Death, Taxes and Fundraising

Posted by Laura Otten, Ph.D., Director on May 3rd, 2013 in Thoughts & Commentary

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keep-calm-and-suck-it-up-22Recently, a colleague reported hearing a speaker say the following:  “Boards can decide if they want to fundraise or not.”  Blasphemy.   For a 501(c)(3) tax exempt organization, it is not a choice.  All board members must be active participants in fundraising.  Again, no choice, but reality is that too many boards fail, with impunity, to fulfill this obligation.

Instead, they think they have found an out by jumping on what appears to be a small but growing trend:  creating another 501(c)(3) organization to do the fundraising.  Yup, creating “Friends of XYZ” or “XYZ Foundation”—the two most commonly used names—is the very bad idea organizations are turning to make board members feel more at ease.

And, oh, yes, isn’t that why nonprofits exist—to make our board members feel more comfortable in not doing their job?  (Do not confuse a friends organization with a “Friends Board” or “Honorary Board,” which are frequently created to give a title to those folks who are truly friends of a nonprofit and who demonstrate that friendship by giving money, making key introductions, doing favors, etc., but who don’t have an interest, for whatever reasons, in serving on the governing board.  These are great groups to have.)

Granted, there are some types of organizations for which a friends affiliate  might be considered a necessity.  Government agencies come to mind.  Government agencies, as we all know, are funded through tax dollars.  But sometimes, there are people interested in the work of a government agency—school districts and parks and recreational spaces come immediately to mind—who perceive that the government allotted money is not sufficient to support the kinds of activities that really should be happening in that park or afterschool—and so “Friends of Park Beautiful” and “Poor but Smart School District Foundation” are created.  While on the one hand it is irresponsible of a school district or park to not be able to support financially the caliber of work it promised the public, I understand the reality of their situations.  So these companion organizations seem to make sense and are not the subject of this post.

The sad and scary trend under scrutiny here are those 501(c)(3) organizations that create a friends organization so that board members don’t have to do an important piece of their job.  Instead, they fob that job off onto the friends organization.  But then, so many of the founding organizations populate the board of the friends organization with board members from the original organization!  Don’t they realize what they have done?  Or, as I know most, if not all, do is they once again and wrongly so believe that it will be the job of the staff of the friends group to do the fundraising all on their own.  And, what is even sillier?  It is frequently the exact same staff which is servicing both organizations!   And, not fault of theirs, doing about as good a job at fundraising as they were when they were just the staff of the original organization.

Where, please tell, is the logic here?   Let’s create another organization that will fundraise for us, but will cost us money as well.  A separate 501(c)(3) means a separate set of costs.  While all too often, the organizations “share” space, as they generally are the same staff, staff should be paid more because technically they are doing more than one job.  If you really want to avoid the risk of conflicts of interest and other negative accusation, there should be a separate person doing the finances for each organization, separate accounting firms doing the audits of the two organizations (for which you have to pay).  And regardless of whether an organization is smart and keeping things separate, there still is the cost of two audits, the completion of two 990s, the two sets of Directors and Officers Insurance policies, two strategic plans that need to be developed, two websites that needs to be managed, two sets, in essence, of everything.  Way to save money!

The situation gets even more ridiculous and illogical when you realize that these friends organizations frequently are set up with the sole “mission” of fundraising for the other organization.  They have no programs of their own, but rather must fundraise for the programs designed by the original organization.  Sometimes, simply because of the overlap of board members of both organizations and sometimes because of a proactive invitation, the board of the friends organization will be invited to participate in the strategic planning process (assuming there is one) of the original organization and thereby get some influence, if not actual say, in the programmatic priorities for which they must fundraise.

But think of the position in which that potentially puts the dual serving board members.  While serving on the board of the original organization and engaging in the strategic planning process, those board members must, as stipulated in state law, do what is in the best interests of that organization.  But what if a priority is suggested that is absolutely brilliant for the original organization but will pose a huge challenge for fundraising?  What’s a board member to do?

Suck it up and do the job.


The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.