Principles and Guidelines
Fundraising appeals for specific purposes often create donor expectations that the organization will use and account for such funds in accordance with those purposes. Any appeal that purports to limit the use of funds to a specific program, purpose, or project (i.e., to less than any or all exempt purposes) is a limited-use appeal.
ECFA's standards stipulate that:
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Resources are used and accounted for in accordance with their intended purposes.
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Communications are truthful, current, complete, accurate and not misleading
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Donor expectations are realistic and satisfied by the use of funds.
Historical practices of faith missions and other charities has conditioned donors to give for specific purposes and to expect their funds to be used for those stated purposes and not for the organization’s general use. Such practices include raising funds to support specific projects or programs as well as the ministry of specific workers. Fundraisers acknowledge that specific use appeals are more effective than general appeals.
The following principles and guidelines will be applied to specific interpretations:
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Any appeal that solicits funds for specific purposes (other than unlimited or general use for any exempt purpose) should be accounted for separately to demonstrate that the funds have been used for those limited purposes and to reflect any balance remaining.
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Any appeal that gives examples of specific use but is intended to be used for general or any exempt purpose should clearly indicate that fact in both the communication and the response device.
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The donor's indication on the response device is the primary indicator of donative intent; the understanding set forth in the appeal is supplemental to the donative intent expressed in the response device.
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A limited-use gift results whenever a donor selects a giving option on a response device other than “unrestricted” or “where needed most.”
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All funds that are given for specific purposes, projects, or programs should be accounted for separately, with charges allocated based only on disclosed policy (such as administrative assessments or indirect costs) or for costs that are directly attributable to the project, program, or purpose.
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In both the response device and appeal letter, information concerning limitations or lack thereof should be clear and complete.
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Statements in response devices and receipts regarding overfunding policies (such as, “funds in excess of those needed will be used as directed by the board”):
Such events of overfunding should be unusual and infrequent, not a regular or common occurrence.
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Funds received from appeals for specific purposes—based on implicit donor directives and donor expectations—should be used and accounted for as donor-restricted (see glossary; in the past, the term “designated” has often been used).
ECFA suggests the following disclosure for response devices and receipts (you should consult legal/tax counsel for your specific application):
Contributions to (charity) are administered and disbursed under the supervision of the Board of Trustees/Directors. In the unlikely event that a ministry is overfunded, gifts may be used in another ministry activity as closely aligned to your interest as possible.
Standards Committee Interpretations
ECFA has observed practices where either:
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the expectations created by the appeal to the donor are not consistent with the financial practices,
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the disclosures made are not complete or contain material omissions, and/or
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the accounting records do not demonstrate the appropriate use of funds.
The following examples demonstrate the application of ECFA’s principles and guidelines:
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A ministry whose primary purpose is to distribute Bibles and related literature appeals for funds to distribute Bibles in a particular country. Those funds are then included in the general income and the accounting records do not account for the costs associated with distributing Bibles in that location. It is unclear whether or not the funds donated for that location have been used for the stipulated purpose or whether balances remain.
Interpretation
The ministry is not in compliance with ECFA Standards. To comply, the ministry should account for gifts by country, along with appropriate allocation of costs associated with their distribution and any unspent balances held for use in that location.
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A child sponsorship agency appeals to donors to support specified children and creates the imp
ression that such sponsorships directly benefit the specified children. In fact, sponsorship funds are pooled and spent on a project basis under the philosophy of child-focused community development programs. Although there is shared benefit to the entire community by worthwhile development, only a small amount of the project budget is exclusively for the sponsored children in the community.
Interpretation
The agency is not in compliance with ECFA Standards unless it discloses to donors that:
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Child sponsorship gifts are pooled to support child-focused community development projects. As such, many of the benefits are shared by all the children in the community.
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The agency must insure that sponsored children receive direct benefit from the development activities in the community. Community development activities must create specific improvements in the lives of the sponsored children within the community. Periodic reports should be provided to the donor which clearly explain the project activities and how they benefit the sponsored child, as well as the specific progress of the sponsored child.
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In addition, child sponsors may also support the child directly through prayer, communication, and encouragement.
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Donor receipts and related accounting records should indicate that financial support has been provided to fulfill of a pledge of support for the pooled sponsorship funds, with a preference for an individual child.
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In an appeal for gifts to feed the hungry, a ministry indicates that $X will provide X meals. The mission does not account for the donations and costs of the meal program as a separate fund and the quoted meal costs are based on national rather than local factors. In fact, much of the food and labor is already donated. The new gifts are primarily being used for the general support of the mission rather than for the feeding program specifically
Interpretation
The ministry is not in conformity with ECFA Standards and should:
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Account for such gifts as donor-restricted and limited to use only in the feeding program of the mission. (Otherwise the boxes on the response device must indicate unrestricted use, such as “Here is my gift of $X to help feed, clothe, shelter and minister to the needy at this Christmas season and throughout the year.”)
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Modify appeals to avoid giving the impression that a specific amount will provide a certain number of meals, unless data verifies that the mission is taking into account both the cost benefit of donated food and the labor necessary/required to serve the meals.
GLOSSARY OF TERMS
Designated net assets—Unrestricted net assets set aside for specific purposes by action of the governing board; e.g., future programs, investments, contingencies, or purchase or construction of fixed assets.
Donor-imposed condition—A donor stipulation that specifies a future and uncertain event whose occurrence or failure to occur gives the donor a right of return of assets transferred, or releases the promisor from its obligation to transfer assets.
Donor-imposed restriction—A donor stipulation that specifies a use for the contributed asset that is more specific than those set by the organization. This may result from the nature of the organization, the environment in which it operates, and the purposes specified in its articles of incorporation or bylaws, or comparable documents for an unincorporated association. A restriction on an organization's use of the contributed asset may be temporary or permanent.
Restricted net assets—Resources whose use is restricted by an outside agency or person, as contrasted with those over which the organization has complete control and discretion.
Restriction—A donor stipulation that limits the time or purpose of a gift’s use.
Stipulation—A statement by a donor which creates a restriction.
Temporarily restricted—Donor restricted for a stated period of time or until a stated event.
Unrestricted net assets—Resources that have no external restriction on use or purpose. These can be used for any purpose designated by the governing board, as distinguished from resources restricted externally for specific purposes.