Charities rely heavily on donations to support their charitable purpose and to help them succeed and grow.
In fact, donations to charities account for 31.8% of all income, making them a vital source of funding.
So why would you turn a donation away, saying thanks but no thanks to a much-needed income stream?
In some cases, it may be in your charity’s best interests to refuse or return a donation; in other instances, it may be a legal requirement.
Making this decision falls into the remit and responsibility of your Trustees and in this post, we look at donations further and why you might refuse or return a donation your charity receives.
Definition of a donation
A donation is money or gifts, i.e., land, goods, or property, that are freely given to your charity.
Donations can come as part of a fundraising activity, gift, or grant and are recorded in your accounting records as part of your unrestricted fund, i.e., you’re able to spend the donation on anything that supports the charity’s purpose.
(Note: Some grants may have terms and conditions stipulating how the grant will be spent. However, if the grant is more like a contract, you may consider returning it because different legal rules will apply.)
Individuals and businesses can make donations through various means, such as gift aid, dedicated donation pages, door-to-door requests, direct mail requests, and more.
But just because someone wants to donate doesn’t always mean you should immediately accept.
Reasons why you might refuse or return a donation
Donation comes from an illegal source
You have a legal obligation to refuse or return a donation if you suspect or are aware that they are from illegal sources, or the donation comes with illegal conditions.
If you suspect terrorist or criminal activity, you must not contact the donor but instead follow the law and guidance, which you can find here.
Donation is outside the charity’s purpose
If the donation provided is for purposes outside of your charity’s purpose, you have the right to refuse or return it as you see fit.
The donation has to be right and used for the services you provide; it is the duty of your Trustees to ensure that your charitable purpose is continually at the forefront of all decision-making.
There are also additional rules if you want to return a donation because you feel morally obligated to, i.e., you don’t have a legal obligation to accept, and you can’t justify the donation being in the best interests of your charity (this can also be known as ex gratia payment).
The donation comes with “conditions”
Some donations come with conditions, and usually, these will be fine and suitable. However, some conditions surrounding donations may undermine your charity’s independence, and in these instances, the donation should be refused or returned.
The donation will bring unacceptable risk
If your trustees deem the donation to bring an unacceptable burden or risk to your charity and charity managers, negatively affecting reputation and social standing, they may refuse or return the donation.
Consider:
Could there be a claim made against your charity if you accept the donation, bringing unacceptable burdens that outweigh the benefits?
Does the risk outweigh the reward?
Donation is linked to grant conditions
Grants are incredibly beneficial and a great source of income to support charity activities. However, some grants do come with terms attached, and in some instances, these terms may state that you must return any unused sums of money that has not been spent/used within a specific timeframe.
In this scenario, you must return any remaining grant money and record all information in your accounting records.
Donations linked to specific fundraising activity
There are specific rules surrounding failed fundraising appeals. For example, if your appeals have failed, you are required to refuse or return donations.
For example, have you received more money than you needed for a specific activity? Have you not received enough fundraising money so the work/activity can no longer go ahead? You no longer need the donation for this particular project?
Any of these situations constitute a reason to return a donation.
You must also refuse or return a donation if:
- The donor does not have the mental ability to decide to donate
- The donation cannot legally be given to your charity because the individual donating doesn’t actually own the property/goods
- The donation involves unacceptable private benefits to individuals
Key steps for Trustees
Trustees, charity managers, and volunteers must build good relationships with donors to keep everyone happy, continue providing that feel-good factor, and maintain a strong income stream for their charity.
Your trustees must also follow all legal guidelines and restrictions and provide evidence of this in all documentation.
To help support Trustees, it is recommended that you develop a donation policy that outlines reasons to refuse or return, when and how to conduct due diligence on donors to ensure donations are genuine and ways to manage anonymous donations to the best of your ability.
Your options and obligations in accepting, refusing, or returning donations depend on the individual circumstances surrounding the donation and trustees should refer to your charity’s governing documents, to make sure you have the power to refuse a donation, and this power must be explicitly mentioned.
If you have power outlined in your governing documents, it is advisable to use it in line with your trustee duties—always acting in good faith, with the best interests of the charity at the heart of your decision-making, managing any conflicts of interest that arise, etc.
If you do not have power to refuse or return a donation outlined in your governing documents and you wish to change this you may need to seek authorisation from the Commission.
Trustees’ decision-making linked to donation refusal should be rational and always, always supported with clear evidence.
Things to be aware of:
- You will need to be aware of and consider the financial loss of refusing a donation, the potential conflict this may cause, the potential risks involved, and the impact of your decision on your charity’s reputation.
- If you have decided to return a donation, you may need specialist advice to better inform you on how to show this in your charity’s accounts, showing a record of gift aid and other tax implications on donation returns.
- You can also ring-fence certain donations and grants, where the money is to be used for a specific activity.
Working with a professional accounting team like Beyond Profit can help you keep your accounts in order, including ring-fencing monies and donations.
Charitable donations
We can’t emphasise enough the importance of having complete transparency in all documentation and accounting when it comes to donations.
Supporting you with all of your accounting requirements is the professional and experienced team at Beyond Profit.
We can help you record and report all your unrestricted funds as well as support you with day-today bookkeeping and accounting.
Why not book a discovery call with a member of our team today and see how we can help you.
