One of the best ways to ensure that your nonprofit organization operates ethically is to keep your fundraising practices clean and transparent. To build and maintain donor trust, you must handle every donation in an ethical manner. The care that your nonprofit organization exercises when raising money is not just a matter of etiquette — proper recognition for donations is required by law.

A few of the more common elements of ethical fundraising are summarized below. For more guidelines on ethical fundraising practices, see the Association of Fundraising Professionals' Code of Ethical Principles and Standards.

Accountability Standards

The Wise Giving Alliance at the Better Business Bureau (BBB) has established basic accountability standards for charitable organizations. Many nonprofit associations for fundraising professionals have created standards as well. The BBB's accountability standards are based on these four factors:

• How an organization is governed
• How an organization spends its money
• How truthfully an organization represents itself in the public sphere
• How willing an organization is to disclose basic information about itself

Under the BBB standards, ethical board conduct, participation, and staff oversight are necessary for ethical giving. Board members and staff must not have material conflicts of interest when organizational financial decisions are made. The BBB also calls for a regular performance review with an associated report. At least 65 percent of an organization's funds should be spent on programming, and no more than 35 percent should be spent on fundraising. Annual reports are a necessity.

Donation Protocol

As you create your fundraising plan, your organization should develop a protocol for solicitation, thanks, and public recognition of contributions. Your protocol should be understood clearly by everyone who solicits donations on behalf of your organization. Your organization can erode its relationship with donors very quickly if you:

• Delay your acknowledgement of contributions for a long period of time
• Repeat solicitations within a short period of time
• Offer zero public recognition of large gifts

Donor Relations

Your organization also needs to respect the intent of each donation you receive. The donor should have a clear understanding of his or her donation's purpose. If a donor restricts the use of a donation, the organization must adhere to the donor's intent. This is best achieved through a gift agreement.

Donor privacy is also a factor in ethical giving. Whenever donors are solicited, even in annual appeal letters, donors should be given a means to remain anonymous in any communication shared with members and the general public (BBB Wise Giving Alliance, 2003). Contributors should also have a means for opting out of mailing lists that may be sold or traded to other entities (Donor Bill of Rights, Association of Fundraising Professionals).

Donor Acknowledgments

Thank-you letters to donors are not just a nicety. Tax-deductible donations require a thank-you receipt. Contributors who want to claim donations of $250 or more require a written acknowledgment from your group before they file their tax return. For this reason (among others), you should send acknowledgments promptly. Most importantly, you should send acknowledgments no later than January 31 for donations made in the previous calendar year. Acknowledgment letters should include the following information:

• Your organization's name
• The date you received the contribution
• The contribution amount
• A statement about whether or not goods and services were provided

Most nonprofit organizations send form thank-you letters, even for contributions that do not meet the $250 threshold. Often, the executive director will include a handwritten note on form thank-you letters.

Corporate Donations

The IRS will determine whether a corporate donation to your organization is a tax-free gift (charitable contribution) or a taxable advertising payment. A taxable advertising payment yields a substantial return benefit. Examples of substantial return benefits are:

• Endorsements
• Incentives to buy products from a sponsor
• Links to sponsor webpages where products or services are sold
• Free tickets to gala events
• Payment from a sponsor that is contingent on a level of attendance at a nonprofit event

Acknowledging sponsors with advertisements in regularly scheduled printed matter is considered advertising and therefore taxable income for a nonprofit organization. According to the National Council of Nonprofits, examples of acceptable sponsor acknowledgments include:

• The sponsor's name and/or logo on the organization's website
• Value-neutral sponsor product displays or free samples at a nonprofit event
• Links to a sponsor's website home page

Compensation for Fundraising Professionals

Ethical fundraising practices also address the way that staff and consultants are compensated for their work. Professional fundraisers, whether they are staff or consultants, receive a salary or fee for services tied to their expertise. The Association of Fundraising Professionals, the National Council of Nonprofits, and professional fundraisers in general will not (or should not) ask for a commission on funds raised for a given nonprofit organization, or a finder's fee. A consulting fundraiser who pushes too hard on a potential donor can significantly damage the reputation of a nonprofit organization.

It is also considered unethical to hire a new executive director with an explicit or implied understanding that the new director must raise a certain percentage of his or her income to keep the director's job.

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