The Charity Commission has published the findings of its second inquiry into Hospice Aid UK following an Official Warning in 2021 and a previous statutory inquiry which concluded in 2016. Key concerns in the second inquiry included the governance and financial management of the Charity.
In the initial inquiry into the charity in 2016, the Charity Commission found that an expensive (and long-term) agreement for direct mail services with a marketing and fundraising agency was not an effective use of charitable funds. The agreement term was for a period of seven years, and the agreement had inadequate termination options for the Charity in the event of poor financial performance by the fundraiser and that the financial terms of the agreement were such that the Charity would potentially receive a very low (2%) proportion of funds raised. The inquiry concluded that the arrangements for the fundraising had not been clearly disclosed to the donating public in a way which allowed donors to make an informed choice, and overall the inquiry considered that it was not reasonable for the trustees to have entered into the agreement. The Commission was also concerned by non-compliance with the Charities Act 1992 regarding solicitation statements on fundraising materials, despite the Charity having taken professional advice which suggested that the 1992 Act rules did not apply.
This particular agreement was concerning in the wider context of the 2016 inquiry as the Commission found that there was financial mismanagement at the Charity, as a low proportion of charitable funds were applied for the charitable purposes, causing reputational risks to the Charity. As a result of the 2016 inquiry, the trustees were required to include certain financial information in the annual reports, and the Commission noted that for the financial years ending March 2016 and 2017, less than 1% of the Charity’s recorded income (on average) was applied in grants to further the charity’s purposes.
The Commission opened a second inquiry in September 2019, following ongoing concerns about the charity’s finances and solvency, trustee appointments and conflicts of interest, and the extent to which the trustees have complied with their legal duties and the advice, guidance and directions previously issued by the Commission.
One significant concern was that the fundraising agreement, which had been heavily criticised in the 2016 inquiry report, had been renewed for a further five years in 2017. The Commission found that the trustees had not undertaken a proper review of the agreement (including a review of past performance) or any due diligence before renewing it. The renewed agreement also contained the onerous obligation that the Charity was liable for all costs without limitation (including costs incurred by third-party suppliers), and a financial breakdown associated with the fundraising agreement, provided by the Charity’s legal adviser, showed that due to the costs associated with the agreement over the period of time it had been in place, only 6% of the total amount raised from the public was ultimately made available to the Charity.
The trustees had failed to rectify accounting and reporting deficiencies, failed to comply with an order made by the Commission and failed to comply again following a further order made in 2021 relating to improvement of the Charity’s governance and management and particular regarding the financial information provided in its accounts.
There was no evidence that any formal trustee meetings had been held between 1 January 2017 and 1 October 2019. These failures, including the failure of the trustees to meet the Commission’s expectations regarding financial disclosure, amounted to misconduct and/or mismanagement in the administration of the Charity. The trustees were criticised for the lack of transparency to both the regulators and the public in the financial disclosures and records of the charity.
Unsurprisingly, the charity was issued with an Official Warning by the Commission, which required the trustees to exercise sufficient oversight of the charity’s activities and finances, including the adoption of a financial controls policy, and for the trustees to only enter into commercial agreements that are in the charity’s best interests.
Key lessons for all trustees that the Commission highlighted in its second inquiry report include:
- Governance – the inquiry serves as a reminder to trustees to contribute to the effective management of the charity; ensure it is operated in line with its governing document and the law; and supervise the charity’s resources to ensure they are being applied in the best interests of the charity.
- Financial controls – trustees must ensure that their charity has adequate financial controls in place and must be transparent and accountable to their donors, beneficiaries and the public in relation to how money is used.
- Working with third parties – the inquiry serves as a particular reminder of the importance of having robust systems in place for working with third parties. The Commission was alive to issues where arrangements with third parties that function like professional fundraiser arrangements but which are deliberately structured to avoid these rules still expose the charity to financial and reputational risk. Such arrangements often do not make it clear to the donor how the fundraising is delivered and how costs are managed with particular reference to whether the arrangements (and a lack of transparency about the arrangements) may damage public trust in the charity.
For further information, please contact:
Hannah Brearley, Withersworldwide