Charities – how well do you know your donors?

Published by Lucy Hammond on 4 April 2024

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The not-for-profit sector is experiencing significant pressures whilst demand for their services and support is increasing yet the funds available for them are reducing. 

The impact of the continued cost-of-living crisis impact is vast – regular donors are reducing or cancelling their direct debits and standing orders, fundraising appeals are raising less, corporate donors are reducing their giving and statutory funding is not increasing in line with inflation.

But with these pressures it is all the more important to ensure that charities know their donors. The need to ensure charities minimise their risks whilst maximising their income is paramount.  And for the trustees, that means always ensuring that the charity’s best interests are at the centre of every decision they make.

It can be hard to say no to much needed funds and yet sometimes it is the right thing to do.  Not all funding will be in the charity’s best interests.

So how do trustees make decisions about whether to accept a donation or not?  How do they ensure consistency in their decisions, and how do they communicate with donors about this?

Last month, the Charity Commission issued guidance on this, and what is clear is that Trustees should start from a point of acceptance, as the law requires them to do.  Fundamentally, trustees have to act reasonably and with their charity’s best interests at the centre of any decisions that they make – and it is no different when it comes to accepting, or not, a donation.

This really starts with how well do you know your donor?

Charities are required to carry out some due diligence on potential donors.  The Charity Commission has a checklist that can be used to ask key questions. These include:

  • Who is (or are) the donor?
  • What do we know about them?
  • Does the charity have an established relationship with them?
  • Do we need to carry out any additional checks?
  • Can gift aid be claimed?
  • In what form is the donation – cash, bank transfer etc?
  • What is the value?
  • Are there any conditions attached to it?

The answers to these questions will drive the next steps.

On the basis that there is no suspicion of criminal activity (and if there is the Commission’s guidance clearly sets out the next steps), the trustees should consider the following, without allowing their personal views or other pressures to influence their decision:

  • The risks involved in refusing or returning the donation
  • The risks involved in accepting or keeping the donation
  • How their decisions aligns with the charity’s purpose
  • What steps can they take to mitigate the risks?

Last year’s updates to CC14 ‘Investing Charity money: guidance for trustees’ also reflects the importance for trustees not to allow personal motives, opinions and interests to affect the investment decisions that they make.  Whilst this can be tricky, by keeping the charity’s best interests at the heart of every decision they make, will ensure that this happens in practice.

Clearly time needs to be allowed to collate all of the information, consider the risk factors, to ask further questions and to make a decision.  With the majority of trustees being unpaid volunteers, many of whom hold full time employment positions elsewhere, this adds to an already lengthy to do list.  The burden of this can be eased by having policies and procedures in place so that the due diligence information is gathered and collated by management so that the trustees can really focus on the risks, the alignment with the charity’s purpose and how they can mitigate any risk.

But the world is changing. Donations take many forms and are not just being given as cash, bank transfers or direct debits. We have seen donations made via cryptocurrency, such as Bitcoin, which requires a greater understanding of what has been donated.

The due diligence questions remain valid and charities also need to get to grips with the accounting for such transactions.

If you’d like to discuss anything in this article with our charity and not for profit experts, contact us here.

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