Investigation also revealed up to 80% of fundraising went to private company

A veterans’ charity gave just 2% of its income out in grants to support its clients, a Charity Commission report has revealed.

Our Local Heroes Foundation was investigated by the commission after it emerged much of its income was being spent on administration, salaries and an unfeasibly generous fundraising contract.

Just £10,000 of the charity’s £500,000 income in 2015 went to veterans with the remainder spent on operating costs and projects beyond its stated aims.

Its wage and administration bill came to £155,000 per year with eight staff employed by the charity.

However the organisation also had a fundraising contract with a company called TML that took up to 80% of the cash it raised.

As such the Charity Commission said the way the charity operated “was not acceptable” and its reputation could be damaged if the ratio of income to charitable expenditure remained so low.

The contract had since been cancelled with the charity's own trading arm now received all the money collected.

TML said it did not receive 80% of the charity’s money, but ran promotions on its behalf. “All the monies received at the promotions whether through donation or sales of products is paid to the charity,” a spokesman said.

“The 80% figure mentioned by the Charity Commission is the maximum cost the charity will expect to spend running an activity of this type.”

We considered the fundraising costs in this case to be high

However the organisation also had a fundraising contract with a company called TML that took up to 80% of the cash it raised.

As such the Charity Commission said the way the charity operated “was not acceptable” and its reputation could be damaged if the ratio of income to charitable expenditure remained so low.

The contract had since been cancelled with the charity's own trading arm now received all the money collected.

TML said it did not receive 80% of the charity’s money, but ran promotions on its behalf. “All the monies received at the promotions whether through donation or sales of products is paid to the charity,” a spokesman said.

“The 80% figure mentioned by the Charity Commission is the maximum cost the charity will expect to spend running an activity of this type.”

He added: “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% of the funds received.”

The charity has since made changes in line with an action plan from the Charity Commission, to ensure fundraising should be "conducted in an open and transparent way", administration costs should be minimised and money should not be spent "outside the objects of the charity".

A Charity Commission spokesman said: “We considered the fundraising costs in this case to be high and many will have their own opinions regarding the level of fundraising costs.

“Our engagement ensured that the charity was being open and transparent regarding the costs so the public can make an informed choice whether to donate based on this information.”