Charities rely on the generosity of donors to make programs happen, and contributions are often the lifeblood of the organization. Organizations that build responsible fundraising practices are more likely to succeed than those that do not. The following are practical guidelines, policies, and practices that charities soliciting funds should review and address.
1. Abide by the Code of Ethics and Donor Bill of Rights
Without public trust and confidence, fundraising would not be able to exist. Ethical, responsible fundraising practices should be openly talked about and frequently communicated within each organization. To help with this, the Association of Fundraising Professionals (AFP) has developed the Code of Ethics, providing principles and standards to guide organizations and development professionals in their fundraising practices. The AFP also co-authored the Donor Bill of Rights.
The AFP encourages organizations to educate their fundraisers regarding the Code of Ethics and Donor Bill of Rights and to consider adopting them as policy documents. Many charities have also posted a link to the Code of Ethics and Donor Bill of Rights on their website as a way to communicate organizational integrity to donors. Follow this link to find both the Code of Ethics and Donor Bill of Rights.
2. Adopt and/or Revise a Gift Acceptance Policy
Have you ever received a call from a donor offering to donate property in Timbuktu, a timeshare in the Bahamas, or an interest in a privately held company? Or perhaps they want to start an endowment with a $1,000 gift. Accepting the wrong gift can potentially result in some unintended consequences, such as environmental liabilities, property taxes, and unrelated business income tax. The bottom line is each gift needs to be evaluated for financial value and costs as well as alignment with the not-for-profit’s mission, goals, and strategies.
No matter how sophisticated your fundraising program is, every organization should have a gift acceptance policy that provides the organization with a decision-making tool for when to accept or reject a gift. A sound gift acceptance policy should include:
- What type of gifts the organization will accept, including crypto currencies and non-fungible tokens
- What is the policy for disposition of non-cash gifts
- Thresholds for gifts with significant purpose restrictions or endowments, as these require staff resources to properly track and account for
- What types of gifts need board approval or review by outside legal counsel
- Who is responsible for administration of the gift, including any professional or other fees associated with the donation
3. Be Transparent with Donors
Donors are inspired and more confident when they have access to information. Use the website to share information within a few clicks regarding the charity’s finances and operations, which could include:
- Vision and mission statement
- IRS Form 990 and audited financial statements
- Annual report
- Programs and achievements
- List of board members and staff
- Fundraising disclosures
This transparency includes keeping the organization’s profile updated on Guidestar by Candid.
4. Comply with Donor Restrictions
By accepting a restricted gift, a charity has a fiduciary responsibility to ensure contributions get used as intended. If a charity is unable or unwilling to use the contribution as the donor intended, it is obligated to contact the donor for permission to use it for other purposes or offer to return the gift. A charity should take special care when composing solicitation and campaign materials and address potential issues, such as use of excess contributions, allocations in multi-purpose campaigns, and use in support of indirect program costs (i.e., overhead).
5. Properly Track Fundraising Costs
There is great interest by donors, the media, and watchdog groups in evaluating an organization’s fundraising costs. Charities should have appropriate technology as well as develop internal policies and procedures for tracking fundraising costs. Fundraising costs are the direct and indirect costs incurred to solicit and collect contributions and can include salaries, postage, printing, rent, depreciation, utilities, etc.
6. Evaluate Return on Investment from Fundraising Activities
Charities are responsible for monitoring and evaluating fundraising success. The most common benchmark used to measure return on investment (ROI) from fundraising is the ratio of fundraising costs as a percentage of funds raised. However, most would contend it is more complex than that and that the ratio should take into account the maturity of the fundraising program, mix of fundraising activities, and size and type of charity. It also does not consider achievement of goals, outcomes and impacts. So, other measurements include donor retention rates, number of new donors, and median gift sizes. A charity should develop benchmarks for how it would like to measure ROI and review its results over a period of time.
7. Register with the State
Forty-one states and the District of Columbia require charities to register prior to soliciting any contributions from the public or engaging in fundraising activities. The registration is usually with the Secretary of State or the Attorney General’s office and consists of providing the state with detailed information regarding programs and finances. Once a charity is registered, most states require renewal annually.
Organizations that solicit in more than one state can sometimes use a common form called the Unified Registration Statement, although some states will still require specific forms to be filed. Also, if you are contracting with a professional fundraiser, check to see if the state has registration requirements for such professionals or any additional requirements for the charity that enters into such contracts.
8. Provide Donor Acknowledgements and Receipts
Donors like to be thanked and expect an acknowledgement of their gift. The IRS can deny donors charitable deductions for not having adequate documentation. Donor acknowledgments should include:
- Name of the charity and donor
- Date of the contribution
- Description of any property donated
- Amount of cash contribution (never include value of noncash donations)
- Value of any goods or services provided by the charity to the donor
- A statement indicating the tax deduction may be limited
Read the following article to learn more about donor receipt requirements. This area is a great opportunity for the finance and development teams to review the IRS Publication 1771 Charitable Contributions – Substantiation and Disclosure Requirements together to ensure the organization complies.
9. Bridge the “GAAP” Between Accounting and Development
Provide training to both your accounting and development staff on which gifts can be reported under generally accepted accounting principles (GAAP). Have routine cross-department meetings to review gifts for proper accounting recognition and reconcile the accounting and development records at least quarterly. The following article covers four areas to collaboratively focus on for better data and compliance.
Charities that are committed to responsible fundraising practices will foster the trust of the public, increase donor confidence, and ultimately have more successful fundraising programs. If you have questions about best practices, or establishing policies and procedures for your organization, send us an email.
© Clark Nuber PS, 2022. All Rights Reserved
This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.