The Charity Commission is reminding charities to exercise greater vigilance when considering funding non-charitable bodies, to ensure that funds are used only for charitable activities which further the purposes of their charity and do not expose it to reputational risks or other risks that impact on public trust and confidence in charity.
Trustees must undertake reasonable due diligence to ensure that they are protecting the charity’s funds and reputation when making grants.
What is inappropriate funding?
Funding other charities or non-charitable organisations can be an effective way to further a charity’s purposes.
But charities must only fund activities that further their charitable purposes and trustees must ensure they take steps to protect their charity’s assets and reputation.
Failure by trustees to ensure charitable funds are applied in accordance with their charity’s purposes and their duties as trustees would give rise to regulatory concerns and require the commission to get involved. The following scenarios would give rise to serious regulatory concerns:
- a charity funds activities that are either not charitable or not capable of furthering the charity’s specific purposes
- trustees do not undertake appropriate due diligence or adequately ring fence grants in the hands of recipients or have not taken adequate steps to protect the charity’s position and ensure proper use of the charity’s funds
- trustees risk their charity’s reputation by making grants without fulfilling their legal duties
- trustees fail to take adequate steps to monitor the use of funding their charity has provided
Trustees’ legal duties and responsibilities
Trustees must be clear about what their charity hopes to achieve and how funding a certain organisation will help them achieve that aim.
The commission expects trustees to:
- follow the commission’s guidance on decision making, including by acting in good faith, informing themselves adequately, taking account of all relevant factors and disregarding irrelevant ones, seeking professional advice where relevant and ensuring any decision is within the range of decisions a reasonable trustee body may make
- assess whether the grant would pose reputational risks for the charity
- compare their charity’s objects with those of the proposed recipient
- carry out appropriate due diligence checks on the proposed recipient
- set proportionate terms and conditions that restrict what the funds can be spent on
- take reasonable and appropriate steps to monitor how their charity’s funds are used
- seek repayment if funds are not spent in accordance with the charity’s terms and conditions
Wider issues for trustees to be aware of
Some charitable purposes such as community development and the promotion of human rights are difficult to interpret. While both these purposes can be charitable, not all activities that fall under these headlines are capable of being charitable. This means that trustees considering funding organisations to pursue community development or to promote human rights must take particular care to assure themselves that the grant will be used only to fund activities that further their charity’s purposes.
(Source: Charity Commission)