Chair issues

A loose cannon?

Governance | 30 Apr 2012

Our guest chairman advises a charity that suspects its fundraising subsidiary is being run without the proper licenses.

Dear Chairman,

I am chair of a medium-sized charity which has as its objects the support of the elderly and which relies entirely on fundraising for its income. About three-quarters of our income is derived from cash donations obtained through telephone appeals carried out through our fundraising company, and of the rest, about half is raised through street collections and half through other fundraising events and activities. The fundraising company is wholly owned by the charity.

We have recently appointed a new chief executive of the charity and he informs me that the person we appointed to run the fundraising company is known to him as someone who was previously convicted of an offence of dishonesty while working for a different charity; and also that it appears that cash collections have been carried out for our charity without the proper licences and permissions.

I want to know what action we should take and as the problems seem to be contained within the subsidiary fundraising company, what is the responsibility of the trustees of the charity here?

Yours sincerely,

Lou Scannon

Chair 

Dear Lou,

Clearly you need to investigate the alleged conviction as well as precisely what fundraising arrangements and activities have been engaged in by the fundraising company in the name of the charity. This might well include verifying the legitimacy of the processes employed in the telephone funding appeals that account for the majority of your income. You might also want to check the percentage of income that was spent on administrative costs compared to the percentage applied towards your charity’s objects.

Although the person concerned is employed by the fundraising company and not the charity, the former is the wholly-owned trading subsidiary of the latter and their activities are inextricably entwined. It is therefore the trustees’ duty to ensure that they are managing the risks arising out of that arrangement and that money is being raised legitimately and put to appropriate use. It is also the trustees’ responsibility to appoint suitable and fit and proper persons to run the fundraising company; and in this case it appears that the trustees may have failed to do so.

As the fundraising company is a subsidiary of the charity, it is not required by statute (Charities Act 1992) to have a written agreement in place with the charity. Nevertheless, it is good practice to have such an agreement in place and to ensure that it contains the sort of provisions needed to comply with the statutory requirements. It is the trustees’ responsibility to exercise proper supervision of the fundraising company’s activities to ensure compliance with legal requirements and to be satisfied that inappropriate persons are not appointed and that the company does not engage in improper or misleading activities. Failure to do so can easily lead to a lack of public confidence, damage to the charity’s reputation and even an investigation by the Charity Commission.

There is a strong suggestion here that the charity has had insufficient knowledge and control concerning the fundraising company’s activities. You and your fellow trustees will wish to explore why this is; and take swift action to rectify the matters that have only now been brought to your attention. Depending on the outcome of your investigation, this could well include dismissing or disciplining the person running the fundraising company, putting in place an agreement with that company and reviewing and revising the funding protocols and guidelines governing that company’s activities and refresher training for its staff.

Yours etc,

The Chairman