Why your organization needs a gift acceptance policy.

by Ves Som

Both state and federal laws encourage donors to contribute to charities and allow donors to designate gifts for a specific purpose consistent with the charitable purposes of the organization. Charities should use caution in accepting such gifts, however, as the gift restrictions may outweigh the benefits to the charity. A change in circumstances, for example, may make the original purpose become impossible or impracticable to accomplish. But, a charity that uses a gift in violation of its restrictive use may face a charge of deceptive trade practices or misrepresentation. A well-drafted gift acceptance policy can ensure a charity is able to accept designated gifts consistent with its charitable purposes and later use those gifts for other charitable purposes if the designated use becomes impossible.

After the September 11, 2001 terrorist attacks, the Red Cross created the Liberty Fund and raised over half a billion dollars from thousands of donors. After distributing less than one-third of the funds collected to support those affected by the attacks, the Red Cross announced it would use the remaining amount in the Liberty Fund for a strategic blood reserve, community outreach, and preparedness for possible future terrorist attacks, as well as for services to the Armed Forces. This announcement brought intense scrutiny from the media and criticism from September 11 victims’ families and lawmakers. Despite its insistence that the Liberty Fund was never intended to be used exclusively for relief efforts in support of September 11 victims, the Red Cross reversed course and announced that the Liberty Fund would be directed solely to people affected by the tragedy.

The Liberty Fund is one of many good examples illustrating the importance of a well-drafted gift acceptance policy. The policy does not need to address every possible contingency in the event the original purpose fails or becomes impracticable or impossible, but it should clearly explain that the charity may use discretion in expending the funds in the event of changed circumstances. Of course, the Red Cross probably had a gift acceptance policy in place after the September 11 tragedy. In the case of the Liberty Fund, it seems confusion and lack of good communication with donors led to the upheaval that followed. Thus, it is not enough to have a good policy; your organization must carefully follow the policy, as well.