Ethics Q & A
December 22, 2003
By Jane Garthson, Mills
Garthson & Associates
with input from Betsy
Clarke, CFRE
The dilemma:
A board member of an environmental charity in the Maritimes has a fundraising business that provides services to the charity. His fees are calculated on a project expense basis, not a percentage basis, but represent about half the budget of the organization. The press releases refer to $450,000 raised per annum, but the charity books only show the net amount, about 25%.
Jane says...
This is a complex issue with a number of ethical concerns, without enough detail
to fully determine how serious the situation is.
First, directors at a charity should not be profiting from their position,
and in some provinces legally cannot be paid anything but expenses. In
the other provinces and in nonprofits that are not charities, a very careful
process is needed to handle the conflict of interest. The selection should
include:
- documentation that at least three bids (on this size of contract, simple quotes
would be inadequate) were obtained from qualified companies, and how
the selected contract provided the best value.
- a formal declaration of interest from the director, recorded in the board minutes, and avoidance of all participation in discussion and decision-making, both before the initial choice and about any renewals or evaluations. The director should be absent from the room during decision-making, and no lobbying in advance!
- full disclosure to the competitors of all relevant information available to the director about the fundraising situation, so the director did not have an unfair advantage.
If these safeguards were not followed, the contract can rightly be perceived as
inappropriate. Even if all due processes were followed, however, many
charities would choose another supplier rather than risk the perception
of an ethical lapse.
There are many professional fundraisers in Canada to choose from. Remember that most people do not have the details of whether or not someone declared a conflict or how it was handled. They only see the conflict. It is much better if the individual chooses whether to be a supplier or a director, rather than trying to be both.
Secondly, the books should properly reflect the total amount raised and
the cost of fundraising, so donors and others can properly assess the
organization. It sounds as if the charitable returns show an amount that
does not come close to matching the charitable receipts issued. This is
an issue of honesty.
Finally, there is the issue of fee level. There is no generally accepted benchmark for fundraising as a percentage of budget, but some guidelines speak about keeping fundraising costs below 20-35% of the budget. If this is a telemarketing operation, the fees are far out of line with ethical practice or true costs with reasonable profit, although not out of line with some of the percentage-based operations. Most fundraising ethics codes and most charity specialists regard percentage fundraising as unethical, and high percentages as highly unethical.
It may be that the firm is carrying out fundraising activities which do have a high cost for low return. Special events usually cost upwards of 50% and direct mail to "cold" lists often fails to recover costs. A good fundraising consultant could recommend a good mix of activities for the majority of the charity's fundraising. It is likely that the recommendation would involve more participation by staff and volunteers.
This charity seems to be at risk of angering its donors if the truth becomes known, both about who is providing the service and about the low amount available for the charity's mission.
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Because nonprofit organizations are formed to do good does not mean
they always are good in their own practices. Send us your ethical questions
dealing with volunteers, staff, clients, donors, funders, sponsors, and
more. Please identify yourself and your organization so we know the questions
come from within the sector. No identifying information will appear in
this column.
To submit a dilemma for a future column, or to comment on a previous one,
please contact help@charityvillage.com. For paid professional advice about an urgent or complex situation, contact Jane directly.
