19).
A service level agreement (SLA) is one where the level of service is clearly defined in the contract. A charity may find itself on either side of a service level agreement. It may be the customer in a situation where it has an agreed level of service from a provider, for example an internet provider. If it has any contracts with government or local authorities it may be the service provider in the contract.
Social enterprises are trading organisations with the legal structure of a commercial company or a CIC (Community Interest Company); they may be independent with traditional shareholders or trading subsidiaries of charities.
There is no one universally-accepted definition of a social enterprise. Venturesome, CAF’s social investment fund, in its paper The Three Models of Social Enterprise, maps out the social enterprise landscape into three models. The first (the ‘profit generator’ model) includes enterprises operating a profit-making trading activity that has no direct social impact but gives some, or all, of their profit to a charity. Examples are the trading subsidiaries of charities, companies which promise to give a percentage of their profits to charitable projects, or a hedge fund which gives a slice of its profits to a charitable foundation, ie the Children’s Investment Fund Foundation.
The second (the ‘trade-off’ model) includes enterprises operating trading activities that have a direct social impact but manage a trade-off between producing a financial return and social impact, such as fair trade businesses or microfinance institutions.
The third (the ‘lock-step’ model) covers enterprises engaging in a trading activity that not only has a direct social impact but which also generate a financial return in direct correlation, or lock-step, to the social impact created. Examples of these are co-operatives and wind farms.
A social impact bond is a contract between the government and a civil society organisation under which a commitment is made by the state to pay for improved social outcomes that result in savings to the public purse. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes.
The first social impact bond in the UK was organised by Social Finance and is an eight-year programme to reduce reoffending by short-term prisoners released from HM Peterborough. It started in 2010 and involves a number of charities providing services to ex-offenders. The original investors – various trusts and foundations - will receive payment based on the success rate of the programme. Unlike conventional bonds there is no fixed rate of return.
The term social investment is used in at least three different ways.
Most recently, it is the catch-all term used to describe investments that combine financial returns with positive social impact. Within the charity sector, these investments may comprise charities investing their endowments or reserves in social investment products offered by other parties, or it may involve charities creating their own social investment products for other investors to put their money into.
Social investments products include social impact bonds and other types of bonds.
Social investment has gained a much higher profile in the sector since the turn of the decade, thanks in part to new guidance from the Charity Commission (CC14) which creates a more permissive environment for charities to invest for social return as well as financial.
In another usage, social investment is an umbrella term referring to the practice among investors of investing in companies that act responsibly and pursue the triple bottom line – though this is often described as ‘socially responsible investment’, or SRI.
In another context, and particularly during the last decade, SRI has increasingly been defined as investments promoting environmentally sustainable development.
But in yet another context it is used as a contrast to the term ‘ethical investing’. Where ethical investing tends to be used in the screening out of ethically questionable investments such as those involving tobacco, arms, pollution, SRI is used to denote the more positive inclusion of investments that support social and environmental good.
Society lotteries, sometimes known as raffles, are run by non-commercial organisations with the proceeds funding charitable purposes, the enablement of sporting or cultural activities, or any other purpose not for private gain.
There are small society lotteries and large society lotteries, and the difference is measured in the value of proceeds received by winning ticket-holders. A small society lottery, with proceeds under £20,000 for a single draw, does not require a licence but must be registered with a licensing authority. A large society lottery, with proceeds that exceed £20,000 for a single draw, must apply for an operating licence from the Gambling Commission. The Charity Commission provides the following guidance for running a lottery: Running a lottery: a quick guide
The umbrella body for society lotteries is the Lotteries Council, which has around 200 charitable members.
A stakeholder is anyone or any organisation that is affected by the actions of the charity. This includes people who use services provided by the charity, family members of service users, members of staff, volunteers, trade unions and funders.
It is important to understand who each charity’s stakeholders are and what their needs are. When undergoing some sort structural change, such as a merger, trustees have a responsibility to ensure that stakeholders are consulted and engaged with the process.
Stewardship is a complex and contested term within civil society. It essentially refers to the relationship between an organisation and a supporter and how that relationship is managed. The term is relatively new in the UK, imported from the US, where it has been used as a by-word for ‘relationship marketing’, since the early 2000s.
For some within the sector, stewardship involves guiding and pushing a supporter along a particular ‘supporter journey’, while for others it means responding to the wishes of individual supporters. The motivation for any kind of stewardship is to build a long-lasting and profitable relationship between a charity and a supporter.
SIRs act as a summary of a charity’s key aims, activities and achievements and are designed to provide the public with better information about charities. The Charity Commission requires SIRs to be completed annually by all charities with an income of £1m or over and they are published on the Commission’s website.
‘Third sector’ is another name for ‘voluntary sector’ or charity sector’ – it is named the ‘third’ sector after the public and private sectors. It is generally assumed to refer to registered charities and local community groups.
However, this description of the sector is not well-liked as it seems to position charities in third place behind the other two sectors. It also implies that nobody could think of a better way to describe the sector, so just called it ‘third’. It is also ‘industry jargon’ that is not used or understood outside the sector itself.
For these reasons, the phrase has fallen out of popular use in recent years, though debate still rages within the sector about what the sector should be called. The Office of the Third Sector in the Cabinet Office was renamed the Office for Civil Society when the new coalition government came to power, and use of the term ‘civil society’ seems to be gaining traction. However, it is true that civil society encompasses a much broader range of activity than that covered by the phrase ‘third sector’.
An investment portfolio that is managed on a total return basis takes into account not only the capital appreciation but also the income received on the portfolio. This income typically consists of interest, dividends, and securities lending fees. Capital appreciation represents the change in the market price of an asset. Meanwhile, a ‘price return’ investment portfolio takes into account only the capital gain on an investment.
A trade association is an organisation founded and funded by businesses working in a particular sector. The Trade Association Forum was founded in 1997 and acts as an umbrella body for trade associations.
A trade union is a group of workers who have joined together to ensure that their rights are catered for. Common issues of concern include fairness of pay, hours and working conditions; benefits and entitlements; sympathetic provisions for sickness and bereavement; and unemployment or severance pay. Trade unions are known as labour unions in North America.
In legal terms a trust is a relationship where property is held by one party for the benefit of another and is one of the four main types of charity. It is created by a trust deed, which acts as its governing document. A trust cannot own land or sign documents in its own name.
Trustees are the governing members of a charity and are charged with making sure the charity is run properly and stays on the right path in relation to its charitable objects. In some organisations trustees are referred to as directors, board members, governors or committee members. They come from all walks of life, professions and ages. Trustees are responsible for managing staff and volunteers, and for major financial decisions, among their duties, and are legally liable for a charity’s finances.
Trustees are typically employed in a voluntary capacity and can meet any number of times in a year, although this will depend on the size and complexity of the charity. The number of trustees varies enormously, again in relation to the size and complexity of the charity. A quorum is often set out in the charity’s governing documents outlining how many trustees must be present for decisions to be passed, and how many trustees must be in place at the charity any one time. It requires the agreement of a majority of trustees for decisions to be passed.
Trusts and foundations are grantmaking charities which distribute funds to other charities. Most have been established by philanthropists or large companies and derive their income from major gifts or an endowment. There are no rules about how trusts and foundations make grants but most will have some sort of criteria applicants should meet.
Tupe stands for the Transfer of Undertakings Protection of Employment Regulations, and is a law that protects employees in the eventuality that their employer’s business moves to a different owner. It stipulates that the employee’s terms and conditions of employment cannot be modified in light of such a move.
All of the employee’s rights are preserved, including continuity of service, which is ongoing and does not reset with the coming of the new owner.
Tupe applies when whole companies are either merged or one buys out another. However, it may not be valid in other circumstances, such as when only assets are transferred, or if it is no more than a share takeover, with the company’s shares going to new shareholders but the same business continuing to be the employer.
Tupe can cause particular problems for voluntary organisations that win contracts to deliver public services from statutory bodies. If the service was previously delivery by the statutory body itself, staff that transfer to the new voluntary-sector contractor can come with plenty of pre-existing benefits – such as pension contributions and sick leave entitlement - that can cost the charity dear.
Umbrella bodies are large organisations which encompass and act on behalf of smaller organisations who join as members. Their pull and influence is much greater than an independent organisation on its own and they offer varying degrees of capacity-building support, lobbying, and representation. Some also provide self-regulatory schemes.
The main umbrella bodies in the sector are:
- National Council for Voluntary Organisations (NCVO)
- Association of Chief Executives of Voluntary Organisations (Acevo)
- National Association of Voluntary and Community Action (Navca)
- Institute of Fundraising
- Charity Finance Directors’ Group (CFDG)
- Public Fundraising Regulatory Association
- Fundraising Standards Board
There are a raft of cause-specific umbrella bodies too, such as:
- National Council for Voluntary Youth Services
- Volunteering England
- Social Enterprise Coalition
- LGBT Consortium
- Development Trusts Association
- Association of Charitable Foundations
- Cooperatives UK
- Community Foundation Network
- Urban Forum
- Women’s Resource Centre
An unincorporated association is one legal form of charity that is set up by a constitution. It is not a company and does not have to register with Companies House. This also means that it is not able to own land and the trustees are not protected by limited liability. Generally this legal structure is adopted by smaller organisations with a membership; it may be a part of a federal structure, and trustees are usually elected or appointed for a term. The objectives of the charity are usually carried out by its membership on a voluntary basis.