Transparency inspires confidence. Beyond what the law requires, nonprofits can demonstrate their commitment to ethical practices by being entirely transparent with financial information and fundraising practices.
- A fundamental transparency practice is to make it easy for visitors to a nonprofit’s website to find financial information, as well as information about board composition, programs, outcomes/impact, staffing, and donors.
What are other ethical fundraising practices?
Accountability to donors
Practices that demonstrate accountability and respect for donors include:
- Sending timely gift acknowledgements
- Respecting restrictions on donors’ gifts
- Providing timely reports to foundations, as applicable
- Listing donors on a nonprofits’ website in the manner in which the donor would like to be acknowledged
- Honoring donors’ requests to remain anonymous
Some donors ask that their gift remain anonymous, and are concerned that the nonprofit will sell their contact information to other nonprofits (which will increase the chance that they will be solicited by other nonprofits).
- To address these concerns, the Association of Fundraising Professionals (AFP) has developed a Donors’ Bill of Rights that nonprofits are encouraged to adopt.
Donors expect a ‘thank you’ note to acknowledge their charitable gifts. It is not only ethical to be transparent with donors about the receipt of their gifts, but it is also a legal requirement for certain gifts.
- Read the National Council of Nonprofits' Tip Sheet on Saying Thank You to Donors.
- IRS resources explain what a written gift acknowledgement should include and when one is required.
- Review IRS Publication 1771, Charitable Contributions, Substantiation and Disclosure Requirements.
- Read about the IRS requirements for acknowledging “quid pro quo contributions” (gifts of $75 or more when the donor receives something of value in return.)
Respecting donor intent
Respecting a donor’s intent is an ethical issue and also a legal matter that starts with educating staff and board members about the importance of maintaining donor trust, and the legal/fiduciary obligation to honor donors’ requests.
- But also make sure all staff and board members understand the significance of “restricted” gifts and that saying “no” to restrictions (tactfully) is sometimes the wiser response: Nonprofit gifts: When strings are attached (Nolo)
- Manage donors’ expectations about what the nonprofit will or will not accept. Example: "We are grateful for in-kind contributions that will help us deliver services to seniors, however, we do not accept contributions of used computers."
- A verbal agreement between a donor and a charity to use the gift in a certain way can be enforceable. When donors provide a contribution for a specific purpose this is referred to as a “restricted gift."
- Clarifying how a contribution will or will not be used and respecting a donor’s intention about the use of a gift, or how the donor will be recognized (such as a request to remain anonymous), is a basic tenet of ethical fundraising and accountability.
- Using a written agreement can help define how a gift will be used, and manage potential donors' expectations about what gifts a charitable nonprofit will - and will not accept.
“Can we pay our fundraiser a commission?”
It is NOT appropriate for a nonprofit to compensate a fundraising professional based on a percentage of the money raised.
- See Standard #21 of the AFP Code of Ethical Principles and Standards for professional fundraisers.
- Read a position paper on percentage based compensation from AFP that describes why paying a fundraising consultant or grantwriter on commission or based on a percentage of funds raised is not ethical.
- Example: Code of Ethics/Fundraising. See Section VII of the Pennsylvania Association of Nonprofit Organizations' (PANO) Code of Ethics which is one standard contained in the Standards for Excellence for Pennsylvania nonprofits.
Transparency about Fundraising Costs
Can your nonprofit identify what its fundraising expenses are? Is the nonprofit reporting them accurately? 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 of fundraising expenses include: 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).
- Accounting standards that govern fundraising expenses by charitable organizations. (AICPA)
- Frequently asked questions about fundraising ethics. (AFP)
- Code of Ethical Principles and Standards for professional fundraisers. (AFP)
- Legal considerations when engaging in fundraising are reviewed in this presentation, Raising Funds, not Eyebrows: Legal Considerations in Fundraising (Venable, LLP)
- The Foundation Center offers a selected reading list of resources on Fundraising Ethics.
- Fundraising via the internet raises its own legal and ethical issues. Guidance on internet transaction fees (AFP)
- Resources on charitable registration