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Charitable fund-raising costs under scrutiny in the US Supreme Court – a UK perspective

  • Debra Morris (a1)


There is increasing concern with the cost effectiveness of charities' fund-raising activities. Using a recent decision of the US Supreme Court as a backdrop, this paper examines the regulation of professional fund-raising and the associated issues relating to fund-raising costs. Whilst there are no legal limits on fund-raising costs in England and Wales, there are some elements of legal regulation which may indirectly impose some limitations on costs. As well as these legal tools, a number of other mechanisms, both current and proposed, which may help donors to decide which charities to support, taking into account their fund-raising efficiency, will also be considered. The paper finally acknowledges that whilst limiting the costs of fund-raising is a desirable objective, achieving this aim is by no means simple. It is hoped that current and proposed measures based on the theory of ‘let the donor’ decide will help to achieve this aim.



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1. CAF, NCVO Inside Research, August 2003, Issue 19.

2. See eg Home Office Minster, Lord Filkin's comment in Institute of Fundraising ‘The Future of Self Regulation in Charity Fundraising’, Press Release, June 2003.

3. See eg ‘Charities Hit By Doubts: Survey Uncovers Concerns Over Where The Money Goes’, Guardian, 11 December 2002.

4. Scottish Executive ‘Breast Cancer Research (Scotland)’, News Release SEC0109/2003, 21 June 2003.

5. Under the Charities Act 1993, s 18(1)(vii).

6. Charity Commission ‘Charity Watchdog Steps In To Protect Breast Cancer Charity’, Press Release, 23 May 2003.

7. Tax relief associated with charitable status is a reserved matter and the Inland Revenue is responsible for establishing charitable status for tax purposes in Scotland and Northern Ireland and for some charities in the rest of the UK. The supervision and regulation of charities have been devolved to the Scottish Executive (Scottish Charities Office) and to the Northern Ireland Assembly (the Charities Branch in the Department for Social Development) and are under review in both areas. Whilst Strategy Unit recommendations on charity supervision and regulation concern England and Wales alone, other initiatives are described in Strategy Unit Private Action, Public Benefit. A Review of Charities and the Wider Not-For-Profit Sector (London: Cabinet Office, September 2002) paras 3.18–3.24.

8. See text below at nn 86–96.

9. Docket no 01–1806. Argued 3 March 2003, decided 5 May 2003. The case was previously known as Ryan v Telemarketing Associates. The name change reflects the election of a new Attorney-General for Illinois.

10. This is evidenced by the large number of amicus briefs filed in this case.

11. It emerged that some United Way organisations, trying to appear more successful and more efficient with their donors' money, were counting contributions in ways that make the numbers look more robust - and expenses look smaller. See eg ‘US Charity Defends Accounting’, The Times, 20 November 2002.

12. The terrorist attacks brought a rush of donations but the image of charities has been tarnished by a failure to work together and controversy over how donations have been spent. See eg ‘Why 9/11 Was A Disaster For Charities’, Guardian, 6 September 2002.

13. ‘Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.’

14. The People of The State Of Illinois Ex Rel James E Ryan, Attorney General Of Illinois v Telemarketing Associates 198 III 2d 345; 763 NE 2d 289.

15. Village of Schaumburg v Citizens For a Better Environment 444 US 620 (1980); Secretary of State of Maryland v Joseph H Munson Co 467 US 947 (1984); Riley v National Federation of the Blind of North Carolina Inc 487 US 781 (1988).

16. Riley v National Federation of the Blind of North Carolina Inc 487 US 781 (1988).

17. Scalia J filed a concurring opinion in which Thomas J joined.

18. It is interesting to note also that in the Supreme Court trilogy decisions, Rehnquist CJ had dissented in all three cases and O'Connor J had joined in his dissent in both Munson and Riley.

19. See eg Donaldson v Read Magazine Inc 333 US 178 at 190.

20. See eg Schaumburg 444 US 620 at 637.

21. Exacting proof requirements of this order, in other contexts, have been held to provide sufficient breathing room for protected speech. See eg New York Times Co v Sullivan 376 US 254 at 279–280, where it was held that a state cannot award damages to a public official for defamatory falsehood relating to his official conduct unless he proves ‘actual malice’.

22. Munson 467 US 947 at 969–970.

23. Cf Bose Corpn v Consumers Union of United States Inc 466 US 485 at 498–511.

24. Riley v National Federation of the Blind of North Carolina Inc 487 US 781 (1988).

25. See text below at n 76.

26. The WGA publishes reports on nationally soliciting charities that are the subject of donor inquiries. These reports include an evaluation of the charity in relation to the voluntary Better Business Bureau's Standards for Charitable Accountability. These standards were most recently updated in March 2003. Reports are generated based on the volume of inquiries received about a charity.

27. WGA Report on Vietnow, October 2001.

28. Ryan v Telemarketing Associates, Brief Amici Curiae of the Council of Better Business Bureaus et al in Support of Petitioner, pp 4–5. Filed 19 December 2002.

29. Ryan v telemarketing Associates, Brief Amici Curiae on Behalf of Independent Sector and other Nonprofit Organizations in Support of Respondents, p 3. Filed 23 January 2003.

30. Most other states lack the resources to follow suit.

31. Each report contains a detailed compilation of every charitable telemarketing campaign conducted in New York State in the last year by registered professional fund-raisers.

32. E Spitzer Pennies For Charity. Where Your Money Goes. Telemarketing By Professional Fund Raisers (New York: New York State Department of Law, Charities Bureau, 2003).

33. Among the charities most frequently falling below this figure were police and firefighter-related charities and veterans' charities.

34. Comments on charity law aspects will be limited to the law as it applies in England and Wales.

35. Third Sector, 4 June 2003.

36. For example, the BBC Children in Need Appeal claim on its website that ‘every penny donated goes towards helping children’ is typical. The explanation given here is that all administration costs, promotional materials, and salaries are paid for from the interest accumulated on the money raised. See (last visited 10 June 2004).

37. See eg M Hager, T Pollak and P Rooney ‘Variations in Overhead and Fundraising Efficiency Measures: The Influence of Size, Age, and Subsector’, presented at 2001 ARNOVA meeting, Miami.

38. See eg A Sargeant and J Kähler ‘Returns on Fundraising Expenditures in the Voluntary Sector’ (1999) 10 Nonprofit Management & Leadership 5.

39. The People Of The State Of Illinois Ex Rel James E Ryan, Attorney General Of Illinois v Telemarketing Associates 198 III 2d 345 at 360.

40. For example, the Association of Fund-raising Professionals' Code of Ethical Principles and Standards of Professional Practice does not allow members to accept any compensation that is based on a percentage of charitable funds raised. See Standards 16–18. Similarly, the Institute of Fundraising believes that such arrangements should only be entered into in exceptional circumstances and advises against the general use of payment on a commission only basis. See Institute of Fundraising Payment of Fund-raisers on a Commission Basis (London: Institute of Fundraising, 2002).

41. In the US there is a body of academic literature outlining the complexities and unreliability of fund-raising ratios. See eg the works cited in Ryan v Telemarketing Associates, Brief Amici Curiae on Behalf of Association of Fundraising Professionals et al in Support of Respondents, at n 12. Filed 23 January 2003.

42. B Hopkins ‘A Struggle for Balance’ (1995) Advancing Philanthropy, Fall, at 26.

43. Charity Commission Accounting and Reporting by Charities: Statement of Recommended Practice (London: TSO, 2000) (SORP). See n 78 below.

44. Charity Commission Annual Review for 2001/02 of the Statement of Recommended Practice - Accounting and Reporting by Charities (London: TSO, 2002) Information Sheet 1.

45. See SORP, above n 43, paras 132–135.

46. Under the Charities Act 1993, s 8.

47. Charity Commission Annual Report 2002–2003 (London: TSO, 2003).

48. Charities Act 1992, s 59(1).

49. Defined in the Charities Act 1992, s 58(1).

50. Charities Act 1992, s 64 and the Charitable Institutions (Fund-raising) Regulations 1994, SI 1994/3024. See also Charity Commission Charities and Fundraising Leaflet CC20 (London: TSO, 2002) Annex B for a checklist for agreements with a professional fund-raiser.

51. Charities Act 1992, s 59(3).

52. Charity Commission Charities and Commercial Partners Leaflet RS2 (London: TSO, 2002).

53. Following a recommendation of the Strategy Unit, a consultation paper containing proposals for a new unified local authority licensing scheme for public charitable collections was published in September 2003. See Home Office Public Collections for Charitable, Philanthropic and Benevolent Purposes (London: Home Office, 2003). A written Ministerial Statement was made on 27 May 2004 detailing the outcome of the consultation and how the proposals will be taken forward. Provisions giving effect to the proposals are included in the draft Charities Bill published on the same day.

54. House to House Collections Act 1939, s 2(3)(a) and (b).

55. Model street collection regulations, reg 15(1) and (2).

56. See text below at n 86.

57. Home Office, n 53 above, p 24.

58. See text above at nn 3–6.

59. See text above at n 16.

60. For definition see above n 49.

61. Charities Act 1992, s 60(1).

62. Whilst the Strategy Unit recommended that the equivalent legislation governing disclosure by commercial partners in relation to charity promotions should be amended to require a specific statement of the return that will be made to charity, no mention was made of the provisions relating to professional fund-raisers. However, in its response, the government states that it intends to amend the requirements applying to professional fund-raisers in the same way. See Strategy Unit, above n 7, para 6.33; Home Office Charities and Not for-Profits: A Modern Legal Framework. The Government's response to ‘Private Action, Public Benefit’ (London: Home Office, 2003) para 5.39. The draft Charities Bill, published 27 May 2004, gives effect to this recommendation.

63. See text above at n 50.

64. Charities Act 1992, s 60(7).

65. Charity Commission ‘Charitable Funds held in Connection with Paradigm Solutions’, 9 August 2003.

66. See eg D Morris ‘Charities, Politics and Freedom of Speech’ [1999] CL & PR 219.

67. See in general Charity Commission Political Activities and Campaigning by Charities Leaflet CC9 (London: TSO, 1999), currently under review.

68. J Stevens and D Feldman ‘Broadcasting Advertisements by Bodies with Political Objects, Judicial Review, and the Influence of Charities Law’ [1997] PL 615 at 622.

69. I Loveland Constitutional Law. A Critical Introduction (London: Butterworths, 2000) p530.

70. This had been interpreted as being consistent with the art 10 freedom of expression. See eg Derbyshire County Council v Times Newspapers Ltd [1993] AC 534 at 551, per Lord Keith.

71. [2001] EMLR 23.

72. See in general, C Munro ‘The Value of Commercial Speech’ [2003] CLJ 134 who argues that such a distinction should not be made by the English courts.

73. Directive 80/181/EEC; Directive 89/617/EEC; and Directive 99/103EC.

74. [2003] QB 151.

75. Prices Act 1974, amended by the Price Marking Order 1999, SI 1999/3042; Weights and Measures Act 1985, amended by the Weights and Measures Act 1985 (Metrication) (Amendment) Order 1994, SI 1994/2866, and by the Units of Measurement Regulations 1994, SI 1994/2867.

76. (last visited 10 June 2004). See text below at nn 97–101.

77. A summary of each individual state's laws can be found on the website of each US state's charity office. These can all be accessed from the National Association of State Charities Officials website, (last visited 10 June 2004).

78. Charities (Accounts and Reports) Regulations 1995, SI 1995/2724; Charities (Accounts and Reports) Regulations 2000, SI 2000/2868. See also Charity Commission Accounting and Reporting by Charities: Statement of Recommended Practice (London: TSO, 2000) (SOW). The SORP builds on the legislative framework and provides detailed procedures and a rigid accounting format, which, it states, will, if followed: ‘not only ensure that they are in accordance with the law but also help the reader to gain a clearer understanding of the nature and extent of the charity's work’ (para 17); and therefore ‘discharge the charity trustees’ duty of public accountability and stewardship (para 3).

79. These generally involve differences in form rather than lowering of accounting standards.

80. Charities Act 1993, s41.

81. The requirements for preparation of the statement of accounts under the Charities Act 1993, s 42 vary according to the income and expenditure of the charity.

82. Under the Charities Act 1993, s 43, charities with gross income or total expenditure above £10,000, but with gross income not above £250,000 in the relevant financial year (or the preceding two years), must have their accounts externally examined. The draft Charities Bill, published 27 May 2004, proposes a number of amendments to s 43.

83. Charities Act 1993, s 45. Reports must usually be submitted to the Charity Commission within ten months of the end of the financial year, and the statement of accounts and auditor's or examiner's reports should be attached.

84. Charities Act 1993, s 47. This requirement extends to all charities, including charitable companies and exempt or excepted charities.

85. The Charities Act 1993, s 48 requires charities, other than those with neither gross income nor total expenditure above £10,000 in the relevant financial year, to submit an Annual Return to the Charity Commission, usually by the same date that they must submit their Annual Report.

86. Strategy Unit, above n 7.

87. Strategy Unit, above n 7, para 6.32.

88. Home Office, above n 62, paras 5.32–5.35. On 27 May 2004, the draft Charities Bill was published. It seeks to implement a majority of the accepted recommendations, with the remainder to be (or, in some cases, having already been) implemented either through other legislation or by administrative action.

89. For example, the current statutory regime is struggling to cope with the fastest growing form of public collection - solicitations of direct debit commitments (often called ‘face- to-face’ fund-raising) - which does not fit the current framework.

90. Among the 152 respondents who commented on these recommendations there was clear majority (78%) support for the idea of self-regulation.

91. For example, the Charity Law Association, in its response to the Strategy Unit Report, considered that there is a danger that a voluntary regulatory system will end up ‘preaching to the converted’. Charity Law Association Charity Law Association Response To The Strategy Unit Report ‘Private Action, Public Benefit’ (London: Charity Law Association, undated) p 51.

92. The Institute of Fundraising ‘Future of Self Regulation in Charity Fundraising’, Press Release, June 2003.

93. The Code of Conduct for Fund-raisers and all the Institute's Codes of Practice can be found on the Institute of Fundraising's website at visited 10 June 2004). See, in the US context, Association of Fund-raising Professionals' Code of Ethical Principles and Standards of Professional Practice, discussed above at n 40.

94. See the final report of the Commission, R Buse The Future of The Self-Regulation of Charity Fundraising -proposed framework and governance structure (January 2004), which calls for the establishment of a Charitable Fundraising Standards Board, based on the Office of Fair Trading model.

95. Strategy Unit, above n 7, paras 6.9–6.12.

96. In May 2004, the Charity Commission published for comment and pilot a copy of the draft Standard Information Return, with a view to its introduction in 2005–06. The draft contains questions relating to a charity's fund-raising activities.

97. Charity Commission ‘New Charity Information System Gets Funding Of £2.9 Million’, Press Release, 20 March 2003.

98. See text above at nn 78–85.

99. ‘Guidestar’, The Times, 24 March 2003.

100. Charity Commission Application For Registration Of Guidestar UK - Decision Of The Commission Made On 7 March 2003 (London: TSO, 2003).

101. The Commission had previously issued a Review of the Register consultation paper on whether the purpose of promoting the voluntary sector for the benefit of the public should be accepted as a charitable purpose in its own right and the nature of the possible activities which might promote that purpose. See Charity Commission The Promotion of the Voluntary Sector for the Benefit of the Public: Discussion Paper (London: TSO, 2001).

102. ‘Ratings Game: Survey Calls for Charity League Tables’, Guardian, 10 October 2001.

103. For further details see S Lee ‘Benchmarking charity fundraising costs: A new UK initiative’ [2003] Int J Nonprofit and Voluntary Sector Marketing 5.

104. Strategy Unit, above n 7, para 6.39.

105. Charity Commission, above n 52.

106. See above at n 62.

107. For an Australian perspective, see G Berman and S Davidson ‘Do Donors Care? Some Australian Evidence’ [2003] Voluntas 421.

108. nfp Synergy Disgusted or delighted: What does concern the public about charities ?, March 2004. See also text above at n 102.

* The ideas in this paper were originally presented at the 2003 Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA) conference and I would like to thank the participants (especially Evelyn Brody of Chicago-Kent College of Law) for their helpful comments. Thanks also to Vaughan Carter and Simon Cooper of Cayman Islands Law School and this journal's anonymous referees for their helpful suggestions. The usual responsibility for errors applies.

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Charitable fund-raising costs under scrutiny in the US Supreme Court – a UK perspective

  • Debra Morris (a1)


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