As nonprofits grow they often find it beneficial to raise money through arrangements with third parties. Commercial fundraisers offer one example. In such an arrangement, a for-profit business like a grocery store raises money for the nonprofit, such as often happens now at the point of checkout when customers are asked to donate to a specific cause. The third-party fundraiser often gets a significant benefit from participating in such programs. Among other things, it fosters a brand image of a forward-thinking, generous business.
For several reasons, a nonprofit needs the right to audit its third-party fundraising partners, and must consistently and routinely exercise that right. An audit needs to be detailed, examining a range of important topics that require a deep dive into the third party’s records and practices. An auditor looks for details such as:
- Verifying that the nonprofit has received the full amount it is owed.
- Verifying that expenses claimed by the third party fundraiser were authentic.
- Confirming that the fundraising was conducted in a manner consistent with the contract between the third party fundraiser and the nonprofit.
- Confirming that fundraising requests were made in compliance with state and federal law.
Audits often need to be conducted by specialists with training in how to analyze these types of relationships. The best auditors know how to do their work without causing significant disruptions to the subject organization’s operations. But few fundraising partners will 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.
Before entering into a third party fundraising arrangement, a nonprofit needs to consider whether it has the resources and time to dedicate to audits. If not, it may need to reconsider the relationship or ask the partner to share some of the costs. Many large businesses may be willing to pay for an independent audit of their own processes to verify for themselves that they and their employees are in compliance.
The Church Law Center of California provides legal services to nonprofits in the religious and secular communities. If your organization has questions about how to handle third party fundraisers, please give us a call. We can be reached at (949) 689-0437 or through our contact page.