Case studies

Legal implications of basic governance errors

Governance | Neal Green | 10 Nov 2010

When a local branch of a national charity embarks on a direct fundraising effort, things soon turn sour when a the project shuts down. Neal Green examines the legal implications.  

Local branches of well-known national charities are not immune from making basic governance mistakes that result in complex legal problems. 

Often, their trustees lack the experience and legal nous of the umbrella organisations overseeing them, but assume that as members of a larger charity, they are protected when things go wrong. The following story is based very closely on several real cases the Commission has worked on.

The charity was an independent branch of a national charity working with people with mental health problems. The chair of the charity’s board had visited a mental health unit in Canada which provided a therapeutic garden for its users. This had inspired him and he proposed a fundraising appeal to build a similar garden for the residents of a local residential home. The idea was to provide a safe outdoor environment easily accessible to the residents and for that reason, it was decided to create the garden on unused land within the premises of the home. His fellow trustees and the owners of the care home, the local authority, agreed.

 So the charity launched a well-organised fundraising appeal, which they named ‘Garden for Fordborough Care Home’. They commissioned posters, leaflets and collection boxes, all of which displayed the words ‘help raise £600,000 for a garden for Fordborough Care Home’. The charity organised special fundraising events for the garden appeal.

However, six months after the launch of the appeal – at which point the charity had raised £350,000 – the local authority decided to close the care home and re-house all its residents in the community. Initially, the trustees were not concerned – they thought the money raised could be used for the charity’s other projects. However, a donor came forward to ask for his money back. He did not wish his substantial donation to go on the charity’s other activities.

Call for help to national charity

The charity contacted its national umbrella for help in responding to the donor, explaining that his funds would be going to good causes. The national charity wasn’t able to help. It had tried to avoid such cases from occurring by providing clear guidance for its members on fundraising. But it knew that in cases of fundraising failure on the part of its branches, it had no power to get involved. It referred the case to the Commission.

We were clear that trustees had raised the money for a defined and specific cause. They couldn’t just decide to apply it elsewhere – even if the original cause had ceased to exist. The Commission’s guidance on Fundraising (CC20) stresses that appeal materials should always include a secondary purpose, stating how funds will be used if the primary aim cannot be carried out, or insufficient or surplus funds are raised.

Because the charity’s appeal hadn’t included a secondary purpose, the trustees were obliged to contact all identifiable donors, offering to return their money. This proved a time-consuming process, which involved calling and writing to donors whose contact details were known, and appealing for others to come forward through advertising campaigns. They then had to allow three months for any donors to contact the charity.

Once the three months were over, the charity applied to the Commission for a scheme (legal document) for the remaining funds – those that were not reclaimed by donors and those given anonymously through collection boxes. The scheme allowed the funds to be used on other projects for people with mental health problems in the area.

The process of tracking down donors was arduous and frustrating for the trustees. And it could have been avoided had they read the Commission’s guidance and planned their fundraising appeal a little more carefully – and realistically.

Neal Green is senior policy adviser at the Charity Commission 

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