Americans gave an estimated $358 billion to charity in 2014. As not-for-profits have happily noticed, today’s donors are reaching into their pockets to fund charities at levels that surpass pre-recession highs. In addition to annual giving that supports important programs and daily operations, many organizations are evaluating bricks-and-mortar needs to update aging facilities and accommodate new growth. As capital investments deferred during the recession years become necessary, many organizations are green-lighting full-scale capital campaigns to take advantage of the nation’s philanthropic mood and friendlier economic environment.
Capital campaigns bring together large-scale projects and high-end donors. To maximize the campaign’s potential, not-for-profit organizations must present clear goals while remaining persuasive enough to prompt donors to give. This can be tricky, as many organizations miss important details that can help ensure compliance with regulations.
Sometimes the marketing language that paints a bright and exciting project vision inadvertently creates an accounting problem. Endowments are a great example. In many cases, only income generated from the principal can be spent, not the endowment principal itself. If the organization’s website specifies that donations will be used to fund an endowment, then the ability to use those funds is limited to income from the principal. Similarly, if campaign literature indicates that funds are being raised to build an addition, those same funds cannot be used to establish an endowment for the future.
Auditors have a responsibility to the public to ensure that funds have been spent as described, and in accordance with donor intent. To protect their campaigns and avoid this potential accounting headache, organizations are smart to use broad language to describe their projects.
Here are a few tips to remember:
- Clearly define the campaign objectives within your organization and gain the required buy-in from internal stakeholders.
- Explain the overall impact donors’ gifts will make in fulfilling the objective of the campaign and the organization’s mission.
- Fully disclose any administrative expenses (or partial expenses) funded by donations.
- Protect the organization and the donor from future misunderstanding through a consistent campaign form, signed by the donor, which documents the amount of the donation, the date and the specific form (such as check or stock).
It is also wise to establish a gift acceptance policy before the campaign begins. This discourages donations that result in additional costs to the not-for-profit, such as real estate, motor vehicles or investments in privately held companies.
One of the best ways for an organization to protect itself is to have an auditor review campaign literature before it is distributed. Clark Schaefer Hackett can provide this service to help you avoid risk and maximize fundraising potential.
To request help with this issue or any other concern, please contact your CSH advisor, or request a consultation.