- retained by the organization and classified as either temporarily or permanently restricted,
- channeled as a gift or a grant to one or more other organizations which have, as a part of their present or prospective ministry, a program through which the donor’s intent could be fulfilled, or
- returned to the donor.
Establishing polices. Organizations should proactively establish policies related to if and when the organization will raise or receive funds for programs that are not part of its present or prospective ministry. What are the criteria that must be met before funds will be raised or received? Will the organization work through another organization? What agreements must be in place for there partnerships?
Retaining funds for future use by the ministry. An organization should determine, generally on a case-by-case basis, the length of time funds given for specific programs will be retained if the organization does not have any present or prospective program through which the donor’s intent may be fulfilled.
Standard 7.4 does not state a time limit on how long an organization may hold funds without expending them. To keep faith with the donor’s intent, the initial donee organization should expend the funds or transfer them to a second organization within a reasonable amount of time. Determining a reasonable period of time may vary depending on the facts and circumstances of each case.
Gifts or grants to another charity. Before a gift or grant is made to one or more other charities, the initial donee organization should perform adequate due diligence on the potential recipient to determine its qualifications to receive the funds. The initial donee organization should receive, preferably in writing, sufficient information about the second organization’s current or prospective ministry programs to assure the first organization that the funds will be used to carry out the donor’s intent. If the subsequent grantee organization is a U.S.-based charity, the donee organization should receive evidence that it is a 501(c)(3) organization.
Before a gift or grant is made to the second organization, an agreement should be made concerning the reporting that will be provided by the second organization to the first organization to verify the proper use of the funds by the second organization, including the fulfillment of the initial donor’s intent.
Returning funds to the donor. If the funds cannot be used for the intended purpose and the donors can be identified:
- the donors could be asked whether they would like to remove the designation related to their gift, or
- the funds should be returned to the donors.
If contributions are returned to donors, a written communication should accompany the refund advising donors of their responsibility to file amended tax return(s) if a charitable deduction was claimed. Further, it may be appropriate for organizations to seek competent tax counsel before refunding contributions to donors.
If the funds cannot be used for the intended purpose and the donors cannot be identified, the organization should redirect the use of the funds.