Why charities aren't bagging a fortune from your donations

Kate Hughes reveals the worrying truth about the erosion of giving to good causes

The news that several charity leaders are on huge salaries is the latest in a series of PR challenges that the sector has had to face down. The latest revelations that executives across some of the UK's largest and most highly regarded charitable organisations are pulling in salaries of up to £184,000 from the precious coffers of the British Red Cross, Save the Children, Christian Aid and others. Once again, the actions of a few are jeopardising the incredible work of many.

For years now, charities up and down the country have been battling not only the effects of economic downturn, but also theft, organised crime, fraud worries and accusations of pure mismanagement. And now we find out that when much of the working population – more than half of which gives to charity every month – has been suffering redundancy, pay freezes, pay cuts and a rise in zero-hours contracts, the number of charity staff earning more than £100,000 annually has risen from 19 to 30 since 2010. Even William Shawcross , the chairman of the Charity Commission, who is reportedly on £50,000 for two days a week himself, has warned that a balance must be struck between robust management and low costs.

The critical point, though, is that charitable giving is, and must remain, a vital part of our society. Around 55 per cent of us – the equivalent of 28.4 million adults – donate to charitable causes in a typical month, according to figures from the UK Giving 2012 report produced by the National Council for Voluntary Organisations (NCVO) and the Charities Aid Foundation (CAF).

Each of those adults typically gave £10 a month in 2011-12, down from £11 in 2010-11 and £12 in 2009-10. It's a grand total of £9.3bn but is down by £1.7bn in cash terms and £2.3bn in real terms (taking into account the effect of inflation) in a year. That makes it the smallest annual amount since the survey began in 2004.

So how can those of us whose salaries are perhaps a little more modest than some charity executives ensure the right people are doing the right things with our hard-earned cash? It's not just about making sure you tick the Gift Aid box.

Collection bags

Barely a day goes by when one charity bag or another doesn't come through the letterbox. From the comfort of your own home, you simply drop in the items – usually clothes that you no longer need – seal it up and leave it on the doorstop. Job done. But even this simple approach has challenges.

The value of textiles has increased dramatically in recent years, and the global annual value of second-hand clothes is now more than £620m. Consequently, charity bags are disappearing from doorsteps up and down the country, often as a result of organised gang activity.

The British Heart Foundation, which receives just under £20.8m in donated goods from house-to-house collections in England and Wales, estimates that such thefts are costing popular charities £15m a year in lost donations.

But even if they aren't stolen, the percentage of your donation reaching the charity of your choice from bag collections could still be tiny. The British Heart Foundation suggests that the proportion of profits from collections run by commercial companies could be as low as 5 per cent.

To avoid such erosion, or indeed disappearance, of your donation, either take your goods into the charity shop yourself or check on the bag that the collection is by the charity itself and not a third party working on their behalf.

Fraud and impersonation

Charity fraudsters come in two forms: those who make up a fictitious charity, often using a recent event such as tsunami or earthquake to tug at the heartstrings, and those who hijack genuine, often well-known charity identities to collect and keep your money. Clothing or household items are collected and sold on; fraudulent charity websites may take your credit or account details and use them to make purchases; and if you're asked to call a phone number to make a donation, not only could the fraudster pocket your donation, they could also gain from premium-rate numbers.

Like any unsolicited requests for cash, you could be the target of charity fraud if you receive emails asking for donations, you're approached in a public place or at your front door, or collection bags are left for you to fill.

The problem is, of course, that bona fide charity activity and fraudulent charity activity are often indistinguishable at first glance.

All charities with an income of £5,000 or more a year have to be registered with, and are regulated by, the Charity Commission – and all documentation, collection bags, envelopes and IDs have to carry their registration number. Check collection bags for a named charity, the correct contact details and even accurate spelling. If those criteria aren't met, the chances are they're fake. But even with these details, the fraudster could simply be copying details, so always double check with the charity directly using contact details from a separate source that you know to be correct. Anyone collecting money for a charity should have documents from that charity confirming their legitimacy, so always ask for these and check them in the same way.

If you think you've been duped, or to check the validity of a charity, contact the Charity Commission at www.charity-commission.gov.uk or call their helpline (0845 300 0218). You local authority or police station will also be able to tell you if a licence has been granted to collect in your area.

Bankruptcy and closure

Just a few weeks ago, the online giving website www.charitygiving.co.uk was suspended by the Charity Commission after concerns were raised that the online portal was failing to pass on at least £250,000 collected on behalf of a range of not-for-profit organisations.

The emergency manager appointed by the commission has now called on charities and donors to check for and "speak up about" any amounts outstanding, as the portal and The Dove Trust charity, which sits behind the site and manages the cash, had failed to file any financial accounts since 2009. Any donations made on or after 12 July should be automatically returned to the donor, but any concerns should be raised at Dove-TrustInterimManager@crowecw.co.uk or on 0207 842 7313.

But the closure of a charity doesn't have the same effect for donors as a closed commercial company does for consumers.

Just like any organisation, charities wind up all the time. Of the 160,000 registered charities in England and Wales, around 5,000 close their doors every year – roughly equal to the number that are created.

"They don't all just run out of cash," says Sarah Miller of the Charity Commission. "They could merge, complete their aim – like finishing the church roof – or just run out of steam or volunteers. A charity's board of trustees would need to decide to close, and winding up the charity itself could take a while, especially if there were complicated assets involved.

"They must inform us that they wish to come off the register and any assets left over have to be applied to the nearest similar charity.

"This isn't like a commercial consumer situation, though, and legally, once you have made a decision to donate, you don't have the automatic right to get it back," she adds.

"The assets have to be used for charitable purposes and the charity itself will either identify the next-best fit for those assets or we can advise them."

Commision woe: regulation in the real world

The Public Accounts Committee (PAC) recently raised concerns that up to 300 registered charities could be fronts for tax avoidance after one outfit, the Cup Trust, took in "donations" worth £176m after being awarded charity status by the Charity Commission in 2009. It only gave away £55,000 to charitable causes, according to a PAC report released last month.

At the same time, the trust also tried to claim gift aid of £46m that would otherwise have been paid in tax, the committee reported.

The man on the street is highly unlikely to be approached by such an outfit as they are set up simply to avoid tax, but the report criticised the Charity Commission for missing "clear 'red flags' that should have raised suspicions about the Trust's activities ... [It] should have undertaken more due diligence in deciding whether to register the Trust and should have liaised with HMRC."

The PAC and National Audit Office have repeatedly warned the Charity Commission to make greater use of its statutory powers. In fact, MPs are planning to launch a new inquiry into whether it is fit for purpose.

For more information about the regulation, and registering, of charities in England and Wales, go to charitycommission.gov.uk. For charities registered in Scotland, go to oscr.org.uk, or in Northern Ireland, charitycommissionni.org.uk

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