Designing a Comprehensive Fundraising Program
© 2002
Kristi Edwards, CFRE
Northern Arizona Chapter Association of Fundraising Professionals
Mountain Rendezvous May 30, 2002
Introduction
Generally the integrated development program consists of:
•Annual Giving – for today’s needs like operating expense
•Capital Giving – for special needs like a new building & endowment
•Planned Giving – for future needs and well-being
Combined these three approaches provide for the nonprofit organization’s existence now and in perpetuity.
Other considerations come into play as these fundraising tactics are utilized. Some examples are special events, mailing lists, reporting requirements, tracking success, donor relations, and ethical considerations.
Topics of Discussion
1)Annual Giving
2)Capital Campaign
3)Endowment Building
4)Planned Giving
5)Special Events
6)Mailing Lists
7)Reporting Requirements
8)Ethical Considerations
9)Donor Relations
10)Tracking Your Success
Topic 1 – Annual Giving
Annual giving is the cornerstone of your nonprofit organization's (NPO) fundraising program. It sees to immediate needs and helps to broaden support and upgrade giving levels.
According to the Association of Fundraising Professionals (AFP), formerly NSFRE, it:
•Provides income for unrestricted and restricted programs
•Renews donor support annually
•Cultivates donors to increase giving levels
•Solicits new donors to broaden the base of support
•Identifies leadership
•Identifies major gift prospects
•Builds donor loyalty
Prospects for the annual fund include:
•Individuals – provide 86 – 88% of the $$ (retirees are the most generous givers!)
•Service organizations – Lions, Rotary, Elks, etc.
•Corporations – provide 4 – 6% of the $$
•Businesses – banks, stores, restaurants, etc.
•Foundations – provide 7 – 10% of the $$
•Special events – time-consuming, need a special hook, can provide good public awareness
•Grants – private, community & corporate foundations (usually not operating fdns.)
Personal solicitation is 16 times more effective than mail solicitation (Greenfield).
Requests for a first time gift will yield a rate of return between .5 – 1%. More than one appeal must be sent to the same people to achieve this level of performance (NSFRE).
The #1 reason people give? Because they were asked!
Topic 2 – Capital Campaign
A capital campaign is a concentrated effort--often a massive one--by an organization or institution to raise a specified sum of money to meet a specified goal within a specified period of time (Broce).
Why engage in a capital campaign (NSFRE)?
•Facility construction
•Renovations or expansion
•Acquisition of special equipment
•Strengthening of endowment (essentially a capital asset)
The feasibility study is an important step in preparing for a capital campaign. The time, resources, and effort spent at this pre-campaign stage will help ensure a successful campaign outcome (Farr). The main reason to conduct a feasibility study is to determine your fundraising potential.
The purposes of a feasibility study in advance of the campaign are (Farr):
•Prepares the case for support
•Identifies and evaluates prospects
•Analyses the availability of gifts required for success
•Provides insights about the image and visibility of the organization
•Suggests perceptions about the effectiveness of the board and senior management
•Measures the potential for volunteer leadership (1 volunteer for every 5 prospects)
•Suggests timing – 3 to 5 years is most common
•Evaluates ability of the development staff to undertake the campaign
The announcement of the capital campaign is usually not heralded until about 40% - 50% of the campaign goal is reached though donations or pledges (BTW: a pledge is a legal document). Accordingly, there is a pre-announcement “quiet solicitation” phase when lead gifts or pledges are secured. In addition, a capital campaign is not normally announced until sufficient prospects have been identified to meet the campaign goal.
If your campaign stalls, hold back some important news like: new donor pledges match $.
Topic 3 – Endowment Building
What is an endowment? Per my pocket Webster’s, it means “to provide.” What’s the legal definition of endowment. Some say it’s not a legal term. The Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) define endowment as an established fund of cash, securities, or other assets that provide income for maintenance of a nonprofit organization.
For the donor, an endowment is the gift that keeps on giving. Gift principal remains untouched, because only the income in used, offering donors the assurance that their gift will last in perpetuity.
Charities need endowment for self-preservation and long-term security, to guard against financial setbacks and downturns in the economy, and to demonstrate their stability and permanence (Carmichael). If your organization is dependent on grants, having an endowment can help to insulate the shortfall when grants, historically received, are not distributed in a certain year or are no longer available.
Can an endowment be invaded for emergency purposes? It depends. The irrevocable nature of an endowment does not permit an organization to draw from it in times of need. However, if your organization manages their own endowment, perhaps in a money market fund at A.G. Edwards, then yes you probably could withdraw the funds. At the community foundation it depends upon how the endowment fund is written. Examples:
Invasion of principal for emergency purposes or for a capital campaign by request of the organization’s board of directors by a vote of 75%. Be specific about “board of directors.” (Are you referring to the board of record or the board in attendance at a called meeting? Be clear.)
Partial invasion of principal not to exceed ____% a year.
No invasion of principal.
Have your board draft an endowment policy and identity what sources of money will be directed to it. Define how your organization will build their endowment. Options:
All designed endowment gifts by donors •All commemorative gifts
All proceeds from special events •Proceeds from gifts of property
A portion of all undesignated gifts including bequests, i.e. perhaps 20%
Topic 4 - Planned Giving - Part 1
Planned giving is the integration of sound personal, financial, and estate planning concepts with the individual donor's plans for lifetime or testamentary giving (NSFRE).
Planned gifts may possess one or a combination of the following characteristics:
Gift is made upon death
Gift involves lifetime financial benefits to the donor
Gift is structured to minimize estate, gift, or income taxes
With planned gifts both the donor and the charity benefit over the years. The donor may be able to reduce income and estate taxes, pass property tax-free to heirs, receive increased income for life, and still be generous to charity.
A trend is emerging toward “asking” for planned gifts. Why? As people get older and retire, they are uneasy about making outright gifts from assets. But their comfort with donations, such as bequests and other types of life income gifts, increases. The next 30 years promise to provide excellent planned giving opportunities because (NSFRE):
50% of all buying power in America is controlled by people over 50
People over 50 own 77% of the assets
There is a whole area of charitable giving that provides the donor with income as well as tax benefits. Called “spilt interest gifts,” these types of gifts provide benefits to the donor or other beneficiaries while also establishing a charitable fund in the donor's name.
Need another really big reason to start your planned giving program? The present generation will inherit $10 trillion dollars from their parents (Chronicle of Philanthropy). Other studies have placed this figure as high as $70 trillion!
Planned Giving – Part 2
Bequests The simplest gift is a bequest in your will or trust that directs specific assets or a percentage of your estate to establish a fund or to add to an existing fund.
Charitable Remainder Trusts Through an irrevocable trust, you receive fixed or variable payments for your lifetime or a term of years. The reminder passes to ACF, creating a permanent fund in your name to benefit the charitable cause that you designate, or to establish a family foundation at ACF.
Charitable Lead Trusts Your income-producing asset funds a trust with a gift of the income flowing to ACF during the term of the trust. Remaining assets go to your heirs free of tax on the asset's appreciation.
Charitable Gift Annuities A simple contract guarantees you a fixed income in exchange for a gift to ACF. Annuity rates are set by the American Council on Gift Annuities.
Pooled Income Fund Contributing at least $5,000 to a common trust maintained by the Community Foundation pays you a percentage of the trust's income for life.
Life Estates You contribute your primary home, a vacation home or a farm to the Community Foundation, but you retain the right to use it during your lifetime. You receive an immediate tax deduction, and the property is not included in your estate.
Bargain Sales You sell an asset to ACF for less than fair market value, and the difference between the sales price and the fair market value is the value of your charitable contribution.
Retirement Plan and Insurance Beneficiary Designations You can create a named fund at ACF by designating us as the beneficiary of a retirement plan such as an IRA or 401(k) or a life insurance policy. At death, the assets transfer to the Community Foundation, reducing estate and income taxes.
(Arizona Community Foundation)
Topic 5 - Special Events
Why do we hold special events?
$$$ for annual fund and/or special programs.
Public awareness including increased visibility, introducing new people (donors!) to the organization, and providing an opportunity for volunteers and board to be involved and socialize.
But do we staff members like special events? Well, they can be labor intensive with little financial pay-off!
Special events are the mainstay for many organizations. I would caution that organizations not undertake a new event without being sure there is a need for it, a niche to fill.
The most effective color ink (excludes black as a color) for the invitation is red.
What an evaluator of gift reports might seek to discover (NSFRE):
Success of event tickets sales
Measure of public interest in event
Clues that event’s design and flavor should change
Indications if event is still needed
Not every event can be a special event. Define what your organization hopes the event will accomplish and evaluate it accordingly.
Special events expert Dave Nelson has a terrific expression when discussing special events: Feed it or shoot it!
Topic 6 - Mailing Lists
Who are you targeting with your direct mail? How do you develop this list? Compiling your mailing list is not a science, but you need to go about it strategically. You should try different things and discard what isn’t effective.
Examine annual reports, playbills, donor walls, etc., to see who is listed. Can these names be added to your list? How about looking up addresses on the web? If you have a street address, you can visit the county website and get the owner’s name and cost of the home.
Swapping mailing lists with a like organization is another option. Keep in mind:
A Donor Bill of Rights IX - (Donors) have the opportunity for their names to be deleted from mailings lists that an organization may intend to share.
AFP Code of Ethical Principals #14 – Members shall give donors the opportunity to have their names remove from lists that are sold to, rented to, or exchanged with other organizations.
One approach is to put in your mailings something to the effect:
We sometimes exchange our mailing list with organization's having a similar mission to ours. Many of our friends enjoy learning about the activities of like organizations. However, if you want your name excluded from these mailings, please contact us.
Another option is renting mailing lists. Normally a rental is for one-time usage. The list is provided on mailing labels or disk. You can rent a mailing list from a magazine like Arizona Highways or from a mailing list company.
The mailing list company I have used is (not an endorsement) HMI Direct in Tempe. Once I rented a mailing list with the criteria of “homes in Yavapai County costing over $250,000” and another time “businesses in Yavapai County with gross sales of over $500,000” ($418/cost for list, 2,500/businesses on list).
I would encourage your organization to develop written policies and practices regarding the use of donor names and inform donors of these policies and practices.
Topic 7 – Substantiation & Reporting Requirements
•Donor must file form 8283 required for noncash gifts over $500
•Noncash gifts over $5,000 generally also require a qualified appraisal:
1. No earlier than 30 days before the gift
2. No later than the filing of the return
3. Appraisal can be after completion of the gift if charity allows adequate access to the property
•Appraisal not required for publicly traded securities
•Organization must complete Form 8282 for gifts disposed of if organization was required to sign Form 8283 when the gift was given
•Charitable donations > $250 must have written acknowledgement from organization
1. Amount of cash
2. Description of property (not value)
3. Whether goods or services received, description and value
4. Includes unreimbursed volunteer expenses
5. Felony for providing false information
•Computation of $250 threshold
1. Separate contributions are not aggregated unless in avoidance of the rules
•Taxpayer’s responsibility to obtain necessary support
•Suggest standard practice of providing documentation
•Amount of cash and description of property
•Statement of goods and services provided
•Unreimbursed volunteer expenses need a general statement from the organization
•Heavy penalty to organization for providing false substantiation
Substantiation & Reporting Requirements – Part 2
•Quid Pro Quo Contributions
1. Charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75
2. Gift only amount given in excess of value received
3. Incidental items not counted
4. Charity must provide good faith estimate of value of donor benefit
5. Aggregate contributions
•Raffle tickets not deductible unless contributed back to organization
•Auction items, generally gift is amount paid in excess of FMV. One-of-a-kind items FMV = amount paid
•Membership benefits generally ignored if membership payments are $75 or less
•Penalty $10 per contribution limited to $5,000 per event
•Must disclose if fundraising solicitations are not deductible, $1,000 penalty per day up to $10,000
•Must keep list of noncash gifts received with FMV ¡Ã $50
•Maintain list of noncash gifts disposed of with FMV ¡Ã$500
•Certain directed “contributions”
1. Treated as contributions when made to educational institutions
2. Must be voluntary payments
3. Facts and circumstances test
4. Church missions
5. No return to donor can be expected
Topic 8 - Ethical Considerations
1.You get a phone call from the daughter of one of your oldest donors, a woman in her mid-80s, who is still mentally alert. The woman has considerable wealth, but the daughter explains that she plans to leave more than 80% of her wealth to your organization in her will. The daughter goes on to state that the remaining amount that will go to the woman’s four children and six grandchildren will be insufficient to meet their needs. The daughter pleas with you to reason with her mother, reduce the amount intended for your organization, and increase the amount to the family. What should you do? (NSFRE)
John Smith and his family have been supporters of your organization for several years. He is a successful stockbroker, a generous donor, and a member of your governing board. For years his firm had invested your organization’s funds. Both he and the organization have benefited substantially from this arrangement. Recently, however, the board adopted a conflict of interest policy stating that board members may not directly profit from business they do with the organization. Mr. Smith continues his board membership, and he continues to give generously. In addition, he talks of his intentions for your organization in his estate plans. But, he would like for you to see what can be done to get the organization’s brokerage business back. How do you handle his request? (NSFRE)
The Graham County Sierra Club has taken a strong position against open pit mining. Phelps Dodge sends the organization a $5,000 unrestricted donation. Please bear in mind that this county has little-to-no other industry capable of making a contribution. What should the board do?
Ethical Considerations – Part 24. You (the NPOs development director) receive a call for one of your day-care center’s long-time, loyal-though-modest donors who has just learned that she is coming into some money within the next six months. She very much wants to underwrite the reading room in the day-care center. The predetermined cost for this named gift opportunity is $25,000. She is ready to make her pledge and can hardly wait to part with the money. You are fairly confident that this is a one-time gift. She has already told you that she wants to give it all away now while she is alive rather than leave anything in her will. Later you receive a call from a different prospect whom you have been cultivating for 14 months. But it’s been worth it because you know he has the capacity to give generously and often. In reviewing the commemorative opportunities, he has decided he wants to name—and fully equip—the reading room in honor of his mother who was a reading specialist. He is prepared to write a check this afternoon for $50,000. What do you do?5. A new donor comes forward and wants to make a leadership gift to your organization in the amount of $50,000. However, she insists on being seated on the board of trustees in return. Do you agree to her request?6. A major donor wants a building named after him. But, it’s already named. The Advancement Director has spoken with the donor to see if another building could be used instead for the naming opportunity. No, he says. Furthermore, he will not hear of the building bearing two names. What do you do?The preceding ethical dilemma was discussed at the 2001 AFP Regional Conference in Phoenix. Following are some ideas to consider in making a decision:---Have the president explain the ethical issues to the donor.---Who named the building? The donor? ---Maybe it wasn’t the donor. Maybe the staff named the building. ---Maybe the donor did not want the building named after him.---Is there an agreement to review?---Could the building name be hyphened?