We answer more of your questions: “Our charity is connected with a non-charitable business, as it was established as a corporate foundation – how do we maintain independence?”, and “We have recently carried out a fundraising appeal for a specific project, but did not raise sufficient funds to proceed. What should we do with the donations received?”
"Our charity is connected with a non-charitable business, as it was established as a corporate foundation – how do we maintain independence?"
Answer: The most important thing to ensure is that there are a sufficient number of trustees with no connection to the non-charitable business. This is important because if any decisions need to be taken regarding anything to do with the relationship between the charity and the non-charitable business, any trustees who are connected with the business will be conflicted and therefore unable to participate in discussions or vote on the matter. If you are not quorate in the absence of all conflicted trustees, then your board will not be able to take decision in these circumstances without an Order from the Charity Commission.
It is also very important to take care to identify and appropriately manage conflicts of interest. This applies both in situations where a non-charitable business is a member of the charity (which is often the case for charitable foundations established by non-charitable businesses) and where a charity has a wholly-owned trading subsidiary. The article in this edition of the newsletter on unauthorised benefits and conflicts of interest provides a good illustration of the potential risks if these issues are not identified and appropriately managed.
The Charity Commission recently consulted on draft guidance for charities on their relationships with connected non-charitable organisations. The consultation closed on 15 May, and the Commission is now reviewing the feedback received. In the meantime, the draft guidance can be viewed on the Commission’s website, along with a draft "at a glance" duties and principles, and a draft checklist to help charity trustees review their actions and decisions.
"We have recently carried out a fundraising appeal for a specific project, but did not raise sufficient funds to proceed. What should we do with the donations received?"
Answer: The answer is that it depends on what you said when you launched the appeal. If you solicited funds from donors specifically for the purpose of this particular project, then those funds are "restricted funds", which are held on trust for those particular purposes and may not be used for any other purpose. If that purpose is no longer possible, then the funds should be dealt with as a "failed appeal" under The Charities (Failed Appeals) Regulations 2008, in accordance with Charity Commission guidance.
If, on the other hand, the funds were solicited on the basis that if insufficient funds were raised for the particular project to proceed the funds would be applied for the general purposes of the charity, then the funds are not "restricted funds" and may be retained by the charity within its unrestricted funds and used for the charity’s general purposes. Examples from the Charity Commission guidance include:
"We are raising funds to buy a scanner for the hospital. If for any reason we can’t buy the scanner, or there are surplus funds left over following the purchase of the scanner, we will use the money to buy other equipment that the hospital could not otherwise have."
"Here is an example of one of our projects. To support this and other projects that we run, please give a donation to our charity."
We recommend that charities always include a secondary purpose when making specific appeals, to allow for the funds to applied for other purposes if insufficient funds or surplus funds are raised.
A recent case report on The Friends of Blencathra Ltd, published by the Charity Commission on 13 March 2018, provides a very helpful overview of the issues relating to failed appeals. It also includes a section on "lessons for other trustees", which you might find helpful.