Ben Brice highlights how compliance with the commercial participation regulations can help manage donor expectations and avoid reputational damage in a legitimate form of fundraising that has recently attracted controversy.
As the gloom surrounding the national and international economy refuses to lift and with government and local authority funding slashed, many charities are rightly looking to diversify their methods of fundraising. Recent statistics published by the Charities Aid Foundation and the National Council for Voluntary Organisations show that, as compared to 2010, approximately 1.1 million more individuals are giving, but the average amount people are giving has dropped, so that the total amount given has remained static in real terms. So, whilst there is a slightly wider pool of donors to solicit, the pool is shallower. The result is increased competition amongst charities for the same funds. This jostling for position, if not handled carefully, can take casualties along the way and impact adversely on a charity's reputation. A good example of this is the press attention and regulatory intervention that charity clothing collection bags attracted during the latter half of 2011.
It was not long ago that, if you wanted to donate second hand clothes to charity, it would be necessary to bundle them up and take them along in person to the charity shop of your choosing. In an effort to make giving more convenient and accessible, first clothing collection bins were introduced, often found alongside bottle banks and recycling bins, and now the collectors have come to your home, leaving bags for you to fill and leave on your doorstep for collection.
From the clothing donor's perspective, it is not unreasonable to infer that clothes left in bins and bags might end up for sale in the charity shops to which they used to deliver these unwanted items. However, in many instances, this has turned out not to be the case. According to research undertaken by the British Heart Foundation, in 70% of cases the clothes are collected by commercial middle- men who sell the clothes abroad, with only a percentage of the proceeds being donated to the charity identified on the collection bags. In late August, on the back of their research, the BHF called for greater transparency on clothing collection bags with regard to both what would happen to the clothes and what proportion of the proceeds would go to the charity. This plea was framed in the context of collection bags being a 'huge problem for charities with high-street shops' and the promotion of a campaign for donations towards the BHF's own stores. Public feedback to this news appeared to indicate a feeling of having been duped - if the bags are marked with a charity's logo, why are the clothes not going to be on sale in that charity's shops?
The BHF's analysis accepts that clothing collection bags are
a legitimate way of raising money, and it is true that, whether
selling delivered second hand clothes in a charity shop, or having
them collected for sale abroad, the purpose behind each method
the same for the charities involved: to raise funds for their cause. Both mechanisms have their own overheads which will eat into the amount of money available to the charitable causes themselves. Clearly, not all charities have the resources to establish their own chains of charity stores; those that do often find it hard to turn a profit as it is. For charities without significant resources, an arrangement with a licensed clothing collector will therefore be an attractive fundraising option.
The BHF story has not been the only collection bag publicity to hit the press. Since then, there have been reports of the Charity Commission intervening in the agreements between charities and the collectors, suggestions that the public is confused by the variety of bags they receive, and details of the Fundraising Standards Board's new campaign, warning against fraudulent clothing collectors. Whilst at first sight it is encouraging that the two regulators are taking an active interest in the activity, the fact that they have deemed it necessary to do so might suggest that there is a higher level of risk associated with it, whether in terms of financial or reputational impact.
What was not always clear from the press coverage is that there is already a legal framework with which charities and commercial clothing collectors must comply and which requires that donors are provided with sufficiently clear information explaining how the charity will benefit. The requirements of Part 2 of the Charities Act 1992 and the Charitable Institutions (Fund- Raising) Regulations 1994 (both as amended) establish that clothing collectors would be considered 'commercial participators' and that any charity dealing with them must enter into a written agreement containing certain minimum legal requirements (including the principal objectives of the arrangement, what proportion of proceeds are to be applied to the charity, and what remuneration the commercial participator will receive, if any).
Additionally, the commercial participator is under a duty to ensure that, where they represent that charitable contributions are to be made, that representation must be accompanied by a solicitation statement, which indicates to potential donors which charity or charities will benefit and either the known or estimated amount the charity will receive. In the case of clothing collections, this would usually involve explaining that the charity in question will receive ŁX per tonne of clothing collected and also including an estimated total sum, as the precise amount could not be known at the outset. It is open to the parties to agree a more detailed statement, which may be appropriate if, as the response to the BHF research indicates, there is any suggestion that donors might otherwise become confused as to what will happen to the clothes and the proceeds of sale.
In looking to diversify their income streams, charities should be wary of rushing into new arrangements (clothing collection or otherwise). The idea of making a quick buck is appealing, but if it is made at the expense of reputational detriment, it could adversely impact the charity's income in the longer term. Proper planning, including undertaking due diligence of the collection agencies available, compliance with the commercial participation regulations and management of donors' expectations, through ensuring a clear message on the bags or supporting paperwork, will all help minimise such risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.