A few years ago, when I was a VP on the board of a substantial (but local) non-profit, I got into an argument with the then-President over donor-directed giving. The discussion was about donors who had earmarked their giving; in this case, to the group’s endowment fund.
I had been asked to serve on the organization’s endowment committee, and as part of that role, I had gone through an analysis of the organization’s records. In reviewing the documentation (some of it very old and/or very minimal), I was very concerned. Seeing that several of the grants had been given with specific instructions as to how the funds were to be spent, it was clear that in many cases these instructions had gone unheeded — often for decades. I asked the President of the organization if he was aware of this, and I suggested that we might bring our expenditures in line with the original requests of the donors.
To say that I was laughed at is an understatement. This “business leader” told me that I needed to understand that donations to a nonprofit are “fungible”.
Gee — I thought that “fungible” meant trading like for like, as in “trading” a $20 bill for a ten and two fives. Is moving monies designated for a library to general administrative costs “fungible”? I didn’t think so.
I felt not only put-down by this guy that was indignant that I should question the way nonprofit finance worked, but I also felt sad for the people — some long since dead — who had, with nothing but good will, given the money to the organization with the belief that their wishes would be honored.
And then I saw this recent article in “Inside Philanthropy” entitled What Happens When Nonprofits Don’t Keep Their Promises to Donors? This article was a follow-up to a December 2019 study conducted by consumer researchers at various universities, headed by the University of Washington, called You did what with my donation? The gist of the report is that the “money is fungible” theory doesn’t work so well for donors. In fact, not only isn’t it an acceptable practice for many donors — but donors actually feel betrayed by the movement of their directed funds.
In a world where nonprofits survive based, in part, on their ability to create and sustain a feeling of trust between their donors and their organizations, the idea that an organization can directly make their donors feel betrayed is a pretty big statement. In fact, the report states that a donor who finds that their directed donation was used for another purpose — even if that purpose still benefited the overall charity — will reduce or stop giving, stop volunteering, and even make negative comments about the group.
Beyond that, a nonprofit that moves its directed funds willy-nilly between needs of the overall organization, without consulting the donor first, may find themselves as the subject of public condemnation and even an expensive lawsuit.
I’m not suggesting that this is only an issue with major giving. In fact, it’s the smaller donors who won’t take the time to sue a nonprofit who plays the “fungible” game. As you all know, though, that doesn’t make it right.
I understand that sometimes money needs to be redirected. For example, what if the library that the money was designated for no longer exists? It doesn’t take a genius to know that the institution has multiple options, then — contact the donor (or their family), donate to something that involves reading (thereby at least getting closer to the “fungible” definition), or, if those fail, try to find something that meets the institution’s needs and would also have been of interest to the donor.
We work too hard to establish trust with our donors. Let’s do our best to protect that delicate asset, and honor our donors’ wishes. Even during COVID. Not only is it the right thing to do, but doing so is likely to inspire others to donate to your nonprofit.
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- Lisa