Asking Is Just the Beginning!

Maintaining Transparent Integrity Throughout the Fundraising Process

By Dan Busby, ECFA President

 

“Stewardship is the careful attention to the care and use of all the gifts God gives us, including our time, talents, as well as material goods.”

—Rebekah Basinger in Growing Givers’ Hearts

When we use the word “stewardship” in the Christian organization context, we often think of fundraising and all its nuances—prospect identification, nurturing relationships, donor solicitation, the 80/20 rule, capital campaigns, planned giving, special events, development or advancement department personnel, and on and on.

Many charities divide responsibilities for soliciting the gift, recording and receipting the gift, spending the gift funds and accounting for the gift revenue and related expenses, distinctions generally invisible to the donor. In the eyes of the donor, gift integrity—the charity’s responsibility to handle a gift with the utmost care—has only begun when the donation check is written. 

Donors tend to consider all these functions as simply relating to their gifts—not as responsibilities carried out by the development department, the accounting department or a program ministry department. Thus, if donors are to be properly served, charities must adequately integrate all of these gift-related functions and infuse each area with high integrity.

What particular areas of gift integrity must Christian ministries carefully guard in the complete stewardship process? Here are just a few:

Transparency

What does transparency look like in the gift integrity arena? It’s all about openness with the donor, openness with the ministry’s staff and openness with third parties—even the media. At times, this may even mean disclosing more information than required by law, such as distributing audit reports upon request to friend or foe (as required by ECFA Standards). Although some nonprofits are not required to file Form 990 with the IRS, many of these ministries complete the Form 990 anyway—as if they were required to file and distribute it, when requested. That’s integrity in transparency!

Far too often charities approach the transparency issue by asking: “What do we have to disclose?” This assumes the default position is secrecy—that unless there’s a clear requirement for the disclosure of certain information, that information should be kept secret.

A better question, says Lloyd Mayer, attorney with the Washington, D.C. law firm of Caplin & Drysdale, is “What, if anything, do we need to keep confidential?” This question assumes that the default position is disclosure.

The Apostle John said: “Light has come into the world, but men loved darkness instead of light because their deeds were evil. Everyone who does evil hates the light, and will not come into the light for fear that his deeds will be exposed” (John 3:19-20, NIV). Mayer continues, “The more of its activities and finances that an organization keeps secret by reserving knowledge about those activities or finances to a limited group of people, the greater the opportunity for misdeeds. Dis­closure, in contrast, helps create accountability, both within the organization and to donors and the public.”

The Salvation Army, ECFA’s largest member, received nearly $70 million in response to the 9/11 disaster. National officers of The Salvation Army accompanied ECFA leaders to Ground Zero. We were given access to their complex feeding operation at Ground Zero, allowed to visit the site where victims with financial needs were being interviewed, and permitted to personally inspect The Salvation Army’s financial records and review its processes. That’s integrity in transparency!

During the visit with an ECFA member president, we were discussing transparency as it relates to handling donations. The leader said he often tells his staff to carry out their duties so that if their actions are reported on the front page of the local newspaper or on the internet, the cause of Christ is not hindered. That’s integrity in transparency!

Truthfulness

Everything done in the name of our Lord should reflect the truthfulness that’s in keeping with his character.

In deciding whether to support a particular ministry or program, those who donate to Christian ministries rely on the information the ministry provides. Therefore, organizations have the responsibility to represent facts truthfully when communicating with donors.

The relationship between a donor and charity is built on trust. That trust is developed and maintained through trustworthy communications.

In gift integrity, all components of a fundraising appeal should communicate the appeal accurately, completely and truthfully to the prospective donor. After perusing the appeal—written or verbal—the prospective donor’s perception of it should be as close to the facts as possible.

To avoid even the appearance of “shading” the truth, ministries should be alert especially in the following stewardship areas:

  • Discretion and control over gifts. Deputized support-raising—where the ministry determines an amount each staff member and/or volunteer is responsible to raise—is an area in which truthfulness is a must. Represen­tations by ministries that contributions will be used only to support a particular individual are problematic since giving through a ministry to earmarked individuals is not tax deductible.

A donor must intend to make a gift to the charity, not to the individual. Further, the ministry must fully control the funds to accomplish its exempt purpose. Likewise, adequate discretion and control must be exercised over gifts from a donor to a U.S. charity when the donor has designated a foreign charity as the eventual recipient. 

  • Use of caveats in fundraising. Fundraising caveats are often very appropriate, but they should be judiciously used to preserve truthfulness.

What is a typical fundraising caveat? “If funds are received in excess of the needs for this project, the money will be used where needed most.” This type of caveat may save further communication with donors when projects are oversubscribed.

When is a caveat of this type inappropriate? Including the caveat in very small type on the reverse side of a solicitation where it is unlikely to be seen by a prospective donor is questionable. Using the caveat with a solicitation when excess funding is anticipated may also be inappropriate.  

  • Accounting for the use of gifts. Reporting on the use of charitable funds must be done truthfully. This includes reports prepared for a donor on the use of funds for a particular project. And, in the macro financial picture, the faithful reporting of functional expense allocations is required to comply with accounting standards. Generally, the same functional expense rules for audited financial statements apply to reporting on the Form 990.

Accountability

The watchword of ministries should be accountability—to donors, to independent boards and, yes, to governmental entities. It’s heartwarming to see so many ministries desiring not only to comply with the laws and ECFA Standards, but also to function absolutely above reproach in every aspect of their operations.

Here are some common areas where accountability is crucial to the complete stewardship process:

  • Gift-receipting. Gifts by a donor to a charity should be receipted to that donor—not to another taxpayer. There’s no basis in tax law for a charity to receive a gift from Donor A and provide a receipt to Donor B.

Only appreciation should be expressed for gifts of services or the use of facilities at no cost, since the fair market value of these gifts is not tax-deductible. Donors are responsible to determine the value of gifts-in-kind, such as property.

  • Gifts-in-kind. Charity officials in one state recently brought an action against a religious nonprofit, alleging the nonprofit had sold gifts-in-kind. The donor had stipulated that gifts-in-kind not be sold, but only used in the performance of ministry.
  • Handling of funds by Canadian corporations. For many U.S. ministries, there’s a registered “sister” charity in Canada. The Canada Customs and Revenue Agency (CCRA) finds only certain types of payments acceptable by Canadian charities to organizations outside of Canada. A joint venture agreement is most commonly used to satisfy these requirements. Too often, such agreements are not in place and/or the provisions of the agreements are not being followed.

So, stewardship by Christian ministries doesn’t end with donor solicitation, receipt of the gift, or even when the donations have been expended. The complete stewardship process starts with a ministry’s written fundraising philosophy statement and is not finished until gift funds have been receipted, expended and documented. The ever-present challenge for ministries is to maintain gift integrity throughout this entire process.

Reprinted from Christian Management Report


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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