19 March 2019 - Article
On 6 May 2016, the Charity Commission published its long-awaited reports on the Joseph Rowntree Charitable Trust (‘JRCT’) and the Roddick Foundation’s (‘RF’s’) funding of the controversial advocacy group, Cage. In parallel, similarly-worded documents, the regulator said both charities had acted in good faith and that no funds had been misapplied or misappropriated but concluded that the charities’ monitoring processes were inadequate to ensure their money was ‘used for exclusively charitable purposes’.
The Commission initially launched an investigation into JRCT after it received a complaint in September 2013 that it had granted funds to Cage which, it was alleged, had been used to spread ‘support for jihadism, bigotry and hatred.’ (Cage conversely says it campaigns to help communities affected by the so-called war on terror.) The enquiry was extended to RF in March 2014 after it was found to have granted funds to Cage as well. The Commission concluded its investigation and communicated its recommendations to JRCT and RF directly in December 2014, some 17 months before these reports were published.
The case reports
Whilst both reports are significantly longer than the average Charity Commission study (the case report on JRCT runs to 14 pages and the one on RF to 11 pages), the findings are generally unsurprising. The Commission determined that the charities’ respective trustees ‘acted in good faith’ when they decided to grant funds to Cage, but it was ‘difficult to see how in these circumstances the trustees could have been sufficiently assured that the monies given to Cage were used for charitable purposes, particularly as Cage is not a charity and not all of its activities furthered charitable purposes’.
Both reports called for the charities to make improvements to their control and scrutiny processes. The JRCT report adds that ‘trustees needed to conduct more robust and more regular due diligence in respect of grant recipients, in particular non-charitable grant recipients’. The Commission concludes each report by saying ‘it is clear to other charities and the public that the Commission…will probe robustly how charities spend charitable funds in order to ensure transparency and accountability and to preserve public trust and confidence in charities’.
Questions raised from the case reports
Though the reports are as we would have broadly expected, the conclusions reached raise two important questions.
The first of these concerns the funding by charities of the core organisational costs of non-charitable organisations. The reports make it clear that the Commission considers that core costs (staff salaries, for example) can only be funded insofar as they relate to the activities of the recipient that are directly connected to the activities it has agreed to fund. Whilst it seems a fair principle that non-charitable organisations receiving charitable grants should be able to use them only for such core costs as can be demonstrated to relate to the charitable activity being funded, there is concern that there does need to be a degree of flexibility here otherwise it could inhibit the development of some organisations and fetter the trustees’ discretion.
The second issue arises from the Commission’s conclusion, in both reports, that neither charity had fully appreciated the distinction between work to ‘promote human rights’ per se and work that has a ‘charitable purpose’ when they decided to grant funds to Cage.
The reports say ‘under charity law, whilst the charitable purpose of advancing human rights can be supported in a number of ways, not all activities to support or promote human rights activities will be capable of furthering a charitable purpose’. Unfortunately, neither report gives examples to aid charities’ understanding of the distinction. The main published guidance from the Commission on this issue is contained in the Commission’s 2005 publication RR12, which takes a fairly wide approach as to when the advancement of human rights will be considered to have a ‘charitable purpose’. It would be helpful to have more definitive guidance to prevent charities from struggling to determine whether funds granted to certain human rights causes will in fact have a ‘charitable purpose’ in the Commission’s eyes.
Key lessons for other charities
On its face, the Commission offers some useful guidance for charities that are considering granting funds to non-charitable organisations. The Commission recommends that charities implement robust due diligence procedures at the award stage, and monitor the target bodies regularly to ensure that its funds are being used to further charitable purposes. Furthermore, the Commission acknowledges that charities will (and should) take a pragmatic, proportionate approach to their funding decisions depending on the type or organisation, the sums of money involved, and the purpose and location of the grantee.
What is unclear from the report is what guidance charities may rely on to ensure a charitable purpose is being furthered by the funds it grants. In the absence of clear guidance, the charities should therefore take a cautious approach and consult specialist advice where necessary.
The Commission published draft guidance for charities which fund organisations which are not themselves charities in February. The consultation on that guidance closed on 9 April and the Commission is considering the feedback. It is expected that a final version of the guidance will be published in due course.
The draft guidance on ‘Grant funding an organisation that isn’t a charity’ is available here.