Ethical Considerations for Nonprofit Fundraising

While for-profit companies take excess revenue as profits or distribute it among shareholders, nonprofit organizations put all funds toward the work they do. America’s nonprofit organizations rely on donations and grants in order to successfully carry out their work and must earn, cultivate, and maintain the public’s trust through their commitment to ethical principles. One of the most central ways to achieve this confidence is through responsible fundraising practices.

Beyond meeting state and federal legal requirements, nonprofits can inspire public confidence by being completely transparent with their fundraising practices and costs, demonstrating accountability and respect for donors, and more. If the public is unsure of a nonprofit organization’s reputation or doubts the credibility of its practices, the organization will likely see a reduction in revenue from fundraisers, sponsorships, and other sources due to negative public perception. However, when nonprofit organizations closely monitor key considerations like financial management and full disclosure, they are better able to foster public trust, increase donor confidence, and ultimately have more successful fundraising programs overall.

When nonprofit organizations are able to maintain high ethical standards, they are more likely to receive the funds they need to stay afloat. This is why it is important for such organizations to remain above reproach in terms of fundraising practices.

This requires the adoption of clear policies that ensure responsible use of funds, as well as open communication with donors and other constituents. Organizations should consider the following ethical considerations when it comes to fundraising efforts.

Accountability

Nonprofits have an ethical obligation to conduct activities with the utmost accountability. One of the most important ways organizations can cultivate public trust is through their treatment of donors. The National Council of Nonprofits suggests that measures like sending timely gift acknowledgments and listing donors on the organization's website go a long way in building a good relationship. Organizations should also respect any restrictions on donations, including their anonymity.

Transparency

Transparency is another vital element of ethical fundraising. Organizations should regularly inform the public about their activities, decision-making processes, and accomplishments. This creates external visibility and public understanding, the MCN says. Having a trained public relations team is an ideal way to manage this.

Nonprofit groups can be transparent by listing the average allocation of each dollar they receive, for example. In general, when organizations have high levels of self-policing and transparency, it illustrates to the public that they can be trusted and inspires confidence. This is particularly important when it comes to potential donors. One way to do this is by making it easy for visitors to the organization’s website to find information about financial management, board composition, outcomes, impact, staffing, and more.

In terms of donations, organizations should make it clear how they plan to utilize contributions. This can be achieved through drafting written agreements that define how a particular gift will be used so that donors have enough information to make informed decisions. Another important element of transparency is privacy. “Issues surrounding the proper use, recording and distribution of donor information are a major concern for nonprofits,” according to the Nonprofit PRO. Organizations should assure donors that their information will remain private.

Donor Intent

One area that can be difficult for nonprofits to navigate is donor intent. “Respecting a donor’s intent is an ethical issue and also a legal matter that starts with educating staff and board members about the importance of maintaining donor trust, and the legal/fiduciary obligation to honor donors’ requests,” the National Council of Nonprofits notes. Sometimes, it is better to turn down a gift that has “strings attached,” for example, and avoid future complications.

Financial Management

Being open about the financial management involved with fundraising is another area the National Council of Nonprofits identifies as ethically significant. Groups should handle their finances responsibly, complying with all legal financial requirements and utilizing sound accounting principles. As the MCN notes, “Nonprofits should use their financial resources to accomplish their missions in an effective and efficient manner and should establish clear policies and practices to regularly monitor how funds are used.”

Organizations should be able to identify fundraising expenses and report them accurately. The Internal Revenue Service defines fundraising costs as “the expenses incurred in soliciting cash and noncash contributions, gifts, and grants” and instructs nonprofits to “Report as fundraising expenses all expenses, including allocable overhead costs, incurred in: (a) publicizing and conducting fundraising campaigns, and (b) soliciting bequests and grants from individuals, foundations, other organizations, or governmental units.” Some examples of fundraising expenses include:

• Postage and printing
• Telephone and internet charges
• Staff time spent writing grant proposals
• Maintaining relationships with donors
• Costs of events that raise contributions
• Development and distribution of fundraising materials

Competency

Demonstrating competency can be one of the most effective ways to garner public trust. It is possible for nonprofit agencies to damage their own reputations through incompetence and poor management rather than through genuinely unethical practices. It damages donor confidence when organizations demonstrate inept business methods, making it more difficult for them to secure contributions and revenue. It is particularly important for nonprofit organizations to hire skilled professionals as employees. Those with the training and education to successfully navigate the complexities of fundraising in the nonprofit sector can ensure that an organization stays afloat.

Developing Ethical Policies for Nonprofit Fundraising

To maintain high ethical standards, nonprofit organizations should have clearly articulated mission and value statements, as well as specific codes of conduct. New employees should sign documents stating they will adhere to these ethical principles. Having such policies in place establishes an organization-wide standard that applies to every aspect of daily processes, including fundraising.

Because of the important role nonprofits play in the betterment of society, it is essential that they maintain public trust. Such organizations should regularly evaluate their performance and share this information with both their constituents and the public as a whole. This enables them to continually grow and improve their processes, programs, and activities.

The issue of ethical conduct in the nonprofit sector is of concern to organizations worldwide. Lesley University’s business management bachelor's degrees provide you with essential, real-world skills to help organizations of all sizes thrive in today’s global economy.

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