Standards & Practices

Issue 3 – Fundraising

Discussion

Highlighted in this Bulletin are the issues concerning fundraising and charitable solicitation. This discussion is put forth to remind each of our member land trusts of the importance of establishing sound standards and practices for your organization and adhering closely to them as you carry out your very important conservation work.

Every non-profit organization engaged in land conservation needs funding to support its efforts. Fundraising is, without exception, a concern for every land trust – regardless of its size, stage of development, or area of focus. Though, arguably, land trusts operating in areas where land values or development pressures are high face even greater funding challenges. However, regardless of the need for funding or even the worthiness of the cause, private non-profit organizations are obligated to operate in ways that earn and sustain the trust and good will of the public and of their conservation peers.

"Fundraising must be done not only with an eye to meeting short-term needs, but with the goal of maintaining the land trust’s integrity and the goodwill of its donors over time" (Land Trust Standards and Practices, Standard 5: Fundraising). As public charities, land trusts have certain responsibilities and obligations tied to business practices associated with fundraising. According to the Land Trust Alliance, those specifically include the following guidelines for land trusts:

  • Know and comply with state law.
  • File accurate information on IRS Form 990.
  • Be aware of other voluntary fundraising standards.

Aside from these broad recommendations, there are four practices specifically associated with fundraising as identified by the Land Trust Alliance. The following discussion of Standard 5 will cover those practices to varying degrees and offer some specific details about development plans, fundraising tips, and guidance about ethical issues related to nonprofit fundraising. In addition, we’ll touch on some issues specifically related to the land trust business in Texas. And, as with all issues of the S&P Bulletin, some helpful links are included at the end of this section.

The importance of fundraising

Needless to say, fundraising is an important aspect of any nonprofit organization. Fundraising efforts help sustain the organization financially and allow board and staff to successfully continue the conservation mission. Moreover, fundraising activity is also about building relationships with people who support your organization and its mission. So, keep in mind that ‘support’ can come in many forms and from a variety of sources. In some instances, land trusts may wish to refer to additional resources for advice about nonprofit fundraising efforts. Links to some of those documents are included at the end of this Bulletin.

"All good fundraising programs have one thing in common: they rely on diverse sources of income" (Kim Klein, Exchange, Summer 1996). That diversity should include support from board members, membership, grant funding, business associates, planned giving, and (for some land trusts) special events. The critical difference between fundraising and development has been noted by Catherine Kolkmeier: "Fundraising starts and ends with an ask, whereas development is the process of building relationships – a process that never really ends – where asking is just a small part" (Exchange, Fall 2004). She goes on to note, "A history of successes, no matter how brief, is by far the most powerful motivator for giving", and offers her Top 10 Tips for ‘Making the Ask’:

  1. Do your homework first.
  2. Know what motivates the donor.
  3. Know what you are asking for.
  4. Get your donors out on the land.
  5. Offer creative giving options.
  6. Listen more than you talk.
  7. Treat every donor as a potential major donor.
  8. Never underestimate the support you will receive.
  9. Acknowledge every gift.
  10. Don't make your donors' decisions for them by not asking!

Further, in broad terms, Kolkmeier recommends having "an overall vision of what it will take, both in finances and time, to protect all the land you hope to in perpetuity" (Exchange, Fall 2004). Lastly, she reminds us that, "When we ask for support for land conservation, we are bridging the distance between the value of our work and the values held by our donors".

When considering software to help your organization's fundraising efforts there are several important factors to consider including: conversion and compatibility with existing data; access to training and customer support; and input from other organizations that use that software (Slee & Bonar, Exchange, Winter 2001). And, once you've settled on your choice, be prepared to devote a great deal of time and energy to getting it up and running; the data conversion process can take a few days or possibly months. As for managing your organization's database, Slee & Bonar (Exchange, Winter 2001) also recommend carefully thinking through the use and users of the data:

  • designate one person to manage the database
  • select only a few trained people to enter the data
  • clearly define data fields
  • establish protocols for data organization and entry
  • keep a record of the structure of the database (and how it was originally set up)
  • back up your data regularly/often

The Slee & Bonar article also features some interesting notes about what type of information land trusts track. For more details, please refer to the text box on page 21 of Exchange, Winter 2001.

What's reasonable, legal, ethical?

Nonprofits engaging in fundraising should initiate that activity with some idea in mind of what they hope to achieve, how they will go about it, and what they are willing to invest, in terms of money, manpower, and time, to reach their goals. That said, there are some rules of thumb worth following when it comes to fundraising. For example, the standards set out by the Wise Giving Alliance recommend that an organization devote at least 65 percent of its expenses toward program activities and no more than 35 percent of related contributions1 on fundraising (Standards for Charity Accountability). However, in some cases it may be more appropriate for your organization to set that ceiling even lower. Some land trusts feel that it's important to dedicate 75 percent or more of their revenues to their land programs or set aside for future projects and not on fundraising. In reviewing this Bulletin, one land trust professional noted that their rule-of-thumb is that no more than 20 percent of their total budget be used for non-program related costs (including fundraising); and, that they typically try to keep that amount down around 16-18 percent. Needless to say, the percentage of budget dedicated to such costs may be of interest to prospective funders and donors as well.

Charitable solicitation laws vary by state but most generally include at least the following provisions:

  • Registration – typically through the Office of the Attorney General or Secretary of State.
  • Filing of financial reports – at the very least filing IRS Form 990 with the organization's federal return.
  • Paid solicitor requirements – in cases when services from outside paid solicitors or fundraising counsels are sought.
  • Prohibitions – generally actions related to misrepresentation of the purpose of the solicitation or against making false or misleading statements.

When considering issues of ethical and legal practices, many land trusts have chosen to adopt "Sarbanes-Oxley-type provisions" as described by Stephan Nagel and Konrad Liegel (Exchange, Summer 2004). They note that as nonprofits land trusts are "not bound by Sarbanes-Oxley" but that their practices are nevertheless subject to public perception. Further, Nagel and Liegel "recommend that all land trusts consider how to incorporate the spirit and concepts of Sarbanes-Oxley2 into how they conduct their nonprofit activities such as:

  • Avoidance of conflicts of interests;
  • Use of independent audits;
  • Disclosure of transparent financial statements; and
  • Guidance by a corporate code of ethics."

The decision about which provisions to adopt "will depend on the size, scale and scope of each land trust" (Nagel & Liegel, Exchange, Summer 2004).

Along these lines, Nagel and Liegel offer some advice about fundraising as well. Good practices are more likely to yield good results, in more ways than one. Not only will good fundraising practices generate funds, they will also generate and sustain trust and goodwill.

"Without confidence that land trusts will expend as promised the funds requested by them in grant applications, governments and foundations will be reluctant to provide financial support for the conservation activities of land trusts. Without confidence that land trusts will expend the vast majority of the donations they receive on programmatic activities (and not on fundraising or administration), possible supporters will be reluctant to donate funds to support the conservation goals of land trusts" (Liegel & Nagel, Exchange, Fall 2004).

No short-term gain could ever replace the long-term benefits of building relationships, funding your conservation projects and ensuring the enduring success of your land trust.

They offer a few rules-of-thumb regarding fortifying your land trust's coffers. Regarding fundraising, outside fundraisers should not be compensated based on a percentage of charitable contributions nor should they be given a finder's fee. As for grant funding, the same rule should be applied in cases where an organization employs a grant writer for submitting support requests to private foundations. When a grant application is funded, there is set in place a contract between the land trust and the foundation. As with any contract, the land trust is obliged to adhere to the provisions of the grant as it was funded. "If a question arises as to whether an expenditure is allowable under the grant, the land trust should contact the grant-making entity before spending the money on the item in question and then document the decision made by the grant-making entity" (Liegel & Nagel, Exchange, Fall 2004). When your fundraising efforts bring grant money in the door, not only should your organization appropriately thank the funder, you should also use due diligence with regard to your record-keeping, tracking, financial reporting, transparency, and segregation of funds as necessary (no commingling). The bottom-line point, which will be echoed in the following section, is that land trusts are accountable to their donors, whether individuals or foundations, for how donated funds are spent.

The value of the gift – the value of the donor

Federal law provides some basic guidelines for requirements for substantiation for gifts greater in value than $250. Cash donations, then, are fairly straight-forward. However, when it comes to non-cash items, reporting may require more detail. In the past, organizations may only have needed to notify donors that the full amount of their benefit or premium affects the donation by using the phrase 'fully deductible to the extent permitted by law'. However, reporting of 'quid pro quo' contributions has become more stringent in recent years. For example, if a donor attends a fundraising dinner with a price tag of $200 but the fair market value of the dinner is determined to be $100, then only $100 of the full ticket amount is deductible by law. In such a situation, an important question relates to 'fair market value'. According to the Land Trust Alliance, the 'fair market value' is "the amount an item would be worth if it were sold to the general public; fair market value is not the cost to the charity to obtain that item" (Standard 5: Fundraising). This rule applies to dinners, galas, and other fundraising activities as well as tangible items.

Disclosure of 'quid pro quo' contributions by the organization is required by law for contributions in excess of $75. According to the Land Trust Alliance, in order to comply, land trusts must:

  • Inform donors of the deductible amount (limited to the amount of the payment that exceeds the fair market value of the good or service)
  • Provide a good faith estimate of the value of that good or service
  • Make that disclosure in a form that is reasonably clear and understandable to the donor.

Such a disclosure statement may be "provided in connection with soliciting the gift or upon its receipt" (Land Trusts Standards and Practices, Standard 5: Fundraising).

The IRS considers certain goods or services to be of 'insubstantial value' and therefore do not reduce the donor's allowable deduction. A contribution may qualify for this exception if it was made in the context of a fundraising campaign (in which potential donors were informed about the amount of their payment that could be deducted). The contribution must also meet one of the following criteria:

  • basic maximum - the premium's value does not exceed the lesser of 2 percent of the payment or $79 in 2003 dollars (adjusted by the IRS annually)
  • token items (such as t-shirts and coffee mugs) bearing the name of the organization that cost less than $8.00 (in 2003 dollars) and the payment made by the donor is more than or equal to $34.50 (in 1997 dollars)
  • noncommercial newsletters

The Land Trust Alliance further notes that "certain membership benefits provided in return for an annual payment of $75 or less are disregarded" (Standard 5: Fundraising). Even in situations where a benefit is insubstantial, the Land Trust Alliance also notes that the following statement to donors should be used:

"Under IRS guidelines, the estimated value of [insert the benefits received] is not substantial; therefore, the full amount of your payment is a deductible contribution."

When asked, one land trust executive director recommended at least seven points of contact with potential donors - always keep in mind that the relationship is built over time and is based on mutual interest in your organization's conservation activity. When communicating with donors (generally) and acknowledging gifts (specifically), it is important to keep in mind the importance of the gift and the donor relationship for your organization. Appropriate acknowledgement of gifts from donors is important for two reasons. The first, and perhaps the most obvious, reason is that it is the polite and apropos way to show gratitude for a donor's generosity and contribution to your organization. Secondly, it is the responsible method of documenting receipt of the donation for your organization as well as the donor. (see also A Donor's Bill of Rights – Association of Fundraising Professionals; also noted in the 'Links' section of this Bulletin) Finally, even when you've properly thanked donors for their contribution, always thank them again, every chance you have.

Typically, land trusts acknowledge donations through their financial statements (noting use of funds for reporting purposes) and with thank-you letters to the donors. As noted by the Land Trust Alliance, "The acknowledgement should identify the amount received and reiterate the purpose for which it will be used. This simple procedure documents, for the land trust and the donor, the receipt of the funds and intention to use them as specified" (Standard 5: Fundraising).

The way in which a land trust acknowledges gifts of $250 or more is more detailed. The requirement of reporting gifts of this value in order to qualify for a charitable deduction rests with the donor, not the donee; however, land trusts should consider this practice a matter of form. The Land Trust Alliance suggests the following:

  • providing documentation either when the gift is made or on a periodic basis (annual statement, for example)
  • documentation in the form of a letter or computer-generated receipt (see also the sample donation acknowledgement letter from the Kentucky Natural Lands Trust in the Links section of this Bulletin)
  • the notice should include the donor's name, address, and for cash gifts the dollar amount of the donation3
  • and a description and good-faith estimate of the value

Lastly, Standard 5 also notes: "Land trusts must also adhere to requirements for qualified appraisals and filing of Form 8283 for non-cash gifts of $5,000 or more" (see also, Land Trust Alliance practice 10D or S&P Bulletin – Issue 1 for more details about Form 8283). Of note, even when Form 8283 is filed, the land trust is still responsible for providing the donor with an acknowledgment letter substantiating the gift.

The difference in Texas…

On this topic, there aren't many differences for land trusts in Texas compared to other parts of the country. Land trusts engaged in fundraising activities should adhere to all relevant federal standards, of course. Texas does not have additional requirements unless your organization becomes involved in any political advocacy activity. According to information regarding charity registration on the Office of the Attorney General website, "Under Texas law, most charities or non-profit organizations are not required to register with the state. Exceptions exist, however, for organizations which solicit for law enforcement, public safety or veterans causes. Registration with the Office of the Attorney General or the Secretary of State does not imply approval or endorsement of the organization or its solicitor."

Continue to Links…

1 "Related contributions include donations, legacies and other gifts received as a result of fundraising expenditures" (Land Trusts Standards and Practices, Standard 5: Fundraising).

2 For more information, please refer to the Sarbanes-Oxley Act. The document may also be accessed in the 'Links' section of this Bulletin.

3 "For non-cash gifts, including land and conservation easements, it (the notice) must describe the gift, but no estimate of value is required" (Standard 5: Fundraising).