The money funnel

Setting up a fundraising foundation can be key to boosting school funds. However, warns Chloe Brunton, care must be taken when doing so

There is a long history of schools establishing foundations to raise additional funds from current and former parents, pupils and staff. The funds raised are sometimes used for capital projects, and more commonly nowadays (not least in response to the test of public benefit) for means-tested bursaries.

Places at the school and other activities for the public benefit that are subsidised by income or capital from a separate fundraising foundation will, where appropriate, count towards the school's assessment for public benefit.

The most successful foundations:
• are launched as a new fundraising venture, heralding the beginning of a continuous, pro-active and modern approach to fundraising;
• have a strong corporate identity and brand image;
• have a director of development who has credibility and influence; and
• appoint trustees who are significant donors to the foundation or who have particular experience in fundraising.

Charitable structures
A foundation can be established in a number of ways:
• a restricted fund: a fundraising activity of the school, branded as a foundation, but represented by a restricted fund within the school's accounts; or
• established as a separate charity with its own trustees constituted either as:
- an unincorporated trust; or
- a charitable company limited by guarantee.

A restricted fund is not a distinct charity in its own right. Under this model, funds remain within the main school charity and the governors are the charity trustees of the funds. However, under written terms of reference, a sub-committee can be established to oversee the management of the fund and the fundraising initiative.

Under the terms of reference, additional individuals can be brought in to, for example, add fundraising skills and experience and to gain input from key stakeholders such as alumni associations.

A restricted fund is more suited to small-scale and occasional fundraising and it may be that the level of fundraising at your school has reached such a level that it is no longer appropriate to operate fundraising using this model.
An unincorporated trust is a separate charity with distinct trustees. Any liabilities, however, for example to employees or fundraisers, would be the responsibility of the trustees personally and these are potentially unlimited.
For these reasons, where a separate charity is proposed to be established, it is recommended to set up a charitable company limited by guarantee. This has the following benefits:
• limited liability: the members of the company are only liable for the debts of the foundation to the extent to which they have guaranteed them, (usually £1 or £10); and
• appointments: the model enables experienced fundraisers/significant donors to be appointed to the board.

Independence and control of a separate registered charity
Early consideration should be given to the independence of the foundation from the school. Governors often have legitimate concerns about not losing control of funds to a separate foundation which often shares the school's name, has responsibility for fundraising for the school and the application of significant funds raised in connection with the school.

However, to be registered as a separate charity from the school:
• the foundation must exist exclusively to further its own charitable purposes for the public benefit and not simply those of the school; and
• the trustees of the foundation must act independently of the school and in the best interests of the foundation alone.

The foundation's board
Thought is needed as to the level of school or governor representation on the board of the foundation. Although the governors may be keen to be visibly represented, it is recommended that the foundation has a strong contingent of independent trustees for the following reasons:
• it goes to ensuring the independence of the foundation from the school and enables the conflicts of interest to be more effectively managed;
• substantial donors and/or individuals with specific experience of fundraising and relevant contacts could be appointed to the board; and
• governors have a multitude of responsibilities to the school and fundraising is one of the items which might slip down their agenda.

Managing conflict of interests
It is not unusual for boards of fundraising foundations to include both employees and governors of the school and individuals appointed by the school. This can give rise to a conflict of duty.

Generally speaking, as the aims of the foundation and the school are typically aligned, this can often be managed without difficulty and trustees are able to act with independent judgment and in the best interests of the foundation, irrespective of their involvement with the school.

The main area where a conflict may arise, however, is when the trustees of the foundation are determining arrangements with the school. Examples might include:
• the timing of the transfer of funds to the school, eg if the foundation wishes to retain funds as part of its reserves, but the school is keen to receive the funds at the earliest date possible; and
• the terms on which the funds are transferred: while any funds received/collected on a restricted basis must be held by the foundation on such terms and only transferred to the school to be held on those terms, it might be that the foundation wishes to apply additional conditions requiring the funds to be applied in a specific way.

The Charity Commission will expect all conflicts to be managed appropriately and transparently. This may require those individuals who are conflicted to follow procedures that require them to absent themselves from discussions and not to vote on such matters.

In addition, the new codified duties under the Companies Act 2006 include a specific duty for directors to avoid conflicts of interest and for the remaining directors to be required to authorise a conflict and prescribe the procedures for managing it.

Protecting the brand
Given the importance of the "brand" in the school's name and that the foundation would want to use the school's name, perhaps in its own name and certainly in its fundraising activities, the school might wish to consider putting in place a simple licence arrangement with the foundation for the use of the school name.

A licence arrangement can explicitly state in greater detail the relationship between the school and the foundation by, for example:
• confirming the circumstances in which the foundation may use the school's name;
• describing rules governing quality control; and
• stating that the foundation may not do anything to harm the reputation or the name of the school.
This can go some way to safeguarding the school's position while still preserving the independence of the foundation.

Chloe Brunton is a senior staff solicitor at Veale Wasbrough Vizards. Chloe can be contacted on cbrunton@vwv.co.uk or on 0117 314 5301.

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