Donation Policy – Controversial Donations

Nonprofit organizations should not feel obligated or compelled to accept every donation offered; there are donations that may not benefit the organization. A “controversial category” of donations can come in many forms and will often be specific to the organization. Therefore, every nonprofit should have a donation policy in place that allows the organization to define what constitutes an acceptable or unacceptable donation. Common areas of controversy include donations that are in conflict with the organization’s goals, come from a corporation or individual that lacks good standing in the organization’s community or constituency, or are made with the expectation of influence over the nonprofit’s decisions. Examples and templates of gift policies available online may be helpful or illustrative, but may not include the specificities that are important for a particular organization

The best time to address an organization’s donation policy is before a controversial donation arises. As explained by Wachovia Trust Nonprofit and Philanthropic Services (republished in the Philanthropy Journal), an effective policy achieves three objectives: (1) identifies the types of assets accepted (e.g., cash, stock, real property), (2) provides the forms of assets that are acceptable (e.g., charitable trusts), and (3) defines the nonprofit’s role in administering the gifts. Lautze & Lautze, a San Francisco Bay Area CPA firm, suggests that the board or development staff of an organization should hold a series of meetings dedicated to fully discussing this topic and address questions.

Katherine Swank, consultant for Target Analytics, states the first step in considering a donation policy is to compile a holistic view of the organization’s gifts – past, present, future. The organization should make three lists: (1) an inventory of the types of gifts currently accepted, (2) gifts that have been offered but turned down, and (3) gifts that are currently being considered for future acceptance.

This macro picture of the current state of donation affairs can help lead the discussion towards crafting a tailored donation policy. Helpful questions may include: (1) What donations, if any, fall into a questionable category? (2) What kind of circumstances would justify turning down a particular funding source?

An organization should also consider including procedural provisions to help protect resources and reputation, such as:

  • A statement on the organization’s mission and purpose of the gift policies;
  • A statement that the nonprofit will obtain legal input and advice when appropriate and guidelines of when to exercise this process;
  • Specific limits, such as maximums or minimums for charitable gift annuities.
  • The circumstances for obtaining an independent appraisal;
  • A list of gift types that can be accepted on behalf of the organization by development staff and the types of gifts that require approval from the chief executive or chief financial officer;
  • A statement regarding how the nonprofit plans to acknowledge gifts;
  • A statement regarding the disposition of gifts;
  • A time frame for communicating with donors;
  • Procedures for amending the gift acceptance policy.

As Lautze & Lautze stresses, before adopting a donation policy, the board should feel confident that the policy has been well considered, represents the best interests of the organization, and has full board support. Being clear about the reasons for decisions and applying the policy consistently are the most important factors in a donation policy. Once there is a proposed policy on the table, the organization should diligently consider the feasibility and effectiveness by judging its durability against questions such as:

  • What are the pros and cons of the proposed policy?
  • How does the proposed policy fare against several hypothetical situations?
  • Would you have to turn down any current donors based on the proposed policy?
  • Does the proposed policy represent the organization’s overall mission without impairing fundraising?
  • Is the proposed policy compatible with the views of staff, volunteers, and supporters?

A donation policy that emerges from this process will have many beneficial effects. First, it will help alleviate struggles in determining appropriate gifts that further the organization’s mission. Second, by gaining an understanding of an organization’s donations, the organization is better equipped to identify and target-market prospect segments. Third, the transparency to donors may help increase donations or more useful donations.  For example, publishing the donation policies on the organization’s website (including a contact person) will prevent sending mixed messages to donors and may help encourage constituents to not only make gifts but also inform them of the kind of the gifts that the organization seeks.

Wachovia Trust Nonprofit and Philanthropic Services’ article, “The importance of a gift acceptance policy,” republished in the Philanthropy Journal, is available here.

Lautze & Lautze’s article, “Are all contributions created equal?” from their Nonprofit Observer publication, Fall 2008, is available here.

Katherine Swank’s article, “Why You Need Gift Acceptance Policies: How Thoughtful Planning about Non-Cash Gifts Can Improve Your Donor Relationships” is available here.

Please view the previous post, "Gift Acceptance Policies,” for more information regarding Schedule M of the new Form 990 and drafting gift acceptance policies.

– Emily Chan