1.0 Introduction. 2.0 The Aims Behind the Code of Conduct

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1 Institute of Fundraising Response to Draft Recommendations to Member States regarding a Code of Conduct for Non-Profit Organisations to Promote Transparency and Accountability Best Practices. 1.0 Introduction The Institute of Fundraising (registered charity number ) is a membership organisation committed to the highest standards in fundraising management and practice. Members are supported through training, networking, the dissemination of best practice and representation on issues that affect the fundraising environment. The Institute of Fundraising is the largest individual representative body in the voluntary sector with over 4000 individual members and 210 organisational members throughout the UK. Membership reflects income to the sector of some 5 billion per annum and delivers more than 12 billion service-output covering all areas of social activity. 2.0 The Aims Behind the Code of Conduct The Institute of Fundraising welcomes the development of a Code of Conduct for Non-Profit Organisations (NPOs). However, the Institute believes that the development of the Code has been distracted by the focus on the prevention of terrorism. Though the Institute appreciates that this is an important aspect of the Code, the development of the Code represents an opportunity to share best practice across the whole of the European voluntary sector. Further, the Institute believes that recent developments in the regulation of the voluntary or non-profit sector (NPS) in the UK can be a useful model for the development of regulation across the EU. The Institute believes that the development of this Code should be used to consider the following questions: What is the definition of an NPO within the EU? What is the meaning of the NPS within the EU? What fiscal and tax measures are required to protect the sector and strengthen donor confidence in the sector? What legislative and best practice measures should be introduced across the sector, whilst also ensuring that the burden of regulation is kept to a minimum? Institute of Fundraising 1 of 6 August 2005

2 What effective legislation and best practice already exists and how can those practices most effectively be shared across the sector? What are the implications of a Code of Conduct at EU level? How does the EU intend to support the NPS? 3.0 Definition of NPOs The Institute believes that consideration should be given to the definition of NPOs in the Code. There are a variety of legal definitions for bodies that could come under the umbrella of 'non-profit organisation' in the UK, and a corresponding variety of regulators. As drafted, charities registered with the Charity Commission for England and Wales and/or the Office of the Scottish Charity Regulator would be largely compliant with the Code. However, non-profit organisations (for which there is no legal definition in the UK and might include social enterprises, housing associations, some trusts and foundations and others) are not currently subject to the same level of regulation relating to transparency and accountability as registered charities. Further consideration should be given to the definition of NPOs in the Code and how this definition should be applied by Member States, particularly if compliance with the Code will determine eligibility for funding or becoming a lobby member. 4.0 Code's Focus on Terrorism Preventing the abuse of NPOs by terrorists will be the reasoning for the inclusion of certain best practice measures within the Code but to develop a Code of Conduct that is guided solely by the prevention of terrorism is to miss an opportunity for the whole of the EU NPS. The Institute believes that the development of this Code offers an opportunity to share best practice across the EU and in turn develop a Code of Conduct that is effective at preventing the abuse of NPOs for terrorist or criminal activities. Money laundering legislation and accounting practices at EU and state level are applicable to charities and NPOs as well as businesses and public sector organisations; it may be that it is more appropriate to ensure that controls are put in place for all organisations in relation to money laundering and criminal activity than that the NPS is singled out. Whilst it is important that measures are taken to prevent criminal activity within the sector, the Institute believes that there are other factors of merit that make an EU Code desirable (such as spreading best practice and skills; sharing views on the nature and remit of the voluntary sector and what it means for the EU; enhancing trust and confidence in the voluntary sector for both donors and beneficiaries). In the UK, there are accounting and reporting regulations including SORP 2005, registration requirements and new educational initiatives such as Guidestar UK, which aims to provide information on registered charities via an interactive website. These measures amount to a proportionate system of Institute of Fundraising 2 of 6 August 2005

3 regulation in which donors and beneficiaries can have confidence. Even so, rare cases of abuse of registered charities and other NPOs do occur. The Institute believes that it would be unwise to assume that an EU Code will prevent criminals from exploiting NPOs for financial gain or otherwise. Even once a Code is in place, criminal activity will still be able to hide behind the structure of NPOs either by operating under the margins of regulation or by deceptively complying with regulation. A Code could help to raise the standard of accountability and transparency within NPOs and thus help NPOs, donors, beneficiaries and regulators to be more aware of what is required, as long as it was also supported by the EU and Member States. This in turn would help to identify suspicious practice but it cannot stop it entirely. Since any Code could only go some way to preventing the exploitation of NPOs for terrorist activity, it is important that the Code takes account of the EU NPS in the fullest way to ensure an effective Code is developed. Accountability and transparency measures need to be at the heart of the Code, as much for providing a basis for clear, transparent communications with the public as to prevent terrorist activity. Further, higher standards of transparency and accountability are not the only ways to achieve the aims of protecting the sector and strengthening donor integrity and confidence. Taken at its widest, protecting the sector could be achieved by ensuring that suitable fiscal measures are in place in order to ensure that donors are encouraged to give to NPOs. The Institute believes a further aim of the Code should be to enable the Non- Profit Sector (NPS) to develop capacity and achieve progress within member states and across the EU as a whole. It is important that the NPS is not overburdened by unnecessary regulation. The Institute of Fundraising believes that the UK has been the innovator in recent years in developing appropriate regulations that support the UK NPS. Some of these are listed below and the Institute urges the European Commission to investigate them further. 4.1 Regulation in the UK The Institute believes that developments across the UK in recent years in relation to regulation of NPOs (specifically registered charities) are a model of best practice that could be applied across the EU. Charitable law is devolved in the UK, making the Westminster Parliament responsible for charitable law across England and Wales, the Scottish Parliament responsible for charitable law in Scotland and the Northern Ireland parliament (though currently dissolved) responsible for charitable law in Northern Ireland. England and Wales have had a charitable regulator for some years in the form of the Charity Commission for England and Wales and OSCR (Office of the Scottish Charity Regulator) is in the process of establishing itself in Scotland. Northern Ireland is currently consulting on whether to establish its own regulator. However, tax and fiscal policy for UK Institute of Fundraising 3 of 6 August 2005

4 charities is determined on a UK wide level, though the benefits of these tax policies are dependent on being a registered charity in England and Wales, and Scotland, excepting the legally defined classes of exempt charities and excepted charities. The UK has also seen growth in the numbers of social enterprises, 'not for profit' or 'non-profit' organisations and other bodies that could be classified as 'not for profit' but these bodies do not all fall under the same regulator or regulation. Even in the UK, then, with its advanced system of regulation for charities, it can be difficult to determine the definition of a 'non-profit organisation' or where responsibility for a particular non-profit sits. The UK system also depends on self-regulation, whereby codes are developed which NPOs agree to abide by but are not legally binding. Recent examples include the Code of Good Governance and the Institute's Codes of Fundraising Practice. For certain activities (in particular fundraising activities) regulators other than the main charity regulators (for example, The Gaming Board for Great Britain and the Information Commissioner) are responsible for ensuring compliance with relevant legislation. A mixture of self-regulation and statutory regulation can be effective at ensuring compliance with the law and raising standards with the NPS. However, it is important that charities and not for profits are not subject to excessive regulation. Relevant Current developments within the UK fundraising sector: As drafted, the Code of Conduct suggests a process of regulation that is similar to the structures already in place, or being developed, in the UK. The Institute welcomes this move. Recent developments in the UK include: Reform of Charity Commission for England and Wales Development of Office of Scottish Charity Regulator Development of Code of Good Governance Application of standards accounting rules across the UK (SORP 2005) Development of a self-regulatory scheme for fundraising Code of Good Governance ImpACT Guidestar The Institute would be happy to provide more information on these developments. 5.0 Fundraising Provisions within the Code We believe that there are three issues that merit further consideration in the development of the Code: the Self-Regulation of Fundraising Scheme for the UK, Institute of Fundraising 4 of 6 August 2005

5 the development of an International Code of Ethics for Fundraising and the clause within Section B of the Code about the identity of donors. 5.1 Regulation of Fundraising Scheme and Codes of Fundraising Practice The Self-Regulation of Fundraising scheme will encourage charitable fundraising organisations to sign up to the Institute of Fundraising's Codes of Fundraising Practice, backed up by an independent complaints procedure. It will be funded by the UK Government and Scottish Executive initially. In the UK, any individual or organisations may legitimately fundraise. Funds must be used for the purposes for which they are raised but fundraising itself is not restricted to any particular sector or organisation. Registered charities may also benefit from tax effective giving mechanisms. The Institute is also developing, along with fundraising associations in other countries (including EU member states), an International Code of Ethics for Fundraising. Appendix 1 sets out the scheme for self-regulation; Appendix 2 lists the fundraising associations taking part in the development of an international Code of Ethics for Fundraising. 5.2 Identity of Donors, Section B In Section B ('Promoting transparency and accountability best practices') of the draft Code, it states in the last bullet that 'All NPOs should follow the "Know you beneficiaries, doors and associate NPOs' rule. Whilst the Institute appreciates that to ensure compliance with money laundering regulations, the identity of donors should be known, some fundraising techniques by their very nature do not readily allow the identity of the donor to be determined (for example, spontaneous cash collections). The Institute suggests that NPOs should make their best endeavours to ascertain the identity of donors, beneficiaries and other NPOs but that an acknowledgment of appropriate and proportionate controls is also included. 6.0 Awareness The Institute believes that it is extremely important that member states, NPOs, regulators and the police are educated about indicators of terrorist activity and the work and regulation of the NPS more generally. It is also important that the public are educated about the work of the NPS and how NPOs are regulated. It is meaningless to display a registered number if the public do not understand what the number represents. In the UK, NPOs are promoting the work of the voluntary sector through a coalition called ImpACT. ImpACT aims to help NPOs to explain to donors how the NPS in the UK is regulated and about the work of NPOs. The UK government has also funded which will allow the public to search for information on registered charities, another useful information and Institute of Fundraising 5 of 6 August 2005

6 educational tool. 7.0 Conclusion The Institute of Fundraising believes that the development of the Code is a step in the right direction for the EU NPS. However, the general tenor of the Code as drafted is that regulations or structures should be put in place to stop perpetrators of terrorist or criminal activity exploring the structures of NPOs. While the Institute believes that this is a valid aim of the Code, the aims of the Code should be expanded to consider essential best practice systems to ensure accountability, transparency and good governance in the NPS, to the benefit of donors, beneficiaries and NPOs themselves. The Institute believes that a well-constructed Code of Conduct for Accountability and Transparency in the NPS could have wide-ranging benefits for all member states and NPOs. The Institute would be delighted to participate in any future consultations. Contact for further information: Andrew Watt Head of Policy and Standards Laura Thomas Policy and Standards Officer Institute of Fundraising Park Place 12 Lawn Lane London SW8 1UD policy@institute-of-fundraising.org.uk Institute of Fundraising 6 of 6 August 2005