Why do some charities make poor outsourcing decisions? Causes, risks and practical solutions

Many Australian charities outsource significant parts of their fundraising to third party suppliers. Peter Hills Jones, Chief Executive Officer Public Fundraising Regulatory Association and Paul Tavatgis, Face-to-face fundraising optimisation specialist on not-for-profit fundraising strategy.

Many Australian charities outsource significant parts of their fundraising to third party suppliers. “Fundraising” can mean many things, in this sense the focus is on seeking donations from the public, most commonly through telephone and face to face fundraising. Working with professional partners can deliver excellent results but also brings potential financial and reputational risks that must be carefully managed. In recent years, there has been unwelcome media and regulatory attention on the not-for-profit sector. As a sector that relies on its good reputation to continue working, it is surprising that some charities fail to take the necessary precautions when outsourcing – why does this happen and what can charity boards do to improve this?

A core issue is the “otherness” of fundraising within some charities. Charities were started and are run to fix a problem, not to raise money. Fundraising is poorly represented at Board level; the top twenty “household name” charities that most rely on public fundraising in Australia had income of $1.27 billion in 2016. At Board level in these charities there are only two Directors with a fundraising background, compared to 56 with experience in programs. Only three CEOs come from a fundraising background. This isn’t to say that fundraisers should run the sector – but this lack of senior level knowledge in a critical area can lead to poorly-informed decision making. This requirement will vary for different organisations of course, but if a charity relies on public contributions to fund it’s programs, then it increases in priority.

Fundraising is critical, not just because it enables the work of the sector, but because for many charities fundraising is the most frequent point of contact with the public. Face-to-face fundraisers alone engage in around 20 million conversations a year; if these conversations go badly then trust in the sector will diminish rapidly. Outsourcing also generates compliance and legal risks. This is most starkly shown by the current Fair Work Ombudsman (FWO) Charity Collection Inquiry, which is investigating non-compliance with labour laws in fundraising. Failure to maintain proper oversight of fundraising supply chains raises the possibility of organisational and even personal liability for charity decision makers.

Outsourcing fundraising outsources a charity’s income, reputation and social licence to operate – the role of Boards in exercising good governance should be paramount, yet often it is not. Experience shows in many cases an almost casual approach to entering into agreements with commercial suppliers that run into millions of dollars. Many organisations do not have even basic procurement and due-diligence processes, or if they do, for some reason do not apply them to fundraising contracts, preferring to rely on “word of mouth” to appoint suppliers.

In face-to-face fundraising particularly, a lack of knowledge and poor or non-existent due-diligence processes can create significant risk. The market for face-to-face fundraising is a seller’s market, barriers to entry for suppliers are very low, and the sophistication and quality of some of these businesses is dubious. It is vital that Boards support their fundraising departments by providing proper oversight and governance processes, which build in strict due diligence measures.

Support for Boards is available in this space. The Australian Not-for-Profits and Charities Commission (ACNC) has produced guidelines on working with fundraising agencies in partnership with the Public Fundraising Regulatory Association (PFRA) and Fundraising Institute Australia (FIA). The PFRA is also currently undertaking a wide-ranging accreditation process with member charities and suppliers. This will allow charities to benchmark themselves against their peers across a range of key fundraising governance and compliance practices – practices that well-run charities should already have in place.

The PFRA accreditation process will also provide charities with an objective and detailed set of information on the quality of systems within face-to-face agencies. This is a huge step forward for charities who have hitherto struggled to systematically assess the quality of potential suppliers. Poor quality operators are already being driven from the market by increased charity awareness - accreditation is designed to encourage well-run suppliers to thrive.

Boards should also govern fundraising through sub-committees. The remit of audit and risk committees should include oversight of fundraising supply chains and compliance. The management of investment in fundraising, and oversight of performance fits within the role of finance committees. Better still, implement a dedicated fundraising and marketing sub-committee. Membership of these committees would be strengthened by appointing Non-Executive Directors with fundraising experience.

Directors can both learn from and develop the knowledge and skills of their own fundraising staff. There is also a wealth of information generated by the sector through benchmarking, research and surveys covering public and donor sentiment, which can be used to develop reporting metrics to inform Board oversight.

The role of the Board is not to run fundraising on behalf of their fundraising team, Boards do however carry the responsibility to exercise proper governance and oversight of fundraising, this can be improved by increasing the knowledge and representation of fundraising at Board level. Fundraising doesn’t just pay the bills – it is pivotal in how Australians experience and perceive the whole sector, and Board membership and knowledge should reflect this.