The serious lessons of the CharityGiving controversy

Peter Gotham, a partner at MHA MacIntyre Hudson, explains the steps charities can take to avoid being left out of pocket

Peter Gotham
Peter Gotham

Last month, the Charity Commission suspended the online platform CharityGiving to protect donors funds. It had already appointed an interim manager of the Dove Trust, which ran the site, and found a shortfall between the amount owed to charities and the amount the trust had in the bank.

These are serious matters, and I would like to consider whether these revelations have any wider lessons for the governance and management of charities in general.

First, be very careful about related party transactions. As we often see when reading about Charity Commission investigations, the trust does not appear at first sight to have had proper regard for the difference between personal and charity funds. Sometimes this sort of error has few consequences, but it can so easily be the start of a slippery slope. In any event, trust law is very clear: there can be no mingling of the two.

This is reflected in commission guidance about being very careful that the charity's position remains paramount when undertaking any transaction with "related parties". A proper assessment is required of whether the transaction is in the best interests of the charity - with formal professional advice if any form of investment or loan is being considered.

As we are increasingly seeing, the sector is not insulated from the problems that can arise if a trading partner has financial problems.

Second, do your due diligence. With hindsight, I'm sure charities that asked the Dove Trust to manage part of their fundraising wish that they had done more due diligence - but, as Caron Bradshaw, chief executive of the Charity Finance Group, wrote in Third Sector (23 July, page 19), finance sometimes still does not get the attention it deserves.

And talking of CFG, Paul Breckell, chief executive of Action on Hearing Loss, quotes an old saying in the current edition of the CFG's Finance Focus that "there is hardly anything in the world that cannot be made a little worse and a little cheaper".

As charity trustees and managers, we argue that funders should take account of the quality of our charities' service delivery. In much the same way, we should look beneath the surface ourselves. In practice, it is difficult to assess how much time and effort should be put into due diligence. But major relationships seem to warrant at least a check of the accounts and enquiries about what our fellow charities might say about our potential trading partners. After the event, it is often the case that there were clear indicators of concern - as was certainly true in the case of the defunct outsourcing company Charity Business, and is true about the Dove Trust.

Third, good financial management requires good communication. Good internal information flows can reduce the risk that an initial mistake can become a long-term problem. Good internal collation, management and sharing of information will make the reports that go to the board more reliable - but they should also engender an attitude in which all parts of our organisations feel a shared ownership of information.

If there is no coordination, then delays in receiving payment from fundraising partners will not be apparent in the regular balance sheet and accounts receivable reports. In much the same way, at a more mundane level, delays in claiming payment from funders commonly arise because of problems in internal liaison between project and finance teams.

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