Sunday, July 27, 2008

This Year's Nonprofit Court Cases Du Juor? Nonprofits Not Honoring Donors' Wishes...

After a donor dies (or bequeaths a donation through their will), it is often the states who must see that donations are being spent by the recipient nonprofit ('s board) as the donor desired. States' Attorneys General have been alerted, in recent years, by community members who begin to suspect that a local community member's donation restriction is not being met. For instance, if your local museum was supposed to receive a new wing because Mr. Peterman, after passing on, left a $1 million donation in his will; and six years later all the local community sees is a building falling into disrepair and the museum's board allocating money elsewhere (while the $1million is being spent down, per the financials); something appears very wrong. These community members should call their State Attorney General. This is a fictional example based on a real case that was heavily monitored by nonprofit leaders across the United States. The Montana Supreme Court, in May 2008; declared that the board of the Charles M. Bair Family Museum breached its duty in not spending Alberta M. Bair's 1993 family fortune bequest as stated it must be spent in her will. The court disolved the board. See Court Ousts Board That BreachedDuty in Deciding to Close Museum and Montana Museum Board Breached Duty, Court Says

Any donation that a 501(c)(3) nonprofit receives that also designates where and how the donation should be spent, must be honored. Donations that are given with explicit instruction are called restricted donations and are often given with a specific goal in mind. Not all donations are restricted but those that are, must be honored and followed through on. If a nonprofit accepts a donation (and submits a thank you or response confirming receipt of the donation); it is required that the money be spent as stipulated by the donor. If a nonprofit does not want to spend money in a manner that a donor requests, then a donation can be declined or returned (hopefully graciously, and with a clear and polite explanation).

It has become evident in many recent court cases that boards sometimes allocate restricted donations to costs other than what they were supposed to be spent on. In the situations that have come to light (or gone to court) it was because local communities monitored how donations (often large bequests) were being spent by recipient nonprofits' board. For another example, see my February 26, 2008 post, "One Nonprofit Sues Another Nonprofit for Not Honoring Donor's Wishes - Great Lesson for Us Nonprofits!"

Donors give to nonprofits because they care about the cause, have probably done their research and selected a nonprofit to donate to because it is meeting a real need well, and completes its mission statement's work well; and because the donor can give. They are not just wealthy people, though. The donor who gives in larger amounts is connecting to the solution or the cure to the malady that the nonprofit is working to eradicate. They are not simply writing a check; they are expecting results, a method to check the results (or outcomes) such as evaluation methods; transparency; and they want to see, in the end, that their money did good. For more information on why donors give at all see my posts, "Why Do Foundations Give Grants At All?" and "What Motivates Giving?"

Nonprofits' leaders do not have carte blanche in any aspect of nonprofit operations. Ever. First and foremost nonprofit leaders must consider all decisions from the organization's mission statement's point of view. They must also comply with the law and to do this, they must be diligent and make themselves aware of what laws and jurisdictions they must follow and report to. Board membership is not a position that provides unrestricted access and authority. In fact, the board position is quite the opposite. A board member is beholden to the mission statement, the nonprofit's bylaws, the donors, volunteers, and clients or constituents; and the law.

No comments: