RICHARD BLAUSTEN, editor of CHARITIES MANAGEMENT, writes: The news material below is just a selection of items to give readers a broad feel of what is going on in the charity world with an emphasis that is not necessarily seen in other charity publications. Thus we run management-related items which we feel deserve particular attention.
Do have a great read of the whole NEWS section.
Charities should be wary of fraud during Covid
Accountancy and management firm Deloitte is urging charities to focus on their internal controls during the current coronavirus crisis. While it is acknowledged that charities will already have an internal control framework in place to prevent and detect fraud, it should be recognised that Covid-19 has caused significant operational and financial disruption, resulting in increased pressures on services, employees and beneficiaries at a time where the control environment of the charity may be weakened.
Reza Motazedi, Deloitte’s head of charities, is urging that management should update their understanding of their internal controls to identify which controls still operate effectively and which cannot work in this new environment. Management should then put in place controls to cover the gaps identified.
This re-assessment should consider specifically whether there is a heightened risk of fraud as a result of the impact from the spread of Covid-19, whether that is through manipulation of financial results, misrepresentation of facts or misappropriation of assets. The assessment should document any changes that have been made to the internal control environment to allow the continuing operation of the business and how these have been designed to mitigate the risk of fraud.
Motazedi stresses that this equally applies to trustees in terms of a reconsideration of the risk of management fraud. It is important management include not only their response to the current situation, but continue their assessment through the recovery process as different risks and motivations for fraud may arise.
This management assessment should receive a robust challenge from trustees, so they can satisfy themselves they have met their financial duties as trustees having robust and effective financial controls in place and protecting the charity from financial crime such as theft or fraud.
Trustees are responsible for their charity’s money. Says Motazedi: “Your charity should have effective processes for handling money, to help avoid poor decisions and accidental errors, as well as theft and fraud. Failure to do so is likely to result in a breach of your duty.”
So trustees should: set a budget and keep track of it; put in place clear policies and procedures to deal with income and expenditure; ensure the charity keeps accurate records of income and expenditure. Charities should put appropriate safeguards in place for money, assets and staff if the charity operates outside the UK.
But the challenge of fraud during Covid is not static, emphasises Deloitte’s Nikki Loan. So management and trustees will need to keep their understanding of internal controls and fraud risk assessment updated as events change over the coming period. She stresses that the assessment and evidence of challenge by trustees should be clearly documented.
Wherever possible it is important to maintain segregation of duties. However, if for a short time this is not possible, say due to illness, management and trustees must have early warning and monitoring mechanisms in place to ensure the lack of segregation of duties is not abused.
Loan says care should be taken to preserve and strengthen the control environment as charities work remotely. Charities should maintain segregation of duties so that no one individual has too much authority to post inappropriate journals, make payments and misappropriate cash or other assets. They should ensure proper accounting records are still maintained.
Trustees and management should consider requesting third parties send data to more than one employee so it can be subsequently cross checked for changes if required. They should think about ways to secure the charity’s assets using technology where physical controls cannot be implemented. They should consider more digital security such as CCTV and electronic tagging of assets.
Leading charities alleged to share website data
A study by digital freedom organisation ProPrivacy alleges big-name charities are allowing external advertising companies to profile people using their website, often when they are at their most vulnerable - for example when reading through palliative care options or seeking gambling addiction advice.
ProPrivacy says charities are legally bound to operate in the public interest, however its investigation suggests that online advertising companies and data brokers could be profiling users of UK charity websites.
A substantial number of the top 100 UK charities are allegedly sharing potentially sensitive user data with global ad companies in exchange for targeted advertising revenues. ProPrivacy’s researchers found examples of trackers belonging to some of the world’s most invasive data brokers. These trackers were found on pages covering extremely sensitive topics such as debt, mental health and palliative care.
ProPrivacy acknowledges that “many charities generate income via digital advertising to fund the often invaluable work they do”. However, the study suggests they are, whether intentionally or not, increasingly engaging in a practice that funnels the data of those in need to AdTech companies and data brokers, whose sole aim is to build sophisticated profiles of users for profit.
Many charity websites provide information and resources to those in need, from researching symptoms of illness to seeking out debt consolidation advice. ProPrivacy found trackers enabled on many of these pages, allowing third party advertising companies and data brokers access to potentially sensitive data that could be tangibly linked back to a specific user.
ProPrivacy is calling on the charity sector to do away with this tracking technology on pages where sensitive information can be inferred about those visiting a specific web page.
The ProPrivacy study found that in relation to the top 100 UK charities:
- 21% are sharing data directly with data brokers. These companies build detailed profiles of citizens around the world so that their partners and customers can later use the data for highly targeted advertising.
- 31% have websites that contain trackers belonging to real-time bidding platforms. Real-time bidding raises serious privacy concerns because data is broadcast to hundreds or thousands of partners and there is no technical way to understand where this data ends up and what they might use it for.
- 92% are in breach of GDPR and the EU ePR (ePrivacy Regulation). Cookie consent with charities is being woefully mishandled. Consent is either assumed without question, or is taken before consent is actually given. This report underlines a critical issue within the charity sector that is, at best, morally opaque and, at worst, illegal and harmful.
Sean McGrath, lead researcher on the project, believes the charity sector needs to take action to stop this morally questionable practice: “By allowing data brokers and other AdTech companies to gather user data on charity pages dealing with profoundly sensitive topics, charities are inadvertently misplacing the trust that their users place in them when visiting their website for help and advice.
“The AdTech industry is deeply complex and it is almost impossible to say where user data ends up or what it might eventually be used for. We call on all UK charities to properly audit their websites to understand which third party elements are loading on each page and remove potentially invasive elements from pages that handle sensitive topics.”
Charities think differently about their investment portfolios
According to findings from Newton Investment Management’s seventh annual Charity Investment Survey, the pandemic has not only affected the investment returns charities receive, but also triggered a change in behaviour in how charities think about their investment portfolios now and in the future. Approximately half of the charities surveyed by Newton, stated that the pandemic has prompted a wider review of their activities, and that policies around contingency planning have had to be updated.
Nearly a third of respondents stated that the pandemic has affected their future investment strategy. Of these, 88% anticipate a drop in their investment income, and half stated they have already seen a significant drop in investment returns. Of those investment strategies that have been affected by the pandemic, just over half are re-evaluating their reserves policy, while 27% noted that there have been changes to spending levels from their investment portfolios.
As for the impact on fundraising, 81% of charities reported that their fundraising decreased as a direct result of the pandemic. The impact on fundraising has been particularly pronounced for larger charities; 100% of charities with assets of over £101 million stated that they have seen a decline in fundraising. However, larger charities appear to have been better able to source government support than their smaller counterparts.
Of charities surveyed, 56% reported having to lay off or furlough staff since the start of the pandemic, with 52% having to cease some of their operations.
Away from the impact of the pandemic, the survey found that charities continued to prioritise environmental, social and governance (ESG) factors when it comes to investing. Fossil fuel-free investing remains a minority practice, but a growing one. The proportion of charities excluding some or all fossil fuel investments has risen to 20% in 2020, the highest proportion recorded in the survey’s history.
For the second year in a row, “ethics” was the most common response when charities were asked to identify issues that they would like their investment managers to address. It was also the third consecutive year that charities’ use of ethical exclusion policies increased, with 59% of charities surveyed now including ethical exclusion policies. Between 2017 and 2020, the proportion of charities reporting planned expansion for their exclusion policies increased by 23%, with growth of 12% and 9% in 2018 and 2019, respectively.
Alan Goodwin of Newton Investment Management says: “It is clear from charities’ responses in our survey that few have been untouched by the impacts and investment uncertainty caused by the pandemic. From fundraising, to charities contemplating their reserve investments, to grant-giving endowments contemplating income and future returns, charities have reported significant changes as a result of the pandemic.
“But the pandemic’s impact on the investment world has also accelerated a number of pre-existing trends. This has been the case for ESG, particularly in the rising prominence of E and S factors, as well as a growing importance placed on stewardship through engagement with investee companies. Sustainability in investing continues to be a priority, putting ESG considerations at the core of the investment process.”
Legacies to charities show big increase
Data from Co-op Legal Services concerning its own business reveals that the financial value of gifts being left to charity has increased by over 30% in the last 12 months.
Co-op’s data further highlights that whilst its clients are leaving gifts most frequently to charities which tackle cancer, animal charities are continuing to rise in popularity, with almost a quarter (23%) of all legacy gifts being given to them. This has risen by almost 10% in the last 12 months.
As well as donating to make a difference with medical advancements, people are also wanting to give back to their communities and local causes, with a tenth (11%) of legacy gifts having been pledged to these this year.
Full break down of the charity categories Co-op’s clients have chosen to leave gifts to are as follows:
However, Co-op’s data reveals that it isn’t just money which is left to charity; people also choose to give more personal items. Generous supporters have left a range of significant or interesting items to charities of their choice, including houses, land, paintings and music collections.
Fundraising should be part of strategic planning
Fundraising is not being sufficiently embedded in charities’ planning processes to the detriment of income growth, according to the UK based Institute for Sustainable Philanthropy, in a study Development Plans and Fundraising Performance, which examines how planning is undertaken in the fundraising sector and its impact on income. This study shows how strategic planning from the board downwards drives higher income growth, donor retention and fundraiser confidence.
Even through 95% of charities believe fundraising planning is immensely valuable, one in four (28%) charities do not have formal planning documents in place. And where charities do recognise the need for strategic planning and have fundraising plans in place the study identifies that many lack engagement from the board. Only two in five (40%) of respondents believe that colleagues outside the fundraising team could clearly articulate the case for support.
As might be expected, larger charities are more likely (78%) to have a written plan compared to smaller charities (63%). In most cases, the senior management team (75%) is involved in fundraising planning, but fewer than half of respondents (45%) report involvement at board level.
Adrian Sargeant, co-director of the Institute for Sustainable Philanthropy and report author, says: “Failure to plan is effectively planning to fail – it’s crucial that charities of all sizes engage in rigorous planning with the involvement of fundraisers, senior management and the board. Our research shows those charities whose boards value and respect the work of fundraising teams and support them and their planning process have better fundraising performance.”
Only 57% of fundraisers feel that their board is supportive of them. Crucially, a fifth (20%) of fundraisers do not believe their charity views them as professionals. However, professional recognition of fundraisers is higher in those charities which formalise fundraising planning.
Fundraisers should have formally recognised qualifications
With the charity sector “facing a huge deficit of talent and with skilled fundraisers more sought after than ever”, a report Accident Prevention, commissioned by charity support social business Cause4 and the Arts Fundraising and Philanthropy Consortium, shows that only 5% of fundraisers actively chose it as a profession. The majority (44%) become a fundraiser by “accident” with no major decision to choose this as a job, whereby 42% gradually come to the decision to become a fundraiser over time.
Ending or minimising accidental routes into fundraising is seen as vital by the report’s author, Ian MacQuillin, director and founder of think tank Rogare, who argues that only by actively promoting fundraising as a profession and introducing formally recognised qualifications will the charity sector acquire the competencies needed to plug the growing skills gap. Furthermore, the introduction of a formally recognised qualification will help to ensure a high standard and end the informality of training and career development currently on offer.
MacQuillin argues that establishing a required framework would help to end exploitative and unfair routes into the profession, for example by requiring that candidates already have undertaken unpaid or low paid roles to gain experience or connections.
The report also calls for a radical rethink of the type of traits and qualities recruiters should look for in candidates, suggesting that current practice is focused on behaviours and attitudes, rather than concrete skills and knowledge - to the detriment of the sector.
MacQuillin says: “We wouldn’t expect a surgeon or accountant to ‘fall in’ to their profession so why do we expect the same from fundraisers? We must urgently remove the reluctance to establish a set of standard competencies and skills in fundraising. Our findings highlight that, while the charity sector attracts passionate and values-driven individuals, we cannot leave finding good fundraisers to chance and possibly the best way to do this is by establishing a qualifying entry route into the profession.”
Michelle Wright, programme director at Arts Fundraising and Philanthropy observes: “This is an important piece of work that asks urgent questions about what we look for in candidates for fundraising roles and how and where the gaps are. Should we be looking for experience or track record? How do we assess their suitability for a role? Ending the subjectivity entrenched in recruitment practices could be the best way of ensuring the charity sector attracts a skilled and diverse pool of talent for years to come.”
Gaps in compliance with fundraising reporting rules
The Fundraising Regulator’s review of charities’ compliance with the fundraising reporting requirements in Section 13 of the Charities (Protection and Social Investment) Act 2016, shows that although charities are complying in some areas, there is still work to do to improve reporting. It is a legal requirement under the Act for charities registered in England and Wales with a gross income of over £1 million to include statements on their fundraising activities in their annual report.
The review found:
- 81% of reports included a statement about a charity’s fundraising approach.
- 67% of reports included a statement on the regulatory schemes they adhered to.
- 59% of reports included a statement on the number of complaints about fundraising.
- 41% of reports included a statement on third party monitoring.
- 40% of reports included a statement on protecting vulnerable people.
Although many charities are reporting on their fundraising approach, of concern to the regulator is that many are not reporting on their monitoring of third parties, protecting vulnerable people, their commitment to voluntary regulations and complaints received.
While the review found that very few reports (21%) complied with all six of the fundraising reporting requirements, the regulator recognises that this is only the second year that charities have had to report in this way.
To support improvements in meeting the requirements of the Act, the regulator has published updated guidance which includes detailed information on how to write clear and detailed statements. The regulator believes this will not only help ensure compliance with the Act, but that fundraising-related activity can be understood by the public and support increased trust in the sector.
Gerald Oppenheim, chief executive of the Fundraising Regulator, says: “Although there is still work to do to achieve compliance with the reporting requirements, it’s positive to see most charities reporting on their fundraising approach, thereby demonstrating their commitment to transparency.
“As we approach year three of these reporting requirements, I urge charities and trustees to read our guidance, not only because the law requires these areas to be reported on, but most importantly because this gives supporters more information about charities’ fundraising activities.”
Charities spend millions in staff time to secure funding
Outdated and overcomplicated application processes could have cost British charities at least £442 million through attempts to secure funds during the Covid-19 pandemic, according to a survey from funding platform Brevio.
One in eight charities (13%) have reported spending the equivalent of three working days a week (21 hours or more) on grant applications since March this year. This makes up 60% of the average working week and equates to over £20,350 a year in potential staff time per charity - collectively costing the charity sector £442 million annually. Meanwhile some charities have reported spending over 40 hours a week on grant applications (7%).
Brevio points out that even though a large proportion of time is being spent trying to secure funding, over half (51%) of respondents have seen a decrease in their success rate compared with last year. More than one in five (23%) think this could be down to an increase in competition for grants and over one in ten (12%) state they have fewer human resources to complete grant application forms.
Over three quarters (77%) of the Brevio survey respondents believe that the grant making system needs to be modernised. 80% do not believe that the current grant application system is operated on a level playing field.
Over half, 57%, believe that the current grant application system works in favour of well-established charities (i.e. those which have strong brand recognition/are well known to the public), and a third (33%) believe the grant making process actively discriminates against charities which don't have well connected people on their boards.
Over a quarter of charities (27%) think the system actively discriminates against charities based outside large cities, while one in eight (12%) feel the grant making process discriminates against charities led by people from ethnic minority backgrounds; and over one in eight (13%) also feel it discriminates against charities which focus on issues/causes that concern a smaller part of the population e.g. LGBTQ+, ethnic minorities etc.
Nearly half of respondents (44%) believe there should be a simplified and centralised application system (similar to UCAS for university applications) to avoid having to repeat and gather similar details for every application.
Marcelle Speller, founder of Brevio, says: “The pandemic has brought into sharp relief what funders and charities have known for years: the current grant model soaks up too much valuable time, energy, and ironically, money. With many charities now battling for their very existence, it’s clear we need to grasp the nettle and begin to create a level playing field that will help brilliant organisations across Britain do what they do best in their communities and beyond.”
Domestic violence charities are struggling with application admin the most, with over a quarter (28%) spending between 10 and 40 hours applying for grant applications. What’s more, 14% reported spending over 40 hours a week. At the same time, says Brevio, it is well publicised that demand for domestic abuse charity services has soared since the pandemic (with NSPCC reporting that calls to helplines reached a record high during lockdown).
Certain charity categories particularly reported a decrease in their grant application success rate being due to an increase in competition for the number of grants. These were crime charities 38%, domestic violence charities 22%, armed forces/veteran charities 20%.
Over half of UK charities (51%) reported that on occasion they have had to make changes to their services in order to better fit the criteria funders require to be eligible.
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