Working with Outside Fundraising Agents

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Nonprofits sometimes work with outside firms to expand the reach of their fundraising efforts. Third-party fundraisers can range from one-off events to long-term contracts. Hiring a fundraising agent can be a good strategy, but it comes with some risks that organizations should consider before making the move.

Professional fundraisers in California

A third-party fundraising agent can handle a lot of the heavy lifting for a nonprofit. There are two general categories of agent with their own sets of rules: commercial fundraisers, who solicit donations and sometimes handle money on the nonprofit’s behalf, and fundraising counselors, who provide guidance but do not solicit or receive donations. Both are subject to strict regulations in California. Among other things, commercial fundraisers are required to disclose their status to potential donors as part of their solicitation efforts.

Professional fundraisers raise money for their client nonprofits in exchange for a fee, which can be a flat rate or based on a percentage of collected donations. Their activities can be limited to a specific event, such as running a charity concert, or they can handle a broader range of activities, up to and including the organization’s entire public outreach effort.

A nonprofit considering working with an agent needs to do their homework. Verifying compliance with state regulations, potentially with independent research, is essential. Before the engagement begins the nonprofit needs to carefully consider the protections it will need to include in its contract with the agent.

Potential problems with third-party agents

Working with any outside agent involves a degree of risk. Some forms of risk are easier to anticipate than others. Here are a few examples:

  • Fraud. One of the more serious risks of working with a third party that will handle large sums of money is that they will steal donations. The organization needs to ensure that mechanisms are in place for comprehensive monitoring and auditing of the agent’s work.
  • Misrepresentations. An agent can get the organization in trouble by improperly representing itself as having authority to speak for or bind the nonprofit. The agent’s contract must specify the scope of the agent’s authority and provide that anything the agent does outside that scope is the agent’s sole responsibility.
  • Damage to brand. Because an agent can operate without direct oversight from the organization, the agent may end up drifting from the organization’s preferred message and may use the organization’s name in ways that hurt its brand and reputation. Ideally the agent’s public communications are vetted by someone within the organization 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.
  • Activities that threaten the organization’s nonprofit status. An agent 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 agent will take this seriously and will already understand what can and can’t be done before the engagement begins.

Talk to a California nonprofit law firm about fundraising agents

Consult with an attorney before working with an outside firm to do any sort of fundraising work. The Church Law Center of California provides expert legal advice to religious and secular nonprofits. Call us today at (949) 892-1221 or reach out to us through our contact page.

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