Ethics Q & A
March
28 , 2005
By Jane Garthson, Mills
Garthson & Associates
The question:
Is it ethical to pay grant writers a percentage of grants received?
Jane says...
This question comes up all the time, as many charities would like to have a chance at new monies with no cost to them. They do not understand the long-term risks.
I do not believe it is ethical, and neither do the great majority of consultants I consider reputable. A very small number of good consultants do find ways to make it work without violating their values. They do that to occasionally help small, struggling charities that cannot otherwise submit proposals.
I know of no organization that supports the practice. Imagine Canada (formerly the Canadian Centre for Philanthropy), the Association of Fundraising Professionals and the Canadian Association of Gift Planners all require their members to completely avoid percentage or commission-based fundraising.
And as far as I am aware, there are NO credible people defending percentage-based
fundraising from individuals. It misleads donors, causes charities great
problems with their accounting, harms the building of long-term relationships
with donors, and hurts other fundraising efforts. The companies that
do percentage-based telemarketing take up to 90% of the monies. Would
you want to give again after learning that most of your donation never
reached the charity? Some charities try to show only the net receipts
in their books, to avoid admitting that a for-profit got most of the
funds, but then their tax receipts may add up to far more than their
total donation revenue.
Because this practice is so odious, percentage-based grant writing may
appear to be just tarred by association. Shouldn't grantmaking organizations
have expertise enough to understand how their money is being spent and
make an informed choice? Yes, and many do. Many or most foundations
choose not to give any grant if the proposal shows that the grant writer
will receive a percentage of the grant. So the charity must either:
- Find the money from other funds, or
- Lie
If the charity can find the money from other funds, then why pay by percentage?
Consultants being paid by a flat fee normally charge less, as they are
not taking the risk. Part of the reason they do not want to take the risk
is that the quality of the proposal may account for only 10% of the grant
decision. Grantmakers want to see an organization with proven success
in carrying out projects, achieving results, and meeting their accountability
requirements. They also want to see current capacity to deliver on the
new project. In addition, foundations can and do arbitrarily change their
priorities in fairly unpredictable ways. Grant writers have no control
over any of these factors.
So that leaves lying, and not just once. You must lie in the proposal,
in the budget that shows how the monies will be used if granted. Then
you must lie in the interim and final reports about how the money was
actually spent. If the amounts are large enough to be separated out in
your accounting statements, you need to create a false document trail
and manipulated bank accounts to try to get this past your accountant.
That means you need a poor quality accountant, who then cannot give the
support you need in terms of financial management practices.
Furthermore, you must achieve the results you said you would get despite
having much less money than you said you needed to achieve the results.
You may be working with only 70% of the funds after paying the grant writer.
So you had to pad the proposal, which may make your work look inefficient
and overpriced compared to similar services in your sector.
Here are two more reasons not to pay by percentage:
- Grantmakers want to fund thriving organizations, not those on the edge. If
you cannot find individuals with money to give start-up or seed monies,
it bodes very poorly for sustaining the organization. Showing that
someone has enough confidence in your organization to pay administrative
and fundraising costs will help you in the grant decision.
- Grant writers paid by commission will take an immediate small grant over a chance to gradually develop a long-term relationship between your charity and a foundation that might become a major, annual supporter. They might not see any payback from the latter, as the cheques might not come in until long after their contract and might not even relate to the project originally applied for.
You can read more about such concerns at www.afpnet.org/tier3_cd.cfm?folder_id=899&content_item_id=1227.
So why do I think there are a few decent consultants who will work on commission? Because they choose clients whose cause they believe in enough to take the risk but still charge a low percentage. And they will wait for their fees until you have other new money. They know you cannot pay them from the grant itself. Of course, they need other, larger clients in order to occasionally help small struggling charities this way.
Since you are unlikely to land one of the few spaces offered by these few consultants (and if any of them are Canadian they are not ones I know), I suggest you choose one that charges a flat fee. Alternatively, establish a salaried position if there is sufficient development work, or use volunteers until you grow. A volunteer with writing skills can get a lot of information on the Internet about how to write grant submissions, and some foundations will help. Carefully follow the grant submission directions from each foundation; that alone will put you ahead of much of the competition.
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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.
