How to prevent fundraising fraud

The National Fraud Agency recently revealed that fraud against charities and donors costs the charitable sector about £1.3bn a year. This followed a comprehensive survey of 10,000 charities. One thing which was not covered by the survey was the cost to the sector of fake donations collected from non-charitable organisations and not applied for charitable purposes. Francis Maude of the Cabinet Office, has claimed that up to £50m a year is lost to bogus collectors.

Currently the regulations dealing with the matter of collections in public places and door to door hark back to the pre-Charities Act 2006 regime. Part three of that Act contains several provisions that were designed to prevent fraud of this nature and to streamline the approval process by introducing a new regime.

Currently, local authorities are solely responsible for licensing and controlling face-to-face fundraising and requests for direct debit pledges for the simple reason that they are best placed to monitor fundraising activities in their jurisdiction. Under the new proposals, there would be a two-tiered system: the Charity Commission would be responsible for vetting public collectors and for issuing public collection certificates. Holders of public collection certificates would then apply to the local authority for a permit to hold collections at certain times and places.

This legislation has been sitting on the statute books since 2006 and has yet to be implemented, which has lead to some complaints in the sector. Indeed a recent (November 2010) decision by the Fundraising Standards Board (FRSB) to terminate membership of a charity for problematic fundraising tactics prompted the FRSB to call on the Office for Civil Society to implement these regime changes as a matter of priority. The feeling is that there is little consistency in approach and that as a result of this, it is easier for fraudulent collectors to slip through the cracks in the system.

However, this desire does not seem to have been replicated in Government. In August last year, Nick Hurd, the minister for civil society, announced that implementation of these changes would be postponed indefinitely, although the position would be reviewed in 2011. This was because both the Cabinet Office and the Charity Commission had "other priorities." In particular the Charity Commission, looking at major funding cuts, is not able to take on the additional duties which would be required.

The view of prominent figures in the charitable sector is that the current rules are not fit for purpose, so something has to change. On the other hand, the regime envisioned in part three of the Charities Act 2006 is no longer practical.

So where does that leave things now? Francis Maude, the Cabinet Office Minister, said in Parliament in January that stealing from charities is a "repulsive" crime, with suspected links to organised criminals. He promised robust action against people who carry out such crimes, which goes somewhat beyond the improvements anticipated in Part three of the Charities Act. As Mr Maude said in response to questions, the new changes will be designed to "make the law easier for legitimate charities but more effective in controlling fraudulent collections".

Step one of this was a meeting between Nick Hurd and various figures from charities, collection partners, together with the various licensing and enforcement agencies which took place on 10 January.

One of the statements emerging from that meeting was a promise from the Ministry of Justice to increase the penalties which would be faced by bogus collectors. Clothes Aid was one of the charities represented at the meeting. They reported that of the 297 thefts reported by them in 2010, only 21 resulted in prosecution and the maximum penalty handed out was a 12-month conditional discharge sentence and a £60 fine.

One of the biggest problems arising from this is that over time these fraudulent collectors are eroding the confidence of the public in charities. As Michael Lomotey of Clothes Aid, was quoted as saying these fraudsters are stealing the British charitable spirit.

There is a strong consensus in the sector that something needs to be done, but with cuts to Local Authorities, the Charity Commission and the Police in the pipeline, it remains to be seen quite who will be responsible for getting that done.

Shimon Shaw is an Associate at law firm Matthew Arnold & Baldwin LLP

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