The Charity Commission of England and Wales recently released an Inquiry Report on a UK charity that identified concerns with fundraising and foreign activities.  There were a number of concerns raised but perhaps most interesting is the discussion around due diligence and internal controls, and specifically “receipts, invoices or other documentation to support the project expenditure”.   

In the press release Michelle Russell, Director of Investigations noted:  “A fundamental basic is the need to keep adequate and appropriate receipts and other records of spend and have proper systems and procedures in place to request, analyse, record and hold these on a systematic and regular basis.”

In the report it notes:

It is the inquiry’s finding that the records and systems scrutinised during its 2 inspections, did not demonstrate that the trustees could monitor and fully verify the proper end use of the charities funds through its partners. When using a partner to deliver, trustees must ensure that they are undertaking appropriate and reasonable monitoring to verify the proper end use of the charity’s funds. A charity needs to hold appropriate expenditure and monitoring records and have adequate systems and procedures in place to request, analyse, record and hold these on a systematic and regular basis. This is particularly important where a charity works with or through partners, or works in high risk areas and this was not evident at the inquiry’s inspections.

Furthermore, in reviewing the contracts in place to manage the charity’s relationship with its partner organisations, in not providing receipts, invoices or other documentation to support the project expenditure, it appears that the charity failed to ensure that contractual obligations imposed on both the Turkish and UK partner organisations in relation to the projects referred to above were complied with. Not ensuring partner organisations are complying with the terms of the contract in place leaves a charity vulnerable to the risk that that the project or work is not effectively completed as the charity or its donors intended, as well as to a number of other risks, such as misuse. The Commission’s published guidance acknowledges that monitoring may take a variety of forms based on risk and depending on the nature of the charity’s work, the particular project and amount of charitable funds involved, although it will almost always include steps to verify the proper end use of funds. Operating in high risk areas and conflict zones can be challenging for charities and can impact on the types of monitoring that can be carried out and what evidence is available. The Commission’s guidance explains how trustees need to reflect the risks involved in developing practical monitoring processes for a charity for use in different situations. However, even taking this into account, the records examined fall short of what the charity and the partner organisations had committed contractually to producing. The charity agreed that ‘immediate steps are taken to ensure better document management processes are in place moving forward’.

You can read the here the full Human Aid UK Inquiry Report.

For Canadian charities you may wish to review CRA's Guidance on foreign activities:  Canadian registered charities carrying out activities outside Canada

For example under s. 7.4 it notes: 

7.4 What is monitoring and supervision?

Monitoring and supervision is the process of receiving timely and accurate reports, which allows a charity to make sure that its resources are being used for its own activities. Depending on factors such as the size, nature, and complexity of an activity, the reporting methods (as stated in any written agreement) can take many forms, including the following:

  • progress reports
  • receipts for expenses and financial statements
  • informal communication via telephone or email
  • photographs
  • audit reports
  • on-site inspections by the charity's staff members

The world we are living in today has risks.  Sometimes systems put in place years ago are no longer adequate.  We spend a lot of time working with Canadian and other charities on understanding appropriate systems for international charitable activities.