New inquiries tripled last year, says regulator’s annual report

In the year to 31 March 2017, some 187 inquiries were opened by the Charity Commission, compared with 52 in the previous financial year

The number of charities subject to new Charity Commission inquiries more than tripled in the year to 31 March 2017 compared with the previous 12 months, the regulator’s annual report shows.

The report, published today, shows that the number of charities subject to new inquiries rose from 52 in the 2015/16 financial year to 187 in 2016/17, although this figure includes two class inquiries: one into charities that failed to file accounts for two years running and one into charities providing services on Royal Air Force bases.

The two class inquiries each comprised 74 charities. Excluding the long-running “double-defaulter” inquiry and counting the RAF investigation as a single inquiry, the total number of new inquiries opened this year was 40, which was still an 80 per cent increase on the 22 opened the year before, also excluding double defaulters.

The report says there was an increase in the number of “charities being referred for inquiry in order to deal with serious regulatory concerns”.

The report also reveals that the commission used the powers it gained under the Charities (Protection and Social Investment) Act 2016 a total of 26 times, including 18 times in April and May this year.

It says the regulator used its powers eight times in the financial year ending 31 March 2017 and a total of 26 times by 31 May 2017.

The act, which came into force in March 2016, gave the commission new powers to issue warnings to charities and to disqualify people from serving as trustees.

The commission’s annual report says the actions the commission took under the act in the 2016/17 financial year included “directing actions not to be taken and issuing the first notice of our intention to issue an official warning”.

A commission spokeswoman said the sharp increase in the use of the new powers in April and May had occurred partly because more of the powers became available at that time and partly because of cases such as that of the Anatolian People’s Cultural Centre, where five trustees were disqualified, which would count as five separate uses of the power.

In 2016/17, the commission opened 503 monitoring cases, up from 462 the previous year, and concluded 586, up from 426.

The number of applications to register a charity rose from 8,198 to 8,368, and 6,045 were successful, an increase from 5,169. Of these, 131 applications were formally rejected by the commission, an increase of 90 on the previous year.

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Fewer people think charities are regulated effectively, says report

Published by the Charity Commission today, the paper says the proportion of respondents who think charities in England and Wales are effectively or fairly effectively regulated has fallen six points in two years

The proportion of people who think that charities are regulated effectively has fallen over the past two years, research published by the Charity Commission has found.

Research carried out for the regulator by the polling company Populus discovered that the proportion of people who thought charities in England and Wales are regulated very effectively or fairly effectively was down from 64 per cent in 2015 to 58 per cent this year.

Although the proportion of people who felt charities were regulated fairly increased, in effect, from 44 per cent in 2015 to 51 per cent this year, the proportion who felt the sector was regulated very effectively dropped sharply from 20 per cent in 2015 to only 7 per cent this year.

The research, published by the commission today, found that the proportion of people who said charities were not regulated very effectively increased from 8 per cent in 2015 to 16 per cent this year.

The proportion who said they felt charities were regulated “not at all effectively” rose by one percentage point on 2015 to 5 per cent this year. The remainder said they did not know.

The findings are based on 1,002 telephone interviews with a representative sample of members of the public, a further 1,015 online interviews with senior staff or trustees from charities in England and Wales, plus 26 in-depth telephone interviews with charities, government officials, umbrella bodies and professional advisers. All the research was carried out between February and April.

Despite a fall in public confidence in charity regulation, stakeholders interviewed for the study said that charities in England and Wales were regulated effectively overall.

“They think it compares favourably on an international scale, arguing that the England and Wales system is an example for other countries to follow,” the report on the findings says. “They have an awareness of and sympathy for the environment that the Charity Commission operates within, referring to a lack of resources and the large number of charities under its remit.”

The survey found that awareness of the Charity Commission had risen: 61 per cent of respondents this year said they had heard of the regulator, compared with 47 per cent in 2015.

Researchers found what they called a “significant increase” in the proportion of people who said they or their close family or friends had benefited or used the services of a charity, or received support from one.

The proportion of people who said they or their close family or friends had used a charity’s services went up from 19 per cent in 2015 to 31 per cent this year, and the percentage who said they or their close family or friends had received money, support or help from a charity was up by six percentage points to 16 per cent over the course of two years.

The report says that 17 per cent of the public had a concern about a charity in the past year, but more than half – 58 per cent – did not take any action.

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Fewer direct debit cancellations than ever, report reveals

Figures based on more than 9.5 million transactions find that the cancellation rate was 2.6 per cent in 2016, the lowest since Rapidata began compiling figures in 2003

Fewer people cancelled their direct debits to charity in 2016 than in any year since monitoring began, according to figures from the payments processor Rapidata.

The company says anecdotal evidence indicates the fall could be down to “dramatically less communication with supporters” by charities in the wake of the negative media attention on charity fundraising in 2015.

Rapidata’s Charity Direct Debit Tracking Report 2017, published today, is based on data from more than 9.5 million direct debit transactions to charity. It says that in 2016 the cancellation rate was 2.6 per cent, the lowest since Rapidata began compiling the data in 2003.

The figure is 10 per cent lower than the 2015 average of 2.9 per cent, although the report says the £9.7bn donated in 2016 was “on a par” with 2015.

The cancellation rate of 2 per cent recorded in April 2016 was the lowest monthly rate the company has recorded.

The report suggests the low cancellation rate in 2016 could be connected to charities’ reluctance to contact donors after the fundraising scandals of 2015.

In the report, Scott Gray, chief executive of Rapidata, says: “From anecdotal evidence, we believe that charities responded to the negative media onslaught and to the uncertainties resulting from a government review and significant regulatory change by stopping or postponing their fundraising campaigns, especially those involving telephone or direct mail communications.

“Dramatically less communication with supporters seems largely to account for these unusual results. There simply wasn’t the usual volume of activity – such as upgrade campaigns – taking place across the year, which in turn has resulted in less cancellations being recorded.

“This may go some way to explaining why the data for 2016 presents such an anomalous year in our records.”

The report also recommends the introduction of an industry standard for direct debit cancellations, called the “cancellation average benchmark”, which would be given to charities that kept their annual cancellations below 3 per cent.

“We believe that any charity whose cancellation rate rises above 3 per cent for any given month, aside from exceptional reasons from within the charity sector or outside events that may impact the rate, should review their supporter care programmes and strategic operations, with the aim of reducing and improving this rate,” the report says.

“By identifying reasons for a rise and by carefully planning activities, charities can help prevent a repeat occurrence during similar months, campaigns or occasions in the future.”

The idea has been welcomed by the Institute of Fundraising.

In a statement accompanying the report, Peter Lewis, chief executive of the IoF, said: “The health of direct debits and knowing what is happening in this part of our sector is vital.

“In broad terms, I welcome the idea of the sector-wide cancellation benchmark proposed in this report that charities should aim to stay below. I look forward to the discussions around this and encourage others to join these on how this might be taken forward.”

The figures for first quarter of 2017 showed a slight rise in the cancellation rate to 2.86 per cent, compared with 2.65 per cent in same period last year, but Gray argues in the report that this return to normal was an indication that the sector was starting to feel more “confident and stable” and that fundraising activity had been reenergised.

Gray says: “While it may be concerning to see an increase in cancellation rates for 2017, any figures which indicate a return to a sense of normality can only be welcomed as a good thing as it shows that charities’ confidence in their activity with both new and existing donors is returning.”

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Charities could be missing out on £100m in legacy gifts, says report

An online survey of charity legacy officers and probate practitioners finds that some people are persuaded to leave gifts to charities in ways that aren’t legally binding

The charity sector could be missing out on as much as £100m a year because people are leaving legacy gifts in a non-legally binding form, a survey of legacy officers and lawyers has found.

The online survey of 130 charity legacy officers and 76 probate practitioners, carried out in March and April by the law firm Penningtons Manches, found that only 37 per cent of probate practitioners actively prompted clients to consider leaving gifts to charity in their wills, and 27 per cent “actively disliked” dealing with estates that included legacy donations.

The report based on the survey responses, Bridging the Gap? Improving Collaboration Between Probate Practitioners and Charities, says that 20 per cent of probate practitioners said they encouraged their clients to leave charitable gifts out of their wills and instead include them in separate letters of wishes to friends or family, which are not legally binding.

“On the face of it, this may feel like a relatively small percentage, but when this is extrapolated against the legacy income of the whole charity sector this could amount to as much £100m per year,” the report says.

“This is a very significant issue for the charity sector and needs to be addressed.”

One solution the report puts forward is better communication and understanding between probate lawyers and legacy officers – who, according to the survey, had radically different views of each other’s work.

The survey found that 82 per cent of legacy officers believed they provided a caring, compassionate and personalised approach to their work, but only 54 per cent of probate practitioners agreed and 26 per cent strongly disagreed. More than a third (34 per cent) of legacy officers were concerned that probate practitioners did not fully understand the tax exemptions associated with legacy giving.

More than a third (34 per cent) of legacy officers said they were dissatisfied with the frequency of updates provided by probate practitioners on the progress of legacy cases and, where updates were provided, a quarter were dissatisfied with the level of detail provided and the overall time taken to complete the administration of estates.

Among probate practitioners, on the other hand, less than half (46 per cent) of respondents were satisfied with the frequency at which charities checked in with them about progress and only 47 per cent were satisfied with the level of detail requested.

Alison Talbot, head of charities at Penningtons Manches, said the firm had “picked up on some tensions between legacy officers and probate practitioners” in its day-to-day work but had been “surprised by the strength of discontent” expressed in the survey.

“Even if the charity sector finds the views of the probate practitioners frustrating, it has to take notice of the concerns because these individuals are often the gatekeepers to future charity legacies,” she said.

Legacy officers also had concerns over their own organisation’s senior management understanding of legacies, with only 52 per cent of respondents agreeing that their senior managers grasped the issues and 39 per cent agreeing that trustees did.

Chris Millward, chief executive of the Institute of Legacy Management, said the issues the report highlighted were “sadly very familiar” to the ILM and its members.

He said he hoped the research would “act as a springboard for better understanding, improved communication and increased collaboration between charity legacy professionals and solicitors”.

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Charities ‘must spend more on leadership and infrastructure’, report concludes

The ICAEW report says charities have shied away from making good investment decisions because of a fear that it might negatively affect public perception

A fear of how the public will view investment in charities’ internal infrastructure has led trustees and managers to “shy away from making good decisions”, a new report warns.

The report, Positive Impacts in Challenging Times, published this week by the Institute for Chartered Accountants in England and Wales, says charities must invest more in leadership and infrastructure in order to retain public trust and operate effectively.

“Trustees and management have often shied away from making good investment decisions because they believe that it will impact negatively on how they are perceived,” it says.

“This has resulted in underinvestment in vital areas such as information technology, skills training, income-generating processes and governance and management.”

The report says charities should be prepared to spend more on infrastructure and support functions if it will improve their efficiency and effectiveness.

“Investments in training, evaluation, internal systems and fundraising are important as they enable charities to improve their performance,” it says.

“The risk is that under-investing in infrastructure can actually lead to a deterioration in a charity’s performance and the resilience needed to be able to sustain effective delivery.”

It says charities are to blame for “perpetuating the myth that reduced overheads mean the charity is more effective” and that “this leads to a vicious cycle of underinvestment and the belief that more can be done with less.

“Charities should be ready to make the necessary investment in infrastructure based on what is needed rather than how it may be perceived. Expenditure decisions should be governed by what is in the best interests of achieving objectives effectively, which may require more investment in infrastructure.

It notes that cost ratios of how and where funds are distributed are flawed “in almost all cases” and “lead to inaccurate conclusions”.

The report also says charities should focus more on the selection, induction and training of trustees to ensure they have the correct skills and experience to carry out their roles.

“All trustees should be able to confirm that, before taking up their appointment, they have received sufficient information about the activities of their charity and their role as a trustee, and that they understand the responsibilities that come with being a trustee,” it recommends.

The report says charities should also be more discerning about “unviable” payment-by-results contracts to deliver public services, the report says.

“The practice of winning the contract at any price can be harmful to charities and the causes they serve,” it says.

It says charities are likely to be better off bidding for such contracts as part of a consortium, so participants can be more efficient by sharing logistics and infrastructure. 

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