Fundraising is a major ongoing activity at most nonprofits, so it is not unusual for a nonprofit to want to work with a third party that can relieve them of much of the heavy lifting. However, working with third-party fundraisers can come with some risks that organizations need to consider before proceeding with a partnership.
Working with any outside entity for fundraising involves a degree of risk. Some forms of risk are easier to anticipate than others. Here are a few examples:
One of the more serious risks of working with a third party that will handle large sums of money is that they may pilfer donations. The nonprofit needs to ensure that mechanisms are in place for comprehensive monitoring and auditing of the third-party fundraiser’s work. An audit needs to look for details like:
- Verifying that the nonprofit has received the full amount that was raised.
- Verifying that any expenses claimed by the third party fundraiser were authentic.
- Confirming that the fundraising was conducted in a manner consistent with the agreement between the third party fundraiser and the nonprofit.
- Confirming that fundraising requests were made in compliance with state and federal law.
Fundraising partners may not agree to be audited unless they have explicitly agreed to the process in advance. That is one of several important reasons why putting a fundraising arrangement in writing is critical.
A fundraising partner can get the organization in trouble by improperly representing itself as having authority to speak for or bind the nonprofit. The partner’s contract must specify the scope of the third party’s authority and provide that anything the third party does outside that scope is the third party’s sole responsibility.
Damage to the nonprofit’s reputation
Because a third party can operate without direct oversight from the organization, it may end up drifting from the nonprofit’s preferred message or using the organization’s name in ways that harm its brand and reputation. Ideally, the third party’s public communications are vetted by someone with the nonprofit before they are released, but balancing control with expediency is necessary, especially for fast-moving social media campaigns. Any use of the nonprofit’s name, logos, or other potentially trademarkable assets should be subject to a specifically tailored license.
Threat to the organization’s nonprofit status
A fundraising partner can do significant harm to a nonprofit by using the nonprofit’s name or funds to do things that are prohibited by the organizations’ tax designation. A good partner will take this seriously and will already understand what can and can’t be done before the fundraising activity begins.
Third-party fundraising policy
Nonprofits should not proceed with a third-party fundraiser without first establishing a fundraising policy and agreement. Some provisions that should be included are:
- An Indemnification and hold harmless clause that protects the nonprofit, its employees, and its directors from all liabilities related to the event.
- A statement that the fundraising partner cannot participate in any political campaign on behalf of the nonprofit.
- Financial reporting requirements that bind the fundraising partner to providing the nonprofit with a full accounting of monies raised.
- Financial guidelines including ensuring the third-party group is responsible for paying additional expenses related to the event and the time frame for sending the final accounting report.
- Requiring advance written permission from your nonprofit for fundraising activities on behalf of the nonprofit.
- Permitted use of the nonprofit’s logo, brand, and name in connection with the fundraising activity.
The Church Law Center of California assists nonprofits with organization, governance, and risk management. We can help your nonprofit craft policies so it is in a better position to address problems as they arise. To find out how we can help your nonprofit, call us today at (949) 245-3177 or reach out to us through our contact page.