Partner Nick Burrows, in our Charities & Education team, looks at the Charity Commission's reminder to charities to review their arrangements with commercial organisations following a recent case.
In recent years, as charities seek out innovative ways to raise both funds and their public profile, partnerships with commercial organisations have become more and more prominent. However, recent media scrutiny has flagged up the pitfalls that charities can fall foul of if they don’t approach these arrangements with caution and transparency.
The Charity Commission has alerted all charity trustees to review any arrangements with commercial organisations following Ofgem’s investigation into the now suspended partnership activities between energy company E.ON and Age UK. In this arrangement Age UK promoted a special energy tariff to its “customers” in return for £41.00 from E.On for every person that signed up. In total the charity looked to gain £6 million a year. The issue with this arrangement, which was discovered by The Sun newspaper, was the cost of the tariff, which according to the newspaper, exceeded the average tariff required by each “customer”. It is estimated that there are 152,000 Age UK “customers” on this special, dearer tariff totalling an overspend of £37 million.
The Charity Commission expects charity trustees to comply with their legal duties and responsibilities when it comes to entering into partnerships or agreements with commercial organisations. The Commission reminds trustees to:
- carry out appropriate checks on the commercial organisation before entering into any agreement and to manage any conflicts of interest;
- ensure that any arrangements are set out in writing and comply with the legal requirements of commercial participators;
- be clear that any partnership/arrangement is in the best interests of the charity;
- put in place processes to review whether the partnership/arrangement continues to be in the best interests of the charity;
- consider the risks and benefits to the charity’s name and reputation;
- make sure that the nature of the arrangement and the fee or commission received by the charity is clear and transparent; and
- take professional advice where appropriate to protect the charity before, during and after the commercial arrangement.
If the charity operates through a trading subsidiary the trustees still need routinely to monitor the performance of the subsidiary and the potential risks to the charity’s name and reputation.
Failure to adhere to the Charity’s Commission alert, the relevant guidance and legislation could easily result in serious reputational damage to the charity and/or regulatory action by the Commission.
The Charity Commission’s ultimate message is that trustees should not allow the pressure of sourcing funds to overtake the importance of upholding the charity’s values, transparency and reputation.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
