In recent months, the Fundraising Standards Board (the FRSB) has published several adjudication and investigation reports, including:
- GoGen Ltd and its telephone fundraising practices relating to the British Red Cross, Macmillan, NSPCC and Oxfam;
- RSPCA and Battersea Cats & Dogs Home; and
- The Royal British Legion (RBL) and Magnum Direct.
The FRSB's functions transferred to the new Fundraising Regulator in the summer, but the FRSB has continued to publish reports about its pre-transfer cases. A key part of the FRSB's role in these cases is to determine whether the charities and fundraising organisations involved have breached the Code of Fundraising Practice (the Code). Although the facts of each case are quite different, some failings crop up on a number of occasions. In all the above cases, the charities involved used professional third party fundraisers, and some of the common weaknesses arise from the relationship between the charities and their external fundraisers.
Weaknesses in the contract between the charity and the professional fundraisers
The law requires charities to have a contract in place with any professional fundraisers it uses, and lists the matters that these contracts must cover. Once section 13 of the Charities (Protection and Social Investment) Act 2016 is in force, that list will grow longer.
The Code adds its own gloss to the legalities, but it is still possible for charities to find themselves breaching the Code, despite having contracts that tick all the boxes. The chief contractual problems identified in FRSB reports are:
- the contract does not give the charity the right to monitor the fundraiser's activities or, does give the charity that right but lacks detail about the scope, frequency and content of that monitoring;
- fundraisers are paid on a commission basis. The FRSB is wary of this type of arrangement because it can lead fundraisers to use undue pressure to secure donations, in breach of the Code. The current version of the Code forbids commission payments unless certain conditions are met.
Section L.10.1(d) of the Code currently states:
"Professional fundraisers MUST* make a solicitation statement every time they solicit money or other property on behalf of a charity or an institution which is established for benevolent or philanthropic purposes."
The use of "MUST*" (with an asterisk) indicates a legal requirement. When professional fundraisers ask for donations, they have a duty to tell the prospective donor:
- the name of the organisation(s) on whose behalf they are working;
- if there is more than one organisation, the proportion in which they will each benefit;
- the method by which the fundraiser's remuneration is to be determined; and where known, the actual amount of the remuneration; or where unknown, an estimate of the remuneration, calculated as accurately as possible.
Other sections of the Code require fundraisers to be transparent about what they are doing. For instance, section 8.3.1(k) – in the section on telephone fundraising – says: "Organisations MUST make clear that the call is seeking financial or other forms of support".
In several of the recent investigations, professional fundraisers were found to have breached their duties in this area, in one case attempting to give the impression that they were unpaid charity volunteers, in another implying that they were primarily contacting potential donors to talk about the charity's work, rather than to ask for money. In one case, although the FRSB found no breach, it was concerned to learn that a fundraiser was unable to answer questions about remuneration and the contents of the solicitation statement. In the same case, the FRSB found that, even though the solicitation statement on the charity's campaign website was legally compliant it was ambiguous, in that it did not make it clear whether the estimated figure that would be donated to the charity was before or after the fundraiser's fee had been deducted.
In the RSPCA/Battersea report, the FRSB states that it "intends to contact the Office for Civil Society to suggest that it reviews the current guidelines on solicitation statement legislation to ensure that it achieves its intended purpose. Namely, that members of the public are given clear and transparent information about how their donations may be used prior to signing up to a formal agreement". It adds that "fundraisers must be fully briefed on the content of the solicitation statements in use for individual campaigns; not just so they can deliver compliant fundraising pitches but so that they can also answer more general questions about the campaign".
For charities that conduct their own fundraising, the lesson here is to train their fundraisers to understand solicitation statements and deliver them appropriately, and to put unambiguous statements on their own materials. For those who outsource fundraising to third parties, the chief lesson is to ensure that external fundraisers are properly trained and supervised. This leads neatly to the next point.
Inadequate monitoring of the fundraiser's activities
This is the most common problem reported by the FRSB. Section 4.2(b) of the Code (in its current iteration) states:
"Organisations MUST check, and make all reasonable efforts to ensure, the ongoing compliance of third parties with the Code and their legal requirements."
Breaches of this section tend to be due either to:
- inadequacies in the contract between the charity and the fundraiser, meaning that the charity was not contractually entitled to carry out the required degree of supervision; or
- failure, by the charity, to make appropriate use of its monitoring powers.
Examples of the second type of breach are scattered throughout the FRSB's reports. In some cases, charities appear to have done very little monitoring; in others they seem to have ensured they received a steady stream of information from external fundraisers, but were nevertheless found to have breached the Code's monitoring requirements. For instance, the Royal British Legion report tells us that the charity provided training materials to Magnum Direct, signed off on all compliance-related materials, received daily sales reports from them and conducted fortnightly conference calls with them. Still, the FRSB considered that the charity should have done more.
The message that comes through is that it is not enough for charities to rely on reports from professional fundraisers – adequate monitoring requires them to observe their fundraisers directly. This might involve a range of activities: providing regular training to ensure that fundraisers remain 'on message', carrying out 'mystery shopper' exercises, listening to a percentage of fundraising calls, embedding employees in call centres, or accompanying door-to-door fundraisers on their rounds.
However, it can be difficult to understand how much is expected of charities. A charity could easily spend a disproportionate amount of time (and money) to make sure it complied with the Code's monitoring requirements. The Code demands "reasonable efforts", but what does that mean? In the GoGen report, the FRSB acknowledges the ambiguity of the phrase and expresses its view "that the Code of Fundraising Practice should include a standardised best practice benchmark for both telephone fundraising agencies and charity clients to work to." This recommendation only concerned telephone fundraising, but provided the benchmarking is not unduly prescriptive, it might be helpful for charities to be given an idea of what "reasonable efforts" look like for all types of fundraising.
The future, and implications for charities
In July, the Fundraising Regulator assumed responsibility for the Code from the Institute of Fundraising and took over enforcement from the FRSB. In due course the Fundraising Regulator will, presumably, be publishing its own adjudication reports. It is impossible to know whether the new Regulator will adopt the FRSB's approach and emphasis, but it seems unlikely that it will ignore the FRSB's experience and expertise.
Not everything in the Code is a legal requirement. Much of it amounts to best practice, and the Code goes out of its way to differentiate legal obligations from matters that, whilst not legally binding, the Regulator treats as professional standards to be met by fundraising organisations. Nevertheless, failure to comply with the Code may have a number of repercussions.
One of the criticisms of the FRSB was that, as a membership organisation, it had no power to bring sanctions against non-members. The new Regulator oversees all fundraising in England and Wales and will be able to take action against any organisation that breaches the Code. According to its "Mission and Values" paper, enforcement powers will include "cease and desist" orders and vetting future fundraising campaigns. Ultimately, it is still a system of self-regulation, so whilst the Regulator has more teeth than its predecessor, they are still not terribly sharp. That said, where a charity declines to cooperate with the Regulator or does not accept its conclusions, the Regulator may refer the case to the Charity Commission. This may lead to the Commission carrying out its own investigations, and the Commission has spent the last few years sharpening its own teeth (as well as – to stretch the metaphor to breaking point – acquiring some new ones via the Charities (Protection and Social Investment) Act). So breaching the Code may call down the sanctions of the Regulator or even the Charity Commission.
The other, and perhaps most obvious consequence, is reputational loss, possibly leading also to financial loss if supporter confidence is badly shaken. In the climate set by last year's fundraising scandals, it would be foolhardy (and probably negligent) for trustees to be blasé about the impact of their fundraising activities on their charity.
External fundraisers play an important part in drumming up financial support for the sector and there is a risk that focusing on what can go wrong might lead charities to avoid forging fruitful relationships with them. By reading the Charity Commission's guidance on fundraising, familiarising themselves with the Code and taking advice where appropriate, trustees should be able to steer a course between laxity and hypervigilance.
 See section 19.6 of the Code. The conditions are that (1) other sources of fundraising investment have been explored and exhausted; (2) payments are subject to approval by the fundraising organisation's trustees, or senior executives when power has been delegated; and (3) safeguards are in place to ensure excessive remuneration is not permitted.
 You can read this guidance online.
If you require further information on anything covered in this briefing please contact Rachel Holmes (email@example.com , 020 3375 7561) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Charities page on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, October 2016