Accountability Practices in Fundraising

It is in every nonprofit’s best interest to engage in practices that raise the bar on accountability and inspire donors’ confidence. Nonprofits that inspire confidence, among donors and other stakeholders, are:

Transparent

Transparency about financial health and sources of funding helps to inspire confidence. All tax-exempt organizations must make certain documents, such as their application for exemption and their annual tax returns, available for public inspection.  A growing trend followed by many nonprofits is to use their websites as vehicles for posting audit reports, recently filed IRS Form 990s and annual reports, and acknowledge their donors/supporters.

It's also important for nonprofits to be transparent about fees associated with online donations. The Association for Fundraising Professionals (AFP) has issued guidance about internet transaction fees charged by websites established to facilitate online donations. The majority of such websites are maintained by entities that are not themselves tax-exempt. An exception is Network for Good, which is a nonprofit. It does, however, charge an administrative fee.

Accurate

It is important that nonprofits know what fundraising expenses are and how to accurately report them. The IRS defines fundraising expenses as:  “..the expenses incurred in soliciting contributions, gifts, and grants.” The IRS instructs nonprofits to, “Report as fundraising expenses all expenses, including allocable overhead costs, incurred in: (a) publicizing and conducting fundraising campaigns, and (b) soliciting bequests and grants from foundations or other organizations…”. (Source: Instructions to Form 990, page 35)

Examples: postage and printing, telephone and internet charges, relating to sending letters/emails to ask for contributions; staff time spent writing grant proposals and other costs relating to applying for or renewing grants, and reporting on grants received; maintaining relationships with funding sources; costs of special events that result in contributions; the development of fundraising materials and their distribution, such as annual reports; as well as costs incurred in collecting contributions; and all indirect costs of the above (especially salaries and benefits of related personnel).

• The American Institute of Certified Public Accountants (AICPA) released new accounting standards on reporting fundraising expenses by charitable organizations (July 30, 2007).
• Learn more about how to report fundraising expenses by reading this Article by the Association for Fundraising Professionals on reporting fundraising expenses under current accounting standards.
• Implementation Guide to Better Business Bureau Wise Giving Alliance standards for Charity Accountability  See Standard #9.
• Read why misreporting fundraising expenses contributes to the “Nonprofit Starvation Cycle.”

Registered Correctly

A nonprofit must be registered with the charitable organization’s regulator (often the Attorney General or Secretary of State) in all the states in which it proposes to raise funds, in accordance with fundraising solicitation regulations. Thirty-five states and the District of Columbia regulate fundraising, which is known as “charitable solicitation.” In the majority of states, nonprofits must register with the state for fundraising purposes prior to engaging in solicitation activity. To learn what the requirements are for charitable registration, visit the website of the Attorney General or Secretary of State of the state in which your nonprofit is incorporated (search for “charitable registration” or “charities and fundraising”) as well as all the other states where your nonprofit is engaged in solicitation of gifts. The National Council’s resources on charitable registration are a good place to start for background information. Check with your State Association for more information about state specific regulations and practices.

And don't forget to be thankful. Acknowledge gifts from donors with timely ‘thank you’ communications that comply with IRS regulations.

Also, read about cultivating a culture of accountability and transparency.