FONDATION

DE FRANCE

Fiscal years 2014 to 2019

Organisation in receipt of donations

September 2021

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Abstract

An original model undergoing continual expansion

The Fondation de France is an exceptional organisation owing to the circumstances

behind its creation, its role in the philanthropy sector in France, the volume of its redistribution

activity and the size of its balance sheet (€2.3 billion on average from 2014

to 2019). The

model that the Fondation de France has gradually developed gives a central place to its role

as an "umbrella foundation" with the creation of "donor-advised funds". Today, it is responsible

for the activities of nearly 900 foundations under its auspices, representing 85% of its balance

sheet and redistribution activities. The number of donor-advised funds that do not have a

separate legal personality from the umbrella foundation is constantly growing and could quickly

reach a thousand, because the Fondation de France has not set a limit or optimal level for the

number of foundations it hosts.

The Fondation de France in figures (in 2019)

€2.4 billion in assets.

€435.3 million in income, including €137.8 million in donations, €59.8 million in

bequests and

donations and €59.2 million in income from real estate and financial assets.

€433.4 million in expenses, including €33.8 million for the Foundation's own programmes

and €151.6 million for the actions of donor

-advised funds.

888 foundations hosted.

200 employees, equivalent to the headcount of an SME or midcap company.

Seven regional foundations (outside Paris) employing 25 employees and assisted by 200

volunteers.

The Fondation de France is also atypical in the French foundation landscape because

of its very broad statutory purpose. Defining itself as The Foundation for All Causes, it also has

the particular feature of not acting directly in its areas of intervention, but of financing the

intervention of other structures, non-profit organisations or foundations, which it subsidises. As

a "general sponsor", it thus differs from the usual profiles of foundations recognised as acting

in the public interest, which are subject to the specialisation set out in their purpose.

The Foundation uses three redistribution methods: its own programmes, financed by

individual donors and by certain foundations under its auspices; expenditure on prizes,

scholarships and subsidies provided by donor-advised funds; the bridging activity set up in

1997, in which assigned donations are transferred to the organisations designated by the

donors (

Transnational giving Europe

and

Friends of Fondation de France

), which were not

examined as part of this audit.

The governance of the Fondation de France is based on a coherent system of

committees which assist the board of directors. The composition of this board of directors

shows the Foundation’s concern to involve all the major founding financial institutions in its

management. The State is represented on the board of directors by eight members. Most of

them do not take an active part in the board's discussions

–

their contribution is largely based

on personal initiative, with no upstream coordination.

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The Fondation de France adheres to several documents intended to formalise internal

control and ethics. Manuals and procedural guides document all major processes. However,

the Fondation de France does not have an internal audit service. This function would seem

essential for an organisation of this size, in view of the specific risks inherent in its role as an

umbrella foundation.

A large number of donor-advised funds, subject to variable controls

Nearly 900 donor-advised funds without legal or moral personality have been created

under private law contracts with their founders. Their size and governance and the profile of

their founders vary greatly. The seven largest foundations alone account for 60% of total

assets. All these foundations are an integral part of the Fondation de France, which is the only

entity with legal personality and is solely accountable

–

financially and legally

–

for all of their

activities.

In practice, the operational autonomy granted by the Fondation de France to its donor-

advised funds varies considerably. While almost full autonomy is granted to large donor-

advised funds whose functioning mirrors that of the Fondation de France (project selection

committees, documentation of activities, etc.), foundations whose governance is less clear-cut

have much less autonomy. Most often, it is the bilateral relationship established with the

founders rather than the stipulations of the incorporation agreement which determines the

exact nature of relations between the donor-advised fund and the umbrella foundation. As a

result, the controls carried out by the Fondation de France on the actions of donor-advised

funds vary in intensity.

A flexible interpretation of the principles that apply

to foundations recognised as being in the public interest

The criteria of public interest and the principles established by the Council of State

regarding the operation of foundations recognised as being in the public interest are fully

applicable to the Fondation de France and,

a fortiori

, to donor-advised funds, which are simply

management entities. This includes having a collegial governance structure, the foundation's

independence from its founders, financial transparency, management impartiality and the non-

profit nature of the activity. However, the operating methods of the donor-advised funds and

the formal and external control exercised by the Fondation de France do not guarantee that

these various essential requirements are fully met. The principle of direct management by the

umbrella foundation acting in the public interest, laid down by the law of 23 July 1987, is

interpreted very loosely and this constitutes a source of structural risks. These risks are further

accentuated by the steady increase in the number of donor-advised funds.

More generally, the gap between the essential principles that foundations acting in the

public interest must respect and the practice observed for foundations hosted by the Fondation

de France can be illustrated by three examples:

-

The decision-making autonomy granted to certain donor-advised funds for the

management of their financial portfolio is such that it necessarily puts the Fondation de

France in the position of being a provider of investment and portfolio management

services. Admittedly, orders must be validated by the Foundation's finance division

before being executed, and some are refused or discouraged. However, in practice, the

biggest founders choose their own investment profiles and thus partially impose the

Foundation's overall risk exposure, which results from the aggregation of these individual

choices.

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-

The creation of donor-advised funds by companies or large groups, and their action in

areas close to the founding company's corporate purpose could create confusion

between the public interest and the company's private interest. There is sometimes a

fine line between patronage and corporate social responsibility (CSR) or even between

CSR and business development expenditure. These foundations are frequently run by

managers or other employees of the founding company. They are therefore not

volunteers and this situation is contrary to the principle of impartial management.

-

Finally, the donor-advised fund model managed solely and exclusively by just the founder

or by a family, in full autonomy and without a collegial body, should be gradually phased

out or amended. The existence of a collegial body must become an operational

requirement for all foundations hosted by the Foundation.

Insufficient consideration of the risks associated

with the activities carried out by donor-advised funds

While the creation of a donor-advised fund gives rise to careful investigation and quality

support for the founders, this is not the case for the control of their activities. The terms of this

control do not provide any guarantee that the foundation’s expenditure complies with the

purpose of the Fondation de France. The control set-up is based on formal and documentary

verifications, while the selection and monitoring of the activities funded is almost fully delegated

to the donor-advised funds. While the Fondation de France authorises each expense, in

practice, its position and its relationship with the donor-advised funds remain those of a service

provider with respect to its customers. Consequently, the management of this relationship

relies heavily on the principle of "trust", favouring dialogue or even persuasion in the event of

disagreement with the strategy followed by the founders, whether this concerns the choice of

investments, governance, or the financing of activities.

However, as the donor-advised funds do not have legal personality, the Fondation de

France is responsible for all of their activities. Consequently, their very high level of

management autonomy is a source of risk. The procedure for validating expenditure requests

is similar to a formal external control, and is not sufficient to assess and mitigate risks. In view

of the growth in the number of donor-advised funds, the Fondation de France must improve its

understanding of risks, for example by explicitly identifying conflicts of interest or situations that

infringe the probity and fiscal regularity of the operations carried out.

The level of the Fondation de France's involvement in monitoring the action of each

foundation should be reviewed with regard to its legal and financial accountability, in particular

in connection with the strategy of increasing the number of donor-advised funds. Otherwise,

the tendency to move towards a situation in which it provides a hosting service, or towards a

trust system, which is already visible, would gain traction. However, the possibility given to

foundations acting in the public interest to manage donor-advised funds should not lead to a

simple form of legal and financial "hosting" of the fund in order to limit the obligations of financial

transparency or communication regarding the activity. The involvement of the Fondation de

France in its capacity as an umbrella foundation - namely by providing the direct management

set out by law - must be manifest and tangible. Control and supervisory mechanisms must be

implemented, which will require a collegial operating structure, equal involvement of the

umbrella foundation's teams, a sufficient level of transparency in the foundations’ accounts

and a real capacity to control the use of funds.

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An institutional investor's balance sheet

and a tendency to increase reserves and equity

The size of the Fondation de France's balance sheet (€2 billion) and the weight of

financial assets in this balance sheet (95%) give it the characteristics of an institutional

investor. The Foundation has established elaborate mechanisms to manage these financial

assets, in particular a finance committee. This committee regularly monitors the allocation of

assets in respect of the guidelines provided by each of the donor-advised funds. Indeed, for

nearly 65% of the financial portfolio, the founders themselves rather than the Fondation de

France decide how the portfolio will be managed, under a so-called specific management

process. They can therefore retain their own personal financial institution as fund manager or

choose to invest all of their assets in equities. Such a set-up would be totally unthinkable for

an autonomous foundation , given the associated risks.

The review of the accounts showed that the Fondation de France's accounting and

budgetary management is adequate and detailed. Budget monitoring is carried out at the same

time as accounting monitoring. The quality of monitoring of management accounting is high.

The management of donations, that is to say the process which leads to the acceptance of

bequests and donations and their use in accordance with the donors' wishes, is particularly

well developed. From this point of view, the Foundation has an exemplary organisation and

tools.

The Foundation has begun an analysis of its level of equity on the basis that it must be

able to absorb various macroeconomic and financial shocks. This approach has led to a regular

increase in the amounts placed in reserve and in equity, thus accentuating a natural tendency

to increase these items.

Relevant thematic programmes

that can be further developed

The programmes set up internally by the Fondation de France are conducted and

managed in a very professional manner. The twelve employees who are responsible for these

programmes are also in charge of relations with the donor-advised funds active in the same

field. These programme managers play a pivotal role in bringing consistency to all of the

Foundation's actions. The funding allocated by the Foundation to its own programmes seeks

to support innovative approaches. The network of volunteers who lead the specialised

committees and who investigate and sometimes monitor the projects functions very effectively.

Emergency programmes, which are very visible in the media and often attract large volumes

of donations, are closely monitored. The sample programmes examined during the audit

highlight a concern for thoroughness but also for impact and benefit for the public concerned.

The method of preparing the use-of-funds statement

needs to be reviewed

While the Fondation de France formally complies with its obligations regarding the

disclosure of a public appeal for generosity and the publication of the use-of-funds statement,

certain options applied in the preparation of this statement do not observe regulatory provisions

or the presentation principles they require. This is mainly the case for the recognition under

"social missions" of amounts held in reserve accounts during the collection of a donation for a

donor-advised fund, even though these sums, by definition, have not been used. With the

exception of 2018, where this mechanism reduced social missions by €10 million, this

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accounting method overstated social missions by significant amounts, of between €15 million

and €55 million, over five fiscal years.

This finding indirectly raises the question of the purpose and missions of the Fondation

de France. Since 2018, for management accounting, the donation collection and financial

management activities have been incorporated into a large "business" section. The Foundation

believes that collecting and managing funds is part of its social mission, in the same way as

distributing these funds and supporting projects serving good causes. This approach, which

gives it the profile of a financial institution, constitutes a very broad interpretation of the

statutory purpose as it was drafted in 1969.

If the activity of "collecting and managing funds" is put on the same level as the

"redistribution" of these funds, then a dual approach and double risks emerge: a strategy of

increasing and excessively placing funds in reserve, and the expansion and continued

increase in the number of donor-advised funds. This could result in insufficient consideration

of the risks linked to the operations carried out by these foundations, even though the

Fondation de France is the sole organisation that is legally and financially accountable.

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Summary of recommendations

Fixed term foundations

1. For fixed term foundations, specify their maximum lifespan in the incorporation

agreements.

Governance and risk management

2. On the board of directors, replace the two commissioners appointed to represent the

government with directors.

3.

Disclose the five recipients of the highest compensation in the annual financial report.

4.

Extend the scope of the code of ethics to all persons who participate in the activities of the

foundations in any capacity.

5.

Set up an internal audit service reporting to senior management.

Financial information and the use-of-funds statement

6.

Consult the board of directors on the future and method of financing the Sassenage estate.

7.

No longer accept the creation of donor-advised funds managed solely by a founder, either

alone or through an exclusively family-owned holding company, and, in the case of

delegated governance, provide for the establishment of a formal collegial body.

8. For foundations created by companies, ensure that the distinction between the

foundation's corporate purpose and the products or services sold by the founding company

is respected, in accordance with the Fondation de France's general conditions for the

creation and operation of foundations.

9.

Do not record amounts held in reserve and allocated to equity under the heading "social

missions", but include them on the line "commitment to be made from allocated resources".

10. Explain the rules for drawing up the use-of-funds statement and have them validated by

the board of directors.

11. In accordance with the accounting regulations in force, carry out a full assessment of

voluntary contributions in kind, including the secondment of employees of founding

companies and the interventions of volunteers.

12. Provide enhanced information to donors by systematically presenting the cost of actions

carried out.

13. Resume the practice, which was stopped in 2014, of presenting financial information

(simplified balance sheet and income statement) on the biggest foundations in the annual

report.