Vol. 21, No. 2, Summer 2012 … find the answer here 2012 Risk Management Webinars: Affordable and Convenient The First Wednesdays webinar series features twelve, 60-minute webinars on topical risk issues. ■ July 11: Reporting Success: What’s the Risk? ■ August 1: Protecting THE Vulnerable Populations ■ September 5: Human FUNDRAISING Behavior and Risk Management ■ October 3: Managing ISSUE Special Event Risks ■ November 7: Crisis Management and Crisis Communications ■ December 5: Calibrating Top 10 Fundraising Risks Your Nonprofit’s Risk Appetite for Nonprofits Each “live” program is packed by Melanie Lockwood Herman with practical information. All The words “fundraising” and “risk relying on donated dollars for mission Center webinars are recorded and management” are rarely used in the fulfillment. Read on to learn about archived so you can watch missed same sentence. One reason the topic the “top ten” fundraising risks facing programs at your convenience. of “fundraising risk” is infrequently mission-focused organizations Visit www.nonprofitrisk.org discussed by nonprofit decision- and strategies for unearthing and and choose the “Webinars” makers may be because responsibility managing the risks in your nonprofit. tab to learn more. for “fundraising” is often assigned to #10 - Ignoring Donor Wishes the development team, while “risk When your nonprofit receives a management” is led by the finance generous donation, it may feel like department or client services team. your “wish” has been granted. But has Yet there are risks associated with fundraising that deserve the continued on page 2 attention of leaders of any organization A publication of the Nonprofit Risk Management Center ©2012 Nonprofit Risk Management Center 15 N. King Street, Suite 203 • Leesburg, VA 20176 • Phone: (202) 785-3891 • Fax: (703) 443-1990 • www.nonprofitrisk.org 2 ❙ Risk Management Essentials • Summer 2012 Top 10 Fundraising Risks for Nonprofits continued from page 1 the donor’s wish been considered with #8 - Crossing the Urgent/ respect to the use of those funds? Desperate Line in the Sand Care must be taken to understand Several years ago I received a and adhere to a donor’s request fundraising letter from a local arts regarding any restricted funding. Many organization pleading with me to Vol. 21 • No. 2 • Spring/Summer 2012 nonprofits have found out the hard “send money.” A close friend of mine Published three times annually by the was a volunteer for the organization Nonprofit Risk Management Center way that ignoring a donor’s specific 15 N. King Street, Suite 203 and I had previously donated to requests for the use of a gift puts the Leesburg, VA 20176 the group. The introduction to the Phone: (202) 785-3891 organization at risk of not only donor Fax: (703) 443-1990 appeal explained that the nonprofit Web site: www.nonprofitrisk.org. wrath but also litigation. Nonprofit had fallen on hard times, and I was leaders are wise to manage this risk by initially sympathetic. Unfortunately, taking a close look at instructions or the appeal “crossed the line” when its requests that accompany a donation. author explained the real motivation …find the answer here Questions to ask include: for the request. She wrote: “Please send a donation now so that I will be able Staff Directory ❏ Is the donor’s request for the (All staff can be reached at 202.785.3891) to keep my job!” Conveying the urgent use of her donation reasonable Melanie Lockwood Herman need for dollars to support your cause ■ Executive Director given our plans and resources? [email protected] may be effective. Appearing desperate ❏ Are we in position to fully Chris Croll will only alienate past and prospective ■ Director of Marketing and Communications comply with the request? [email protected] donors. Avoid the temptation to interject desperation into your appeals. Sue Weir Jones ❏ How will we demonstrate to the ■ Office Manager [email protected] donor that the conditions of the #7 - Mistaken Identity gift have been met? Over the years I’ve received several 2012 Board of Directors calls from leaders facing a barrage President Gretchen B. Kriebel ❏ Who in the organization is Michael A. Schraer CFA Institute of inquiries in the wake of a scandal Chubb & Son Charlottesville, VA responsible for tracking the involving a similarly named nonprofit. Treasurer David S. Kyllo use of the gift and notifying Lisa Prinz Riverport Insurance In what must feel like the ultimate Harleysville Company the donor? Insurance Minneapolis, MN “bum deal,” every nonprofit is at risk Harleysville, PA of donors assuming that the tarnished John B. Pearson #9 - Failing to Comply with Secretary Harpswell, ME reputation of a similarly named Carolyn Hayes-Gulston Charitable Registration Laws National Multiple Bill Tapp charity could negatively impact your Sclerosis Society College of Direct Thirty-nine states and the District New York, NY Support of Columbia require charities, unless good reputation. To manage this risk, Knoxville, TN consider drafting a statement about Peter Andrew exempt or excluded, to register before Council Services Sean Sweeney your nonprofit that can be finalized and Plus, Inc. Philadelphia asking residents of their jurisdictions Albany, NY Insurance Companies published should you ever face a case Bala Cynwyd, PA for contributions. The requirement Kim Y. St. Bernard of mistaken identity. The statement Girl Scouts of the USA Jeffrey D. Weslow applies not only to the home state of New York, NY Housing Authority might begin with: “The Board of ABC Insurance Group the charity, but also to any other such Cheshire, CT nonprofit was disheartened to learn of jurisdiction in which the charity is the difficulty facing XYZ nonprofit, also seeking contributions. To learn more in New Town, USA. Despite similarities about this risk and how to manage in the names of the two organizations, it, see the article on “Charitable they are unrelated. ABC nonprofit Registration” appearing on page 5 was founded by Ethical Edna in 1950. of this issue of Risk Management The mission of ABC nonprofit is to… Essentials. We welcome the public’s support as continued on next page Risk Management Essentials • Summer 2012 ❙ 3 Top 10 Fundraising Risks for Nonprofits continued from page 2 well as questions about our structure, # - 4 Lack of Transparency leadership, services, and funding. Please Today’s donors are savvy, connected contact Chris Communications at ....” and curious. At a minimum, they want to know: To manage the risk that #6 - Lack of Clarity Many fundraising campaigns involve ❏ Who leads your nonprofit; donors will believe you are two or more partner organizations. ❏ How contributed funds Raising money “together” can be an are spent; and hiding rather than sharing, effective strategy as long as all of the ❏ What impact the nonprofit is ask your donors what parties participating in the campaign having in the areas where it take time to clarify their respective roles works and serves. they would like to know and responsibilities. A “memorandum “ of understanding” is a useful tool for Transparency and compliance about your organization are two different concepts. Meeting clarifying not only who does what but and make that information who will benefit in which ways after the minimum requirements imposed by campaign. Possible topics to include in federal and state regulatory agencies readily available. such a document include: is compliance. Transparency is a choice that leaders of a nonprofit ❏ Effective date make. To manage the risk that ❏ Limitations and responsibilities donors will believe you are hiding ❏ Project timeline and key rather than sharing, ask your donors due dates what they would like to know about your organization and make that ❏ Accounting of expenses information readily available. and receipts ” ❏ Ethical standards #3 - Sweeping Mistakes under the Rug The ability to ask others to donate ❏ Cancellation to a cause requires a sunny outlook #5 - Unintentional Donor Disrespect on an organization’s ability to make While few nonprofit leaders would a difference. That sunny outlook—a knowingly disrespect a donor, a common quality among professional donor may feel disrespected by your and volunteer fundraisers—can practices and tactics. For example, if sometimes cause dedicated leaders you call prospective donors early in to look the other way when mistakes the morning, late at night, during the are made or treat these issues as dinner hour or repeatedly, you run the “one off” complaints. Research on risk of inadvertently disrespecting your mistakes in organizational life by donor. To manage the risk of donor Harvard Business School professor disrespect, visit the Association of Amy C. Edmondson suggests that Fundraising Professionals website and many leaders treat mistakes too read AFP’s “Donor Bill of Rights.” The simplistically, and fail to take the time stated purpose of the document is: “To to understand “what” went wrong ensure that philanthropy merits the and “why.” When a supporter calls to respect and trust of the general public, tell you they received a solicitation in and that donors and prospective error, an inaccurate receipt for their donors can have full confidence in the contribution, or to complain about nonprofit organizations and causes the tone or mixed messages in your they are asked to support.” campaign, vow to figure out what continued on page 4 4 ❙ Risk Management Essentials • Summer 2012 Top 10 Fundraising Risks for Nonprofits continued from page 3 happened and why. Take the time to campaign to close the deficit. Risk research the issue in question, gather management strategies to avoid this a diverse group to review the matter, outcome include: and identify practical steps to avoid a ❏ Tapping diverse points of view similar misstep in the future. Close the loop with the person who identified in the planning process – If the mistake and express thanks for everyone at the table is convinced While expertise making bringing the matter to light. Mistakes the campaign “can’t fail,” you that are ignored or swept under the probably don’t have the diverse the “ask” may be found in rug are downside risks waiting to perspectives needed to ensure success.