Ethical Standard Deep Dive: Standard 25

Throughout the month of October, members of the AFP Ethics Committee will be addressing each of the standards in our Code of Ethics. Today, Yulanda Davis-Quarrie, M.S., CFRE, director of institutional advancement for Ramona Convent Secondary School in Alhambra, Calif., discusses the last standard, number 25, and gift agreements.

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Standard No. 25: Members shall meet the legal requirements for the disbursement of funds if they receive funds on behalf of a donor or client.

Yulanda: The last standard reinforces the principle that donors rely on professional staff or fund raisers to ensure that the gift they receive meets any legal requirements stipulated by the donor. For example, if a donor says that the funds should be put in a fund to support emergency services at a hospital, then those funds cannot legally be used for operating expenses or cardiac services.  The donor has specifically restricted those funds for emergency services, and we are legally bound to ensure that those funds are restricted for that purpose. 

Also, the standard is a reminder that a written gift agreement serves as a legally binding document and the organization is bound to honor any restrictions or intent that is stipulated on that agreement by the donor.  

Sometimes a challenge occurs when there is a specific campaign such as one focused on a natural disaster and the charity matches its fundraising goal. When additional gifts exceed that goal, and the programs and services have already been provided for that specific campaign, there is a temptation to apply those excess funds to other uses. However, if the gifts were restricted, the organization and development staff must reach out to the donor and request and obtain permission (as a best practice, in writing) to divert the funds to different cause/campaign within the organization’s mission.

Guidelines

  • Members shall establish beyond all doubt the legal requirements, under the jurisdictions in which they operate, for the handling, disbursement and reporting of funds. Ignorance of the law is no defense.
  • Members must ensure that all funds received on behalf of a donor or clients are handled strictly in accordance with all duties of care required by law. In the case of business members, the organizations have the responsibility of ensuring that their employees handle such funds in conformance with those standards of care.
  • Members shall accurately and transparently account for all funds received.
  • Any interest or income earned on the funds should be fully disclosed.
  • Members must provide regular status reports to donors and clients on whose behalf the member holds funds.
  • Members shall clearly communicate to their clients and donors the manner and timelines within which funds will be remitted.
  • Members will disclose fully any interest or income earned, prior to disbursement, on the funds held on behalf of donors and clients.
  • Members urge their organizations to adopt and operate within written policies governing the maintenance and disbursement of donor and client funds, including the full disclosure of interest or income earned on such funds.

Examples of Ethical Behavior

  1. Developing policies that promote the handling and disbursement of donor funds in line with all legal requirements.
  2. Clearly reporting to donors and clients the interest or income expected to be received by the member’s organization on account of the donor’s or client’s funds held by the member.
  3. Paying to clients all sums, including interest or income received on account of donor and client funds, in a timely manner and consistent with legal requirements for such disbursement.
  4. Maintaining one’s records in such a way as to facilitate the accurate and timely communication of funds raised, disbursements made, and income earned to the client and any statutorily interested parties.

Example of Unethical Behavior

  1. Failing to ascertain the legal requirements for the disbursement of donor or clients funds.
  2. Using donor and client funds held by a member or the member’s organization for purposes other than those intended by the donor or client.
  3. For a non-profit organization, retaining interest or income earned on donor and client funds without first fully revealing such amounts to the client. The retention, by any organization other than the intended recipient, of interest or income derived from donations is unethical.
  4. Failing to disburse funds to the intended recipients in line with legislative requirements.
  5. Failing to fulfill statutory reporting requirements.


 

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Supported by: 
The Claudia A. Looney Fund for Ethics in Fundraising
&
The Patricia F. Lewis Ethics Endowment Fund

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