Partner Nick Burrows, in our Charities & Education team, looks at charities and the funding on non-charitable organisations.
Funding other charities or non-charitable organisations can be an effective way to further a charity’s purposes. The Charity Commission has, however, reminded charities to exercise greater vigilance when considering funding other bodies, in particular 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 their charity.
It is essential that trustees undertake reasonable due diligence to ensure that they are protecting their charity’s funds and reputation when making grants. 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.
What is inappropriate funding?
Failure by trustees to ensure that 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. By way of example, 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;
Trustees 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; or
Trustees fail to take adequate steps to monitor the use of funding their charity has provided.
Trustees’ legal duties and responsibilities
In grant making, 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 its 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 that any decision is within the range of decisions which 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
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.
