The Charities (Protection and Social Investment) Act 2016: an analysis of compliance with fundraising reporting as of April 2019

5. Considerations

It is important to note the context for annual reports and the new requirement on charities. This is the first year that charities have had to report on fundraising in this way, so it is to some extent understandable that there are adjustments still to be made. 

Corporate service and finance teams who are largely responsible for the development of the annual reports should have become aware of the requirements of the Act through professional development and membership bodies, but it’s possible they may not have. Auditors may have reminded charities to include this section, though there is no onus on them to do so because it is part of the trustees’ annual report rather than the accounts. Hence, there is a risk that some teams may be unaware of the requirements in full. 

Ultimately it is the responsibility of trustees to ensure compliance with the Act. Trustees need to be aware of the requirements and understand why they are important, so they can perform their role effectively. 

6. Key findings 

Despite the vast majority of charities including a statement of some type, only 40% (41 out of 106) of annual reports reviewed were fully compliant with the Act (scoring 3 or more in our assessment). To be compliant with the Act, the statement or other relevant sections in the report must cover all requirements in a clear manner or confirm that the charity does not undertake any public fundraising.

A report would be non-compliant if it was missing one or more of the key requirements. Some statements were not compliant because the charity did not adequately cover all aspects. 

Some specific ways that reports were not compliant with the Act are as follows: 

• Lack of detail on what kind of fundraising is carried out and by whom;
• No recognition of whether the charity was bound by a voluntary scheme for regulating fundraising, such as that operated by the Fundraising Regulator, or a voluntary standard of fundraising, such as the Code of Fundraising Practice;
• No detail of how they monitor fundraising carried out on their behalf;
• A lack of detail on the number of complaints they received; and/or
• No mention of the approach taken regarding vulnerable people.

We have identified some specific findings and learning points for charities:

a. Make sure all requirements are sufficiently covered 

Reports often demonstrated a great understanding of the charity’s fundraising work, offering a very detailed overview of how they manage and monitor work undertaken. But they were judged to be non-compliant as they missed a key requirement and this undermined an otherwise excellent statement.
Many short statements missed the requirements without giving detail of how, for example, they use the regulatory framework to support their work. We also found examples of good reports and comprehensive statements that could still be non-compliant by missing key requirements such as how they monitored the work of third parties. 

b. Create a distinct statement on fundraising to ensure compliance 

In the reports we reviewed, this was usually a distinct part of the report and was easily identifiable. The Act does not require this approach, only that all requirements are covered. 

The majority of charities provided a statement in their annual report. But the length and standard of information varied dramatically. 22% (23 charities) did not include a discrete statement on fundraising and instead had small amounts of information spread across their annual report. 

In some cases, we found information that the Act requires in other parts of the report. For example, some charities had a wider compliance statement which covered GDPR and other regulations which featured fundraising. Some charities explained in more detail about their fundraising work and who carried it out in the sections which summarised activity taking place that year. 

The review found that a distinct statement on fundraising allows charities to demonstrate compliance with the Act more easily. It also offers the charity a way to communicate clearly on how it manages fundraising and complaints, which aids transparency and can give confidence to donors and the public. 

c. Ensure a clear overview of approach to fundraising 

69% (73 out of 106) of charities gave an overview of fundraising activities which was either satisfactory or better on this specific requirement. Many reports cover what fundraising campaigns were undertaken but some lacked detail of how the fundraising is carried out and by whom. Some reports would include many pages on the success or impact of particular fundraising campaigns, often within the main text section summarising the charity’s work. However, the report as a whole and the fundraising statement section itself could lack the detail on how the campaigns were run, who delivered the work and how the work was managed or monitored. 

d. Recognition of regulation is important

Section 162A (1) (b) of the 2011 Act refers to the charity being bound by any voluntary scheme for regulating fundraising, or any voluntary standard of fundraising, and to state which one. It does not require the charity necessarily to recognise the Fundraising Regulator or link to the Code of Fundraising Practice specifically, despite no other universal standards or system of regulation being in existence. Charities can technically create and adopt their own voluntary standards under the legislation.

However, by recognising the Fundraising Regulator and adhering to the code, charities meet this requirement in the Act. By committing to meeting the standards in the Code of Fundraising Practice, charities remove the need to create their own standards.

In 69% of the reports (73 reports out of 106) the Fundraising Regulator was recognised. However, the statements did not always refer to us correctly and showed a lack of understanding of our regulatory work. The statements rarely referred to the standards we set. The reports sometimes incorrectly referred to being a ‘member’ of instead of a ‘registrant of’ the Fundraising Regulator, or even to being a member of the previous regulator, the Fundraising Standards Board. 

Section 162A (1) (c) of the 2011 Act requires that charities state any non-compliance with regulatory standards. This could be demonstrated in two ways: a proactive statement of actual or potential non-compliance (of which we have seen little evidence) or inclusion of complaints received by the Fundraising Regulator. 

Where relevant, we checked that the reports included details of non-compliance or where we had upheld a complaint about their fundraising work. We found that of the 106, we had investigated and upheld complaints relating to five charities. Of these, three charities included working with us on our investigations in their statement and two omitted this. We believe that a statement about complaints we have investigated should be included to be compliant with the Act.

e. Management and monitoring of fundraising carried out by others 

Some charities, mostly larger charities, detailed how they managed fundraising being undertaken on their behalf, whether that is by professional or community fundraisers. However 45% (48 out of 106 reports) had no, or an insufficient, description of how they monitored those fundraising on their behalf. 

For those reports that did provide monitoring information of third-party professional fundraisers, the following activity was included: using contracts to ensure third-party fundraisers met standards; using methods such as mystery shopping and phone call listening to ensure quality; or training the third-party teams on the charity’s preferred approaches. 

Some reports provided detail of how the charity supported branches or community fundraisers such as through training and guidance. However, others did not include the detail of managing and supporting fundraisers in their report even when it was evident that the charity used these approaches, meaning their report was not compliant. 

Poor reporting on how fundraisers were managed was often compounded by an inadequate description of who carries out the fundraising activity. Therefore, it was difficult to determine if any third-party organisations, community fundraisers or corporate partners were involved and subsequently to assess compliance with the Act.

f. Complaints management is an important part of fundraising work 

Reports should, as minimum requirement, set out the number of complaints about fundraising the charity has received. A small number of charities went into more detail and offered insight into the nature of the complaints and how they were dealt with which was useful. 

Notably, 40% (42 out of 106) of reports did not offer a specific number of complaints received. Some reports used wording similar to “small number of complaints” which is not adequate and others did not offer any information on fundraising complaints at all. 

g. Lack of consideration towards vulnerable people and fundraising

A requirement of the Act is to consider vulnerable people, however, we found this was inadequately covered in the reports reviewed. 54% (59 out of 106) did not cover this to a satisfactory level.

At a basic level, some reports pointed to the charity having a relevant policy for vulnerable people, from which it might be possible to derive ways to protect people who give to the charity.

Those that did give more details explained what the charity was doing to protect vulnerable people, such as training staff and putting in place a specific vulnerable supporter policy and guidelines for fundraising teams and third parties.

The large majority of the reports did not describe, in any way, how the charity ensures vulnerable people are considered in relation to fundraising. Although some state they do protect vulnerable people, they do not sufficiently describe what they do put this into action. This does not give confidence and is inadequate in light of why the new legal requirements were introduced.

h. Larger charities have adapted to the changes better 

Charities which spend larger amounts on fundraising appear to have adapted better to the new requirements. We understand that these charities may have more developed governance functions and resources that ensure they are up-to-date with reporting requirements. Although there are some exceptions, these charities have generally added comprehensive sections to their report which cover fundraising and the criteria of the Act. 

Often the statements are comprehensive with detail for each of the criteria. Some have even used the criteria as headings within the statement. This demonstrates that they can clearly communicate their approach to fundraising and have systems in place to manage, monitor and record complaints. 
There are also examples of good statements in those charities reviewed which spend less on fundraising. However, these statements are generally briefer and many are not compliant.

Conclusion

This review highlights that there is potentially a lack of compliance in the sector with regard to Section 13 of the Charities Act 2016 on fundraising. Though the majority of reports provide a fundraising statement only a small number of charities do so in a compliant way for the reasons set out in this analysis. 

Although this is concerning, it should be set in the context that this is the first year of the requirements of the Act have come into force. More can be done to support understanding of the requirements of the Act and why providing a comprehensive fundraising statement is both important and helpful to the charity. 

We intend to discuss the findings with the charity sector through infrastructure bodies and to work with charities to promote better practice in reporting. We will also share the report and its findings with the Charity Commission and the Department for Culture, Media and Sport.