An armed forces charity signed an agreement with a fundraising company promising the company could keep 80 per cent of all funds raised, but the Charity Commission decided not to open a statutory inquiry into its activities.

Concerns were raised with the Commission over Our Local Heroes Foundation, a grantmaking charity. The Commission was told that the public was being misled by not being properly informed that only 20 per cent of the funds raised went to charity, with 80 per cent going on fundraising costs.

The Commission found that the charity had signed a fundraising agreement with Targeted Management Ltd (TML) for a five-year term, which stipulated that the charity would be invoiced for 80 per cent of all the funds they raised.

TML claimed that the arrangement “did not bring them within the regulations that cover commercial participators and fundraisers”.

The Commission found that in 2015, the charity’s income was £500,000 but only £10,000 has been used to further the charity’s objects by providing grants, while £155,000 had been spent on office costs and wages for eight employees.

The Commission identified “serious regulatory concerns including a very low level of charitable expenditure, substantial spending outside the charity’s objects, poor governance, conflicts of interest and an insufficient focus on providing grants to beneficiaries”.

The Commission said “this was not acceptable and that there was likely to be justifiable public concern and damage to the charity’s reputation if the ratio of income to charitable expenditure remained so low”.

But the Commission said in a case report published today that it had decided not to use its legal powers to intervene at the charity, and had not opened a statutory inquiry. Instead it had given the charity an action plan to improve its efficiency.

The Commission did note that there was no evidence of fraud or theft in the charity.

The charity’s objects are to relieve the financial hardship of people who have served in the armed forces and are in need, by making grants.

Trustees ‘open and responsible’

The regulator assessed whether to open a statutory inquiry into the charity. However, “in view of the open and responsible approach shown by the trustees”, it decided to agree an action plan with them instead.

This had three key objectives which were to “ensure that fundraising is conducted in an open and transparent way, and the public are informed how much of their donation would go to the charity”; “to maximise the proportion of income given as grants and minimise administration costs”; and “to ensure money is not spent outside the objects of the charity”.

Following this action plan, costs were reduced by over £100,000 a year, the Commission said. All projects not directly relating to the charity’s objects were stopped.

The charity is now aiming to provide a minimum of £140,000 worth of grants a year. It has also recruited new trustees, and governance and financial controls have been put in place.

The charity now clearly shows on fundraising materials the percentage of donations going to the charity (20 per cent), and the costs going to fundraising (80 per cent).

The Commission said that this “fundraising statement does address the regulatory concerns that we expressed to the trustees. However the fundraising costs of 80 per cent remain high.”

A spokesman for the Our Local Heroes Foundation said: "There has been a certain amount of mission drift in the past. The Charity Commission have assisted the charity in refocusing the objects, which is to provide grants to veterans across the UK to assist with help and support.

"The charity appointed a new chair to assist in realigning the organisation.

"At one point the charity employed eight staff, which has now been reduced to two.  A much greater proportion of income is now available for grants.

"The charity now only provides financial aid to veterans. The charity now operates an efficient and effective eligibility and application process; each veteran request is assessed on individual merit. 

"The grant application process is efficient and smooth, Our Local Heroes Foundation can respond to the needs of a veteran in a number of days, whereas some other organisations have a turnaround time of up to 28 weeks.

"The charity is also working with the fundraiser, TML, to reduce their costs and increase the funds that go to the charity."

A spokesman for Targeted Management Limited said: "TML is not a professional fundraising company and provides outsourced services to different organisations including Our Local Heroes. OLH promotions throughout the UK are booked by us for the charity. All the monies received at the promotions whether through donation or sales of products is paid to the charity.

"The 80 per cent figure mentioned by the charity commission is the maximum cost the charity will expect to spend running an activity of this type. All staffing and running costs are paid by the charity and make up the majority of the costs incurred as all the collectors work directly for the charity.

"TML have no say or control of the costs in running the charity except for our fees for recruitment, location booking and logistical management of their collectors which works out at less than 20 per cent of the funds received. TML do not and have never received 80 per cent of the charity's money."