Charity Law Association
Comments on Chapter 2 of Part 3 of the Charities Bill
Clause 64 of the Bill – Statements indicating benefits for charitable institutions and fund-raisers
Summary
In our view these provisions will be even less helpful than those in the 1992 Act, which they are designed to replace.
We have suggested an alternative.
The mischief the 1992 legislation was designed to prevent
Prior to the Charities Act 1992 the charity sector became aware that some unscrupulous companies and fundraisers were implying that their promotions and/or collections were being carried out in the name of charity when in fact only tiny sums were being passed to charity. By requiring those companies/professional fundraising organisations (PFOs) to state the basis on which they were being paid it was hoped to outlaw this practice.
What happens in practice
The provisions of the 1992 Act did not work exactly as planned. They created a number of problems:
Statements so vague as to be unhelpful
The wording of the Act allowed companies/PFOs to make statements which were within the letter of the law (setting out in general terms the basis of their remuneration) but which were not particularly helpful or meaningful to potential donors.
The statements have created an uneven and extremely misleading fundraising playing field
Statements are not required when the promotion/collection is undertaken by a charity or a charity’s trading company. This distorts the picture on fundraising particularly when charities outsource some or all of fundraising programmes.
Example 1 – a collection undertaken by paid staff of a charity would not require a statement to be made but the real cost/benefit after taking into account the overhead costs of the staff may be the same or worse than a collection undertaken by a PFO on an out-sourced basis.
Example 2 – with direct-mail donation campaigns generally no statement is required as the mailing is done in the name of the charity. Donors may mistakenly think therefore that no paid fundraisers are involved (and that long-suffering volunteers stuffed the envelopes in the old fashioned way). In fact, today, most major direct mail campaigns involve paid consultants at a not inconsiderable cost.
The statements don’t help the public understand charity fundraising if anything they perpetuate public misunderstanding
In particular they don’t take account of:
Other non-monetary/related benefits
In our experience charity fundraising is rarely undertaken only to raise money. Many fundraising methods have the related aims of raising the profile of the charity, increasing the names on its database for future fundraising, campaigning and other purposes. The current statements give donors, at best, only one side of the story and do not enable them to put the fundraising costs/benefits in any kind of context.
B. The duties of charity trustees
In the case of fundraising initiated by charities, they fail to highlight the protection the law offers. At the end of the day it is the responsibility of charity trustees to act prudently and to evaluate the costs and benefits associated with a fundraising/awareness campaign. If they fail in this duty they can be held accountable. The disclosure/statement regime does not help the public to understand this (but the public might have a greater degree of confidence if it did). If anything the current regime does much to perpetuate the nonsense that the best charities are those that spend the absolute minimum on necessary services such as administration and fundraising (which is contrary to the advice and guidance issued by the Charity Commission).
C. The complexity of modern fundraising
Over the decades charities have had to increase and evolve the ways in which they raise funds. Sponsored walks and flag days, have increasingly been supplemented by more professional (and, in many, sub-contracted) methods of fundraising such as direct mail, challenge events and face to face fundraising on the street, house to house and, in the case of payroll giving, in the workplace.
Similarly, commercial promotions involving a donation to a charity may involve many parties (wholesalers, retailers, agents etc) and much professional time/charity money is currently devoted to determining who and what statements need to be made in these situations.
Example 3 - street collections highlight each of these points. They are generally undertaken by individuals employed and paid by PFOs. However they and their employer are almost never the only paid professionals/PFOs involved in the campaign as the notes in the Appendix illustrate. The tabard wearing fundraiser must make the required statements under the 1992 Act and this may lead potential donors to think that (a) this is a costly method of fundraising and/or (b) that these are the only costs associated with the fundraising. As the illustration in the Appendix shows, neither is necessarily true. Street collections are regarded by the charities as extremely cost-effective and produces valuable other benefits (as the illustration shows).
The provisions in the Bill
The provisions in the Bill, in our view, contain nothing to deal with the problems identified above. If anything they compound the problems by requiring statements to be more specific.
Alternative approach
In our view it is not possible to address the problems identified above by simply adjusting the wording of clause 64 of the Bill; it is necessary to rework sections 58 to 60 of the 1992 Act.
However, with such a reworking it would, in our view, be possible to go someway to dealing with the oversimplification/distortion in public perception caused by the current (and proposed) statements by:
replacing the requirement to provide the detailed “notifiable amount” with an obligation (a) to explain (if it is the case) that costs have been/will be incurred in connection with the fundraising and (b) to signpost to potential donors where they can obtain details describing the cost/benefits from the fundraising; and
to bring fundraisers employed by a charity/subsidiary trading companies within the regime along side professional fundraisers and other commercial participators.
Clause 65 of the Bill – Reserve power to control fund-raising by charitable institutions
The proposed amendment to section 77(4) of the Charities Act 1992 requires the Secretary of State to consult before introducing regulations under new clause 64A. It is not clear, however, from the face of the Bill (or its accompanying notes) who will be consulted and what form the consultation will take.
APPENDIX
Face to Face Fundraising
How it works – An Illustration
Step 1: Either:
PFO staff contact a charity with a view to interesting them in the development of a house to house fundraising programme or
A charity approaches the PFO directly for this purpose.
Step 2: If the charity client, having been appraised of the PFOs terms of business for house to house fundraising programmes, wish to proceed it then meets with the PFOs team to agree a fundraising profile. This includes the number of donors to be recruited, the method of fundraising and the period and geographical areas of the collections.
Step 3: The charity then signs a contract with the PFO for its house to house fundraising programme as agreed at Step 2.
Step 4: The charity then meet with a team from the PFO (and, if the PFO sub-contracts the services of the face to face fundraisers, the chosen sub-contractor) so that the charity can explain to them its cause, operations and what a fixed monthly donation would mean to it and its beneficiaries.
Step 5: PFO then organises, if required, the appropriate local authority licences (under the House to House Collections Act 1939) for the collections. This can involve a large amount of work as there is no standard approach by local authorities to the grant of these licences.
Step 6: The recruitment of donors is then undertaken by the field force as agreed with the charity, the PFO and the licensing or site management authority/ies. Individual collectors may be employed on a salaried or performance basis (or a combination of the two).
Step 7: The PFO:
invoices the charity for each signed up donor (as per the contract between them); and
sends the collected direct debit forms to the charity or its chosen sub-contractor for the data processing.
Step 8: The charity/PFO’s chosen supplier for data process then:
(1). completes a process of data entry, editing and scanning; and
(2) sends the PFO details of “completed” and “failed” donors (i.e. donors whose direct debit forms were able to be processed and those which were not, usually because the form had been completed incorrectly) including an electronic, scanned copy of all the direct debit forms.
Step 9: The PFO enters the data received at step 8 (2) into its parallel database. In some cases this database allows charity clients to access details relevant to them at any time (sometimes including an image of every underlying direct debit forms).
Step 10: Frequently the charity or the PFO then either makes (or sends details of all new completed donors to a further sub-contractor who then makes) donor “thank you” calls which have been shown to reduce the rate of cancellations by donors.
Step 11: As the processing of direct debits requires accreditation with BACS and AUDDIS PFO’s and charities frequently use a further specialist sub-contractor for the processing of the actual direct debits. At this point the PFO or the charity sends copies of the scanned direct debit forms received to its chosen direct debit processing supplier who:
(1). set up the BACS collection and assigning a day for collections under the direct debit,
(2) add the collection day to the records and advise the PFO of the same,
at least 10 working days later (10 days being the statutory “cooling-off period” for direct debits) processing the direct debit collections through BACS,
report all successful collections to the PFO and/or the charity.
With PFOs who are members of the Public Fundraising Regulatory Association all direct debit donations are paid directly from the donor’s bank account to the charity’s bank account. No part of the donation was transferred to the PFO or to any of its sub-contractors.
Step 12: The direct debit processing company notify completed donors by means of a Direct Debit Advanced Notice.
Step13: The PFO/Direct Debit processing company sends charity clients an electronic record of all new donors, a record of all scanned direct debit forms and an invoice for donors who have made their first payments; and
What it costs
Many PFOs who provide face to face fundraising services charge charities on a sliding scale according to the value of the donations secured.
Because of the number and complexity of the processes involved in handling direct debit gifts, there is a commonly a minimum direct debit donation of £48 per annum (or £4 per month).
Why charities use it
Face to face fundraising (whether on the street, house to house on in the workplace) is currently popular with many charities for a number of very good reason which include the following.
It works
Statistics produced by the PFRA show that in 2002 alone 690,000 new donors were recruited by face to face fundraising producing estimated donations of £240m. The average duration of this kind of direct debit giving is between three and five years giving an average return on investment of 4:1 after three years (significantly higher than many other fundraising methods such as direct mail).
It produces more than just donations
As important as the donations produced (and in some cases much more important) face to face fundraising enables charities to build a donor/supporter database, without effort on their part, which can be and usually is used for a variety purposes such as other fundraising campaigns (like direct mail) but also for non-fundraising purposes, like campaigning.
With the right PFO, it is virtually risk free
Face to face fundraising with a reputable PFO is risk free for charities in two senses, namely:
1. it is undertaken on a basis which means a charity only pays if and when it receives donations. This must be contrasted to the case of many charities which employ fundraising staff (with all of the overhead, compliance and employment law implications that flow from that) and who suffer if their employees are unable to raise the funds they need; and
2. perhaps even more importantly, the proceeds of the collections (i.e. the direct debits payments) are paid direct to the bank account of the charity or organisation for whom the funds have been raised not to the PFO.
It is flexible
Provided there is the capacity, charities are able to increase or decrease their fundraising activities as necessary. This must be contrasted with the inflexibility and performance risks associated with employing an in-house fundraising team and with the many other fundraising medium which require costs to be paid before donations are achieved.
Gift Aid
Approximately 70 to 80% of all donors recruited house to house sign gift aid declarations thereby allowing the charities to which they have donated to reclaim an additional amount (currently 28%) from the Inland Revenue.
Few charities have the resources to organise and run a face to face fundraising programmes themselves because the recruitment and fulfilment of direct debit donors requires a great deal of technical and other resources which are beyond the capacity of all but a few of the very largest charities. An industry has developed to enable charities to procure the services they need.
