Tainted money — When nonprofits confront an ethical dilemma

During the recent Association of Fundraising Professionals’ (AFP) annual international conference, I had the opportunity to have a quiet dinner with my dear friend and colleague Robbe Healey, former Chair of the Board of Directors of AFP, who now chairs the AFP International Ethics Committee. In honor of AFP’s heightened commitment to ethics, I thought I’d share some of Healey’s thoughts that she touts in many of her workshops regarding ethical issues that the nonprofit sector faces.

Before a nonprofit accepts any money, it should consider the source of the funds. Healey says that nonprofits should avoid accepting tainted money. In other words, if a nonprofit’s mission is to support a healthy lifestyle, it might be a conflict of its mission to accept money from an organization that manufactures cigarettes. Many museums are encountering such ethical dilemmas today with the realization that a prominent philanthropic family, the Sacklers, made its fortune through the invention and sales of a prominent drug leading to today’s opioid crisis.  As a result, the Guggenheim Museum, Tate Museum, and Britain’s National Portrait Gallery announced last month that they will no longer accept donations from the Sackler family.

Healey also says that a nonprofit should never connect the amount of funds raised to compensation. She adds that the motivation for fundraisers should be to advance the mission of an organization, not to make more money personally. Five years ago, I had a conversation with the leader of a large organization who was interested in having me write a federal grant proposal. She inquired, if I were to write the grant proposal,  what percentage of the grant winnings would I accept for my compensation in lieu of an hourly rate. After firmly stating that the practice of accepting a percentage of the grant would be unethical according to AFP standards, I advised her that if she found a grant writer who would accept a percentage of the grant total, she should never hire that individual.

Privacy is another important aspect of ethics, according to Healey. She encourages organizations to only keep donor information that is necessary. She adds that you should never get more information than you need, nor should you use it for anything other than what you tell donors you will use it for. She also emphasizes avoiding the appearance of impropriety, even if what you’re doing is legal. For example, while it may be legal for a nonprofit executive director or development director to be included in a benefactor’s estate gift, it would certainly look unethical.

Being honest is another important aspect of acting ethically. She says that it’s important to tell the whole truth. That means reporting the actual number of people you serve, the real outcomes of your programs, and the accurate level of funding you have obtained, even if those numbers fall short of what you have projected. Being honest also means using donated funds in the way you have promised donors that you will use them.

Finally, Healey cautions nonprofits to be vigilant about conflicts of interest that could arise and to be aware of situations in which someone, especially a board member, could have something other than the best interests of the organization in mind. The AFP Code of Ethical Standards calls for members to “effectively disclose all potential and actual conflicts of interest; such disclosure does not preclude or imply ethical impropriety.”

The AFP Code of Ethical Standards also requires members to “comply with all applicable local, state…and federal civil and criminal laws.” In California, that compliance leads to registration through the Office of the Attorney General (AG). The AG regulates charities and the professional fundraisers who solicit on their behalf. According to AG rules, “all charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry of Charitable Trusts. In addition, nonprofit organizations that conduct raffles for charitable purposes are required to register and file an annual financial report.” In California, at least 90% of the gross receipts from any nonprofit raffle must go directly to charitable purposes. The AG’s Office also now provides oversight related to crowdfunding sites.

Complying with the AG’s requirements means that if a local nonprofit sells five raffle tickets for $20 at its annual fundraising dinner for a chance to win a case of donated wine, or sells raffle tickets priced at $50 or $100 each for a chance to win a trip of a lifetime, the organization must file a registration form with the AG’s office and submit a report. This compliance also means that if a nonprofit hires a fundraising consultant, including a grant writing professional, as a Fundraising Counsel, that individual must register annually with the AG’s office, pay an annual fee of $350, submit an Intent to Solicit Form for each new client or financial campaign, provide an annual report, and include specific language in their client contracts.  

Following a code of ethics is critical for nonprofit organizations to gain the public’s trust. Acting ethically means doing the right thing, regardless of the consequences, because it’s the right thing to do.