Monday, August 22, 2016
Playing for Keeps: What to Do When Donors Change Their Minds
Posted by Michael Boulton
There are no take-backs in fundraising, right?
Contrary to what your development team might believe, donors can and do ask for their money back.
Take country music superstar Garth Brooks. The singer found that he had friends in high places when an Oklahoma jury agreed that a hospital had defaulted on an agreement to construct and name a women’s health center in honor of the songwriter’s late mother.
The hospital claimed the gift was unrestricted. But, there was no written agreement, and Brooks contended he had several meetings with the hospital’s president in which he made his wishes clear for the $500,000 donation. Ultimately, the jury sided with Brooks and the gift was returned—along with $500,000 in damages.
On a smaller scale, it could be a donor who pledges a $7,500 multi-year gift to the nonprofit Christian school his children attend. The money is earmarked for expansion of the school’s computer lab. But when a much sexier capital campaign comes along, the donor asks to revise the restriction and use the funds to build out a new satellite campus instead.
Ultimately, how you handle such requests can mean the difference between a disgruntled donor and a delighted one.
Adopt a Solid Refund Policy
For the most part, a refund policy would prohibit the return of donations except for exceptional circumstances, which should be carefully spelled out. In addition to being bad precedent, refunding a donation can also trigger scrutiny from charity regulators. Each state is a little different but, for the most part, officials consider the funds to be “owned by the public interest.” Returning the donation is viewed as being contrary to the public interest.
Note that your nonprofit is legally bound to return a gift if you cannot ensure the funds will be used in accordance with the donor’s intent, or if any significant provisions of a gift agreement are violated.
Put Gift Agreements in Writing
The best way to confirm a donor’s intent is with a written gift agreement—whether it is for a new gift or an amended one. Your gift acceptance or gift return policy should clearly stipulate when a formal agreement is required, what it should contain and how it should be executed. In the absence of a formal gift agreement, supporting documentation such as correspondence, notes and even the nature of the appeal (capital campaign, scholarship fund, etc.) can be used to document the donor’s intent.
The best way to avoid triggering a refund request? Adhere to ethical standards of fundraising and clearly document donor intent.
Armanino’s nonprofit practice is well versed in handling complex issues related to charitable donations. Give us a call if you need some perspective on how to craft a donor refund policy that protects your organization’s finances and its relationships with donors.
Mike is a partner who provides assurance and technical accounting consulting services. He specializes in financial statement audits of nonprofit organizations and private and publicly held middle-market businesses. His nonprofit practice includes private foundations, charitable trusts, private education, religious entities, social services and performing arts organizations. His for-profit practice includes software as a service (SaaS), semiconductor and other technology equipment manufacturers. In addition to financial statement audits, he assists companies with financial statement reviews, compilations and general accounting consulting.
Active in his community, Mike serves on the board of the Downtown Streets Team in Palo Alto. He is a member of both the American Institute of CPAs and the California Society of CPAs. He earned his B.S. in accounting from California Polytechnic State University, San Luis Obispo.