Prince Charles – a reminder to take precautions when accepting donations

It was recently reported that the Charity Commission is examining whether it needs to carry out a review of donations received by the Prince of Wales’s Charitable Fund after millions of euros in cash were handed over by Sheikh Hamad bin Jassim, a former prime minister of Qatar. Whilst a representative of Prince Charles said ‘all processes were followed’ this incident serves as a reminder for charities to ensure they have proper practices in place for accepting donations. In this article we answer some of the top questions about charities and donations.

What are the responsibilities of charity trustees when a charity is accepting donations?

Charity trustees are legally responsible for ensuring that charitable funds are properly used, adequately protected, and not misused for financial crime, terrorist or other criminal purposes. The best way to meet these obligations is to implement good governance practices and procedures. At a minimum, charity trustees should know where the charity’s money comes from (e.g. grants, cash donations, legacies, etc.). Depending on the size of the donation, additional due diligence may be required to verify the nature of the donation.

What types of policies and procedures should charities implement?

Charities should have policies and procedure in place to ensure that trustees, staff and volunteers are aware of the risks associated with certain donations. There should also be procedures in place to help ensure that trustees are made aware of any suspicious donations and a procedure should be established which sets out what needs to happen if a suspicious donation is identified.

Charities should also establish due diligence practices to help to:

• assess any risks to the charity that may arise from accepting a donation or certain types of donations;
• ensure that it is appropriate for the charity to accept money from the particular donor;
• give trustees reasonable assurance that the donation is not from any illegal or inappropriate source; and
• ensure that any conditions that may be attached are appropriate and can be accepted.

Whilst charities do not need to question every donation, or know the personal details of every donor, having proper policies and procedures in place is important so that trustees, staff and/or volunteers know when additional due diligence is required, and know how to undertake such due diligence.

What should charities do when they receive small donations?

Many charities receive small donations, either as a one-off donation or periodic donations throughout the year. For example, charities may have cash collection boxes or hold fundraising events or appeals where they receive a number of small donations. In these situations, charities are not expected to know the identity of each donor and therefore conducting additional due diligence on these donations is not required.

What should charities do when they receive regular or ongoing donations?

Some charities have donors who donate on a regular basis. For example, donors may donate a set amount to a charity each month which is paid through direct debit. Generally, charities that accept regular donations will have the name and address of those donors, and will likely also have their bank details, particularly where the donation is subject to gift aid. In these situations, charities will generally not be required to undertake further due diligence on these donations.

What should charities do when they receive large donations?

Charities will generally need to carry out due diligence when they receive a large donation. This due diligence should seek to identify and verify the donor and assess the risks associated with accepting the donation.

If the donor is an organisation, the charity should know what its business is and take steps to verify its details. For example, the charity should confirm that the details of the organisation match the details on Companies House. If the donor is a charity, their charity registration can be verified on the Charity Commission’s Register of Charities.

The charity should also confirm whether the organisation is appropriate for the charity to be linked to. For example, if the organisation is subject to a recent scandal or controversy, the charity may not want to be associated with that organisation.

If the donor is an individual, similar steps should be undertaken to confirm the donor’s identify and determine whether an issue could arise if the charity was linked to the particular individual.

What should a charity do when it receives anonymous donations?

It is perfectly acceptable for a donor to wish to remain anonymous. However, charities should have measures in place to determine whether an anonymous donation is suspicious. Additionally, all anonymous donations with a value over £25,000 need to be reported to the Charity Commission as a serious incident.

How can suspicious donations be identified?

Chapter 2 of the Charity Commissions Compliance Toolkit: Protecting Charities from Harm, sets out the following examples of situations which may indicate a suspicious donation:

• unusual or substantial one-off donations or a series of smaller donations or interest-free loans from sources that cannot be identified or checked by the charity;
• if conditions attached to a donation mean that the charity would merely be a vehicle for transferring funds from one individual or organisation to another without the trustees being able to satisfy themselves about the appropriateness of their use and that they have been used as intended;
• where a donation is made, the charity is told it can keep it for a certain period of time, perhaps with the attraction of being able to keep any interest earned whilst holding the money, but the principal sum is to be returned at the end of a specified, short, period;
• where donations are made in a foreign currency, and again unusual conditions are attached about their use, including a requirement that the original sum is to be returned to the donor in a different currency;
• where donations are conditional on particular individuals or organisations being used to do work for the charity where the trustees have concerns about those individuals or organisations;
• where a charity is asked to act as a conduit for the passing of a donation to a second body which may or may not be another charity; and
• where a charity is asked to provide services or benefits on favourable terms to the donor or a person nominated by the donor.

Whilst donations with these features may nevertheless be acceptable donations, it is important for charities to understand that these types of donations impose a higher risk and should therefore be subject to greater scrutiny.

If due diligence checks reveal evidence of crime, trustees must report the matter to the police and/or other appropriate authorities.

Would you like more information?

The Charities Commission website has a number of resources for charities about donations.

If your charity has any particular questions or if your charity needs assistance preparing policies and procedures relating to donations, our charity experts would be happy to help. We can be reached by phone at 020 7481 2422 or by email at enquiries@wellerslawgroup.com.