The Problem of Charitable Activities

Last month we discussed public trust in charities and the findings of Enthuse Intelligence’s Donor Pulse report in May this year.

This is a subject which clearly isn’t going away. Research and comment since the publication of Donor Pulse has progressed from the general to the specific. Apart from the well-known cases of Kids’ Company, 4U and The Captain Tom Foundation – all of which demonstrated poor governance, inappropriate spending and trustees and/or executive staff personally benefitting from charities’ funds – other individuals are coming under fire for allegedly using charity income to fund a lavish lifestyle, not the least of whom is the Duke of Sussex.

One of the problems appears to be the use of the term “charitable activities”. Charities are supposed to spend the funds on charitable activities – but this catch-all covers a multitude of sins!

Small charities are often caught between a rock and a hard place when it comes to defining charitable activities and outlining project costs. Most, though not all, funders are happy to accept that project costs will include a proportion of the executive team’s salaries and administrative/office costs associated with the project in question. Some, however, argue that the executive team is already in place with their salaries covered by the charity’s annual budget, as are the charity’s administrative costs. They claim that inflating project costs by including salary and other items is not providing appropriate honesty and transparency.

Some small charities do not help themselves in this regard by publishing annual accounts which do not provide the level of detail necessary to reassure the public. For example, salaries should appear as a stand-alone expenditure, as should utility and other administrative costs. In too many cases, these are included under the overall heading of “charitable activities”.

The message for all charities is clear: transparency, honesty and accuracy are the names of the game. Nothing less is acceptable.