Sector Focus: Large donations - managing the risk for your charity

02 Dec 2019 Expert insight

Jane Askew discusses large donations to your charity and how to manage the risks that comes with them.

The arts and culture sector has recently been impacted by negative press and public interest in high profile donors, such as the Sackler Trust’s gifts to various arts charities and BP’s sponsorship of Shakespeare’s Globe. While large donations may seem too good to turn down, it is important that you have a robust process in place to ensure that donations are given appropriate consideration before being accepted. We have set out some key matters to consider below:

Reputation Risk

Consider the possibility of any reputation risk around your association with the donor, be it an individual or an organisation. If the donor is a high profile individual or company, how much public recognition have they asked you to make around the donation, and is there a time limit to any permanent visual evidence such as building naming rights?

Conflicts of interest

Consider whether the donation is linked to any business dealings with either the charity or with any of its related parties. For example, has the donation only been made to secure the acceptance of a contract from your charity or from a related party? Ensure that you have a listing of all your charity’s related parties. This should include, but not be limited to, close relations of trustees and senior management, and businesses that any of these individuals have a controlling interest in. This listing should be reviewed and updated regularly, and members of the fundraising team should be aware of these connections to ensure that these related party transactions can be appropriately monitored.

Tax implications

Some donations are accompanied by requirements to provide advertising for the donor. Where this is the case, you can risk unwittingly entering into a sponsorship arrangement with the donor, which may have both corporation tax and VAT implications. Seek advice if you are in any doubt.

Anti-money laundering

All charities are at risk of abuse from money laundering, particularly as the association with a charity can add a veneer of respectability to a criminal organisation. Criminals can donate to charities and then ask for these donations to be repaid in part or in full or passed on to a third entity. Before accepting significant donations you should follow the Charity Commission’s “know your donor” procedures which are published as part of its compliance toolkit. Donations from organisations and individuals based overseas are generally considered to be of higher risk and you are likely to need to conduct enhanced due diligence before accepting these.

Large-scale appeals

If you are considering a large-scale public fundraising appeal, carefully word the donations literature to ensure that any excess donations above the appeal target can be utilised towards "Consider the possibility of any reputation risk" your unrestricted activities, or for another specific purpose. This will ensure that if you are in the fortunate position of raising more than you need, you will not need to return donations.

Restrictions on donations

If the donation is restricted, ensure that you have the appropriate skills and monitoring procedures in place to enable you to spend the money in line with the donor’s wishes and to report on how you have done so to the donor. Many large-scale funders will scrutinise the use of any restricted funding provided to charities, and donations will include clawback clauses to repay donations if they are not used appropriately.

Cash flow considerations

It is increasingly common for restricted donations to be paid in arrears once you have proven to the donor that the money has been spent appropriately. Where a restricted donation is being paid in arrears for a new or large-scale project, you should prepare cash flow forecasts for the whole organisation to ensure that you have sufficient unrestricted cash resources to cover the project expenditure until you receive the funds.

Charity commission’s guidance

The Charity Commission’s starting point is for charities to "normally accept donations and use them to further their purposes", however it understands there will be rare cases where trustees may consider refusing donations. The Charity Commission’s guidance on what to do when you would like to return a donation which has already been gifted can be found at https://www.gov.uk/government/news/returning-money-to-charities.

Jane Askew is a director of not for profit at haysmacintyre

This content has been supplied by a commercial partner. haysmacintyre sponsors the Sector Focus series.

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