Select committee inquiry
Fundraising in the charitable sector inquiry
Closed
What the inquiry looked at
“The Public Administration and Constitutional Affairs Committee (PACAC) finds it is the failure of Trustees to fulfil their responsibilities which lies behind the causes of last summer’s charity fundraising scandals. Terms of reference: Fundraising in the charitable sector”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 3rd Report - The 2015 charity fundraising controversy: lessons for trustees, the Charity Commission, and regulators ↗
In response to allegations made over the summer by the Daily Mail in relation to the unethical practices employed in fundraising activities, the Government set up the Etherington Review into the regulation of Charity Fundraising. PACAC also launched an inquiry, to examine both the regulation of charity fundraising and the way in which trustees of large charities govern fundraising.
Witnesses to our inquiry, including employees and trustees of some of the charities whose outsourced fundraising activities have been criticised, expressed shock at the Daily Mail’s discoveries. There was consensus amongst witnesses both that trustees had failed in their duty to extend their governance to fundraising, particularly in the management of sub-contractors, and in support of Etherington’s proposals. The Government is right to welcome Etherington’s recommendations. This is the last chance for self-regulation. It is essential that the Etherington system is made to work effectively, though it can only work by supporting effective governance by trustees.
Trustees are ultimately responsible for every aspect of their charity’s activity, including fundraising. No system of regulation can be a substitute for effective governance by trustees. Good governance in general is about sustainability of reputation in the long-term, as well as the sustainability of finances. Each of the charities that gave evidence to us should re-examine their governance of fundraising and other charities should learn lessons from this episode. Trustees must have the right skills, information and attitude to prevent poor practice in the future. They are responsible not merely for fundraising within the charity but for fundraising by sub-contractors as well. We welcome the Charity Commission’s new guidance on the duties of trustees over fundraising, in particular their emphasis that trustees need to ensure that charities (and their sub-contractors) always act in accordance with their values. Our forthcoming report on Kids Company will also draw out lessons from that case study for trustees.
The Government is correct to accept the findings of the Etherington review. The Etherington proposals should however be further enhanced. The Charity Commission should gain a higher profile and be more proactive to ensure the new system works, holding public hearings rather than solely the private inquiries it holds now. The Commission should act as guarantor of the system, ensuring that regulators cooperate with one another and that trustees understand their duties. Trustees, the Commission and regulators should assist the sector in developing a more ethical fundraising culture, and to make sure that bad practices are not tolerated.
The Government should monitor the sector to ensure that it is able to use its reserve powers under the Charities Act should self-regulation fail. It would be a sad and inexcusable failure of charities to govern their own behaviour, should statutory regulation became necessary.
What the government said
The government responded on 27 April 2016.
Summary written by Accountability Index from the government's response.
The government welcomes the report but "will not respond to each of your Committee's recommendations in detail at this point", saying all of them will be covered in a review it has undertaken to deliver later this year.
- The government says the review will draw on the work of this Committee and the Procedure Committee, and that all recommendations "will be covered in the Government's review".
- On the Barnett Formula, it states it is "not possible to draw a direct link between individual pieces of legislation and the Barnett Formula", and says suggesting that individual Bills should therefore not be subject to English Votes "is not correct".
- It says final decisions on spending with a material impact on funding for Scotland, Wales or Northern Ireland "will always be taken by a vote of the whole House of Commons".
- On the Committee's recommendation that the Speaker publish guidelines on representations about devolution boundaries and "minor or consequential" effects, the minister has asked officials to look at the issue and discuss it with the House authorities.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 21 July 2015 to its close on 25 October 2017.
- Oral evidence 3 sessions
- Report 25 Jan 2016
- Government response 27 Apr 2016
What it recommended 6 recommendations · 20 conclusions
1It would be a sad and inexcusable failure of charities to govern their own behaviour,...
Concluded (the committee's words)
It would be a sad and inexcusable failure of charities to govern their own behaviour, should statutory regulation became necessary. (Summary) Fundraising and the allegations
2We have no doubt that most of the charities in the UK do not engage...
Concluded (the committee's words)
We have no doubt that most of the charities in the UK do not engage in the practices outlined above. However, the behaviour of some charities has damaged the reputation of the sector as a whole. Smaller charities told us that these practices have a direct effect on the reputation of all charities and make it harder for them to raise money from the public. The good work done by most within the sector can be undermined very easily. This makes it all the more essential that greater care is taken over the governance of fundraising in some charities and its regulation is reformed. Good governance in general is about sustainability of reputation in the long-term as well as of finances.
3It is essential for trustees to reflect their values in the way that they conduct...
Concluded (the committee's words)
It is essential for trustees to reflect their values in the way that they conduct the governance of their charities. The Charity Commission supports this view. Trustees must ensure that their charity’s values are reflected in the way the charity operates at all levels, having regard to the Charity Commission’s guidance and the interests of the charity, its beneficiaries, donors, employees and volunteers. Charitable ends can never justify uncharitable means. The conduct of sub-contractors should be subject to the same degree of governance. This is as true of fundraising as it is of any of their other activities.
4Last summer’s controversies were evidence of a failure of governance by trustees.
Concluded (the committee's words)
Last summer’s controversies were evidence of a failure of governance by trustees. The evidence reported here suggests that there is still some reluctance on the part of many trustees to accept that this was not just a failure of process or an excusable oversight, but a failure of trustees to understand that their primary role is governance, which means their overriding responsibility is to sustain the mission and values of their charitable organisation. Managing reputational risk is central to this role, for without good reputation, no organisation can be effective. In this role they failed. Trustees are as responsible for the activities of any sub-contractors, as for any part of a charity’s operations. All the chief executives of the charities that gave oral evidence to us admitted that they did not scrutinise fundraising sub-contractors enough. The only possible conclusion is that, by failing in this responsibility, trustees were either negligent, or wilfully blind to what was being done in their names.
5The Etherington review focussed on the regulation of fundraising.
Concluded (the committee's words)
The Etherington review focussed on the regulation of fundraising. The Government is right to promote greater transparency in annual reports about fundraising, however, this is no more than a means to an end. Stronger regulation is no substitute for the required change of attitudes and behaviour from trustees. The 2015 charity fundraising controversy 37 The Fundraising Standards Board is right to say that maintaining public trust in charity fundraising must be the first priority for the industry. Trustees must accept this in full, demonstrate this acceptance in changed attitudes and behaviour, and recognise it is their mission and values which should drive the governance of their charity.
6In all the cases we examined, trustees need to take positive action to ensure that...
Concluded (the committee's words)
In all the cases we examined, trustees need to take positive action to ensure that they are not blind to their charity’s fundraising activity. It is welcome that trustees of these charities are taking such action. It is vital that these changes are effective so that trustees can have confidence in the methods and ethics of fundraising conducted on their behalf, whether by employees, volunteers or by contractors.
7The Charity Commission and the new fundraising regulator should reinforce the fiduciary responsibility of trustees...
Concluded (the committee's words)
The Charity Commission and the new fundraising regulator should reinforce the fiduciary responsibility of trustees in their guidance. The new regulator, and where necessary, the Charity Commission, should validate and recommend suitable training courses for trustees. The Charity Commission is right to have reviewed its fundraising guidance in the light of the events of the summer 2015, and in that guidance to emphasise the primary responsibility of trustees in respect of fundraising. The future fundraising regulator should publicise its view of good trustee practice once it has been set up.
8The Charity Commission should be commended for pursuing charities who use their funds to finance...
Concluded (the committee's words)
The Charity Commission should be commended for pursuing charities who use their funds to finance CAGE, which describes itself as “campaigning against the War on Terror”. CAGE is a political organisation, not a charity. The Charity Commission were right to resist CAGE’s attempt to bring a judicial review, which CAGE were wise to withdraw.
9The Charity Commission and the Government should consider proposals about how donations from overseas could...
Recommended (the committee's words)
The Charity Commission and the Government should consider proposals about how donations from overseas could be made notifiable through the Charity Commission so that the authorities become aware of charities in receipt of funds from potentially harmful sources. The Government might consider employing the same definition of an overseas donation and similar reporting mechanisms as are used in the Political Parties, Elections and Referendums Act 2000 in respect of foreign political donations.
10We endorse Sir Stuart Etherington’s recommendation that the new regulator should be funded by a...
Concluded (the committee's words)
We endorse Sir Stuart Etherington’s recommendation that the new regulator should be funded by a levy, rather than being a membership organisation.
11There was consensus amongst the witnesses to our inquiry in supporting the Etherington proposals.
Concluded (the committee's words)
There was consensus amongst the witnesses to our inquiry in supporting the Etherington proposals. The Government is right to welcome the Etherington review. This is the last chance for self-regulation. It is essential that the Etherington system is made to work effectively, though it can only work by supporting effective governance by trustees.
12Sir Stuart Etherington is right to propose, in addition to the donor representation envisaged in...
Concluded (the committee's words)
Sir Stuart Etherington is right to propose, in addition to the donor representation envisaged in the review, that there should be a donor representative on the board 38 The 2015 charity fundraising controversy of the new regulator. This representative could be appointed by a consumer representative body such as the Institute of Customer Service. This appointment would demonstrate the independence of the new regulator from the fundraising sector, and would help to guarantee that donor interests remain, as they should, at the heart of its view of regulation.
13The new regulator should consult the Prime Minister’s Champion Group on Dementia Friendly Communities and...
Recommended (the committee's words)
The new regulator should consult the Prime Minister’s Champion Group on Dementia Friendly Communities and any other representative groups for vulnerable people to examine how they can update the code. The new regulator should set out best practice in this area and make it clear that trustees are responsible for ensuring their charities apply the code.
14The new regulator should take urgent steps to create a public profile, without which the...
Concluded (the committee's words)
The new regulator should take urgent steps to create a public profile, without which the new regulator will be unable to raise public trust and confidence in fundraising and the sector as a whole. Even a more proactive regulator will depend on the public bringing cases of malpractice to its attention.
15Sir Stuart Etherington is right to say that the new regulator should be more proactive...
Concluded (the committee's words)
Sir Stuart Etherington is right to say that the new regulator should be more proactive in seeking out malpractice and believe approaches like that of the Public Fundraising Regulatory Association could help. A more proactive approach can help to rebuild public trust and confidence in the sector and also in ensuring that the sector does not have to depend on investigative journalists to reveal what is happening. It is reasonable that Sir Stuart Etherington’s review omits excepted charities such as Universities. However, the Government has decided they fall under the new regulator’s remit. The new regulator should urgently consult with these charities on its approach to regulating them.
16We are not persuaded of the case for a new fundraising preference service.
Concluded (the committee's words)
We are not persuaded of the case for a new fundraising preference service. It would duplicate the function of the existing Telephone Preference Service (TPS), and add limitations to the activity of charities that do not exist for any other sector. If a new preference service is to be introduced, the new fundraising regulator should urgently seek to discuss with the Information Commissioner how the new telephone preference service can work alongside TPS, without creating conflict and confusion in the minds of the public.
17HM Treasury and the Cabinet Office must address the future funding of the Charity Commission...
Concluded (the committee's words)
HM Treasury and the Cabinet Office must address the future funding of the Charity Commission so that it can carry out its functions in the way that the Government, charities and the public expect. This is becoming increasingly urgent given the role that is outlined by the Etherington review and the other responsibilities which this report recommends.
18The new regulator should be held to account in public, but this should be the...
Concluded (the committee's words)
The new regulator should be held to account in public, but this should be the function of the Charity Commission. Save in the most exceptional circumstances, PACAC has neither the time nor the resources to do this, nor to investigate the workings of individual charities (such as in its forthcoming report into Kids Company). PACAC will of course remain closely interested in the sector, but The 2015 charity fundraising controversy 39 the Charity Commission is better placed to fulfil this function. The Charity Commission has the expertise and must have the resources.
19The Commission should hold annual hearings on fundraising regulation and other public hearings into the...
Recommended (the committee's words)
The Commission should hold annual hearings on fundraising regulation and other public hearings into the workings of charities. The Government should make any necessary amendments to the Charities (Protection and Social Investment) Bill to enable the Commission to hold public hearings, for example to ensure that witnesses to any inquiry have the requisite legal privilege to give honest responses to any questions from the Commissioners.
20In order to underline the constitutional status of the Commission’s board, the Commission should restore...
Concluded (the committee's words)
In order to underline the constitutional status of the Commission’s board, the Commission should restore the proper title of its board members, so they are all known as the Charity Commissioners. This would both restore their unique status, and underline that the Chair and his fellow commissioners are jointly and severally liable for the conduct of the Charity Commission in England and Wales, just as a Chair and other trustees should understand how they are responsible for a charity they govern.
21The Charity Commission should monitor the metrics proposed by the Etherington Review.
Concluded (the committee's words)
The Charity Commission should monitor the metrics proposed by the Etherington Review. The Commission and regulator should additionally monitor the level of public satisfaction with fundraising, expressed in regular polls such as those carried out by the Commission. The National Audit Office, alongside its annual audit of the Commission’s annual report and accounts, should report to Parliament on its view of the Commission’s oversight of fundraising regulation.
22The Information Commissioner should establish a memorandum of understanding with the new regulator without delay.
Recommended (the committee's words)
The Information Commissioner should establish a memorandum of understanding with the new regulator without delay. This should be in place by the end of 2016. This memorandum should enable the two regulators to cooperate in ensuring that the charity sector is aware of its obligations and that any abuses are detected and dealt with in the future. The Commissioner must work with the new regulator to ensure that any new data regulations are swiftly incorporated into the code of fundraising.
23The Government has offered no substantive explanation for failing to commence section 77 of the...
Recommended (the committee's words)
The Government has offered no substantive explanation for failing to commence section 77 of the 2008 Criminal Justice and Immigration Act. Despite offering a consultation in June 2013, we are unaware of any further progress. This ignores recommendations by the Home Affairs Committee, the Justice Committee, the Joint Committee on the Draft Data Communications Bill and Lord Justice Leveson. It also ignores the recommendations of both the current and former Information Commissioners. The Government should immediately implement this, allowing the Information Commissioner to enforce the law, or give a substantive reason why they will not.
24It is a failing of the Information Commissioner in the past that his office was...
Concluded (the committee's words)
It is a failing of the Information Commissioner in the past that his office was not more proactive in the past in respect of charities’ misuse of data. The Commissioner is right now to be more proactive. This comes too late for many 40 The 2015 charity fundraising controversy of the people affected by the bad practice exposed in the summer of 2015.
25We have received representations that the new regulations may burden charities who have limited fundraising...
Concluded (the committee's words)
We have received representations that the new regulations may burden charities who have limited fundraising activities but still breach the income threshold. The Cabinet Office should be mindful of the additional burden the Charities (Social Investment and Protection) Bill’s reporting requirements place upon charities with limited fundraising activities.
26It is preferable that the Charity Commission should be guarantor of the new regulatory system...
Recommended (the committee's words)
It is preferable that the Charity Commission should be guarantor of the new regulatory system and therefore responsible for holding the new regulator to account for their regulation of fundraising, rather than the Government resorting to its statutory powers. The Charity (Social Investment and Protection) Bill should be amended to give the Charity Commission the authority to carry out this responsibility. The Charity Commission should report to the Cabinet Office on an annual basis its view of the effectiveness of regulation and whether the reserve powers are needed. The Government should not be deterred from using its reserve powers if necessary, as the reputation of the sector depends upon the proper governance of charities and their fundraising. However, it would be a sad and inexcusable failure of charities to govern their own behaviour should statutory regulation became necessary.
Evidence
Oral evidence sessions 3
- 3 Nov 2015No witnesses recordedparliament.uk ↗
- 20 Oct 2015No witnesses recordedparliament.uk ↗
- 8 Sep 2015No witnesses recordedparliament.uk ↗