Advancing Philanthropy

An Illustrated Guide to Ethical Problems

illlustration of two figures playing tug of war

Illustration © Ian pullens

CONFLICTS OF INTEREST

A charitable organization should adopt and implement policies and procedures to ensure that all conflicts of interest (real and potential) or the appearance thereof within an organization and governing board are appropriately managed through disclosure, recusal or other means. A conflict of interest arises when a board member or staff person’s duty of loyalty to the charitable organization overlaps with a competing personal interest he or she may have in a proposed transaction. Some such transactions may violate legal requirements; some are unethical; and others may be undertaken in the best interest of the charitable organization as long as certain clear procedures are followed. A conflict of interest policy helps protect an organization by defining “conflict of interest,” identifying the classes of individuals within the organization covered by the policy, facilitating the disclosure of information that may help identify conflicts of interest and specifying procedures to be followed in managing conflicts of interest.2

GIFT ACCEPTANCE POLICY3

illustration of a gift box with a lock on itAn AFP Ready Reference example: The XYZ Organization seeks outright gifts and future gift commitments that are consistent with its mission. Donations generally will be accepted from individuals, partnerships, corporations, organizations, government agencies or other entities without limitations—unless acceptance of gifts from a specific source is inconsistent with the organization’s beliefs, values and mission. The XYZ Organization will not accept gifts from companies whose products may be harmful to our clients or from donors whose requests for public recognition are incompatible with our philosophy of appreciation. In processing, all gifts will be coded in the donor database for the constituency source from which the gifts were given (e.g., individual, corporation, foundation, organization, etc.). Multiyear pledges for major gifts are encouraged, but for no more than three to five years. Donors should complete and sign a gift or pledge agreement form detailing the purpose of the gift, payment schedule and how they wish their names to appear in donor-recognition materials. Donors are encouraged to support areas reflecting their interests. The XYZ Organization’s priorities include gifts for unrestricted, restricted and endowment purposes. A selection of named or commemorative gift opportunities may be made available to each donor. Such opportunities represent a tangible means of demonstrating an individual donor’s investment in the XYZ Organization. When gifts with restrictions are accepted, restrictions will be honored. These restrictions will be detailed in the donor’s gift or pledge commitment letter. Donor information that should be private and confidential will not be made public.

ACCOUNTABILITY4

illustration of a magnifing glassAccountability and transparency in assessing charities are defined as follows. Accountability is an obligation or willingness by a charity to explain its actions to its stakeholders. Transparency is an obligation or willingness by a charity to publish and make available critical data about the organization. Charity Navigator believes that charities that are accountable and transparent are more likely to act with integrity and learn from their mistakes because they want donors to know that they’re trustworthy. Generally speaking, charities that follow best practices in governance, donor relations and related areas are less likely to engage in unethical or irresponsible activities. Therefore, the risk that charities would misuse donations should be lower than for charities that don’t adopt such practices. When examining accountability and transparency, Charity Navigator seeks to answer two basic questions: Does the charity follow good governance and ethical best practices? Does the charity make it easy for donors to find critical information about the organization? [They] consider two data sources when examining accountability and transparency: additional information available from the IRS Form 990 and a review of the organization’s website.

TAINTED MONEY5

illustration of tainted moneyTainted money refers to funds contributed to an organization that may raise questions of propriety among the organization’s constituents and stakeholders because of the source of the funds or circumstances surrounding the contribution. Typically, tainted money calls into question the organization’s integrity, which is the manner in which it acts out, acts on or practices the values it promotes. Integrity is the most important ethical value that our constituents look for in us and, by extension, in our organizations. Simply put, integrity is acting out our beliefs, doing as we say. The most obvious type of tainted money is illegal money. Illegal money is simply money obtained through illegal activity: the sale of illict drugs, stealing or white-collar crimes committed by an individual or corporation. A nonprofit organization should never knowingly accept illegal money. Nonprofit organizations have an important responsibility to the public trust. Involvement in illegal activity not only harms trust in individual organizations but impacts the sector as a whole.

DONOR PRIVACY6

illustration of binoculars[Sample] The American Red Cross is committed to respecting the privacy of its financial and in-kind donors, whether the donation is made online, by mail or any other method. When you make a financial or in-kind donation, you provide your name and contact information. Financial donors provide standard payment information including, in many circumstances, credit card data. We protect your information in a variety of ways, as described below.

We use industry standard safeguards to protect your information. Many donors use credit cards for donations. We protect the security of credit card transactions using a number of measures such as encryption, access controls, network firewalls and physical security. These measures make it extremely difficult for anyone to intercept the credit card information you send to us. When we work with other companies to process credit card transactions, those companies also use encryption and other appropriate security measures.

We will not sell, share or trade our donors’ personally identifiable information with any other entity, except as described below. In addition, we will not send mailings to our donors on behalf of other organizations, unless a donor has given us specific permission to do so. The Red Cross has vendors that assist with processing and managing donations and donor data. We give these vendors access to donor data. Our vendors are bound by strict confidentiality rules and are permitted to use donor data only to support Red Cross operations.

COMPENSATION7

illustration of stacks of money in a person's handIn reporting compensation paid to a board member or employee, organizations are expected to include salary or wages, bonuses, severance payments and deferred payments; retirement benefits, such as pensions or annuities; fringe benefits and other financial arrangements or transactions treated as compensation (for example, personal vehicle, meals, housing, personal and family educational benefits); low-interest loans; payment of personal or spousal travel; entertainment or other expenses; and personal use of an organization’s resources.

Here’s the information collected [by Charity Navigator] from each source: data culled from the Form 990. The IRS expanded the Form 990 in 2008 to collect additional information from charities that can accept tax-deductible donations. Several changes were designed to inform the public about potential conflicts of interest, board oversight, executive compensation and recordkeeping. The IRS states, “By making full and accurate information about its mission, activities, finance, and governance publicly available, a charity encourages transparency and accountability to its constituents.” Twelve of the 17 accountability and transparency categories that [Charity Navigator analyzes] are collected from the expanded Form 990. If a charity fails to submit an answer to any of the 12 items on the Form 990, then [they] deduct points from their Accountability & Transparency score.


1    This selection of ethical issues draws on definitions and explanations taken from expert sources.

2    Glossary, Principles for Good Governance and Ethical Practice, Independent Sector, 2015.

3    AFP Ready Reference Series example, www.afpnet.org/ResourceCenter

4    www.charitynavigator.org/index.cfm?bay=content.view&cpid=1093

5    Nonprofit Fundraising Strategy, Ed. by Janice Gow Pettey, (chapter by Eugene R. Tempel)

6    www.redcross.org/privacy-policy/donor-privacy-policy

7    Ibid.

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