Policies are necessary in any company or organization and can benefit a nonprofit organization. Establishing a donor policy is imperative if any portion of the organization's funding comes directly from donors. It needs to justify administrative costs, clarify controversial donations, and explain which data from evaluations is helpful towards the mission. To ensure the trust of the public and its clients, the organization needs to incorporate this information into a transparent and effective policy.

Importance of evaluations

Donors demanded more organizational accountability after several scandals rocked the nonprofit world in the 1990s. Between the president of the United Way deceiving the organization for $1.2 million and the NAACP's executive director's release for spending over $300,000 of the organization's funds to pay off alleged sexual harassment charges by a former employee, public trust began to fray. Evaluation of services and programs ensures organizations use resources wisely, efficiently, and assure funders their money is not misplaced. Although beneficial, they take valuable time and resources away from the mission because "More time goes into the reporting and less time to actually working with people." Evaluations that include program costs can help organizations remain sustainable and help administrators make better decisions.

Caution with donations

In recent years, some large donors have been embroiled in scandals that left their gifts or bequests tainted. Examples include Jeffrey Epstein's donation to MIT's Media Lab or Harvey Weinstein's $5 million contribution to the University of Southern California to support female filmmakers. Nonprofit leaders have scrambled to determine the best course of action for their organizations, with most responses falling into one of three categories – "return the money and remove the public acknowledgment, keep the money but remove the acknowledgment, or keep the money and continue to honor the donor." Arthur Schaeffer of Nonprofit World strongly suggests organizations consider their values, public appearance to donors, and mission during strategic planning.  When donors reach out, a top consideration should be if their company or business would be seen as directly or indirectly harmful or hurtful to the clients served. The public perception of accepting these donations is risky, along with concern about dismissing their clients' values.

Overhead costs

Administrative costs, such as rent, utilities, and a portion of staff salaries, are necessary to run a nonprofit organization properly. Information needs to be transparent and accessible and clearly show the value of administrative costs in supporting the organization's mission. Nonprofit organizations must have a transparent donor policy to justify overhead costs, clarify appropriate donation parameters, and provide evaluation data that supports the mission.

Recommendations for leadership and management

1. Define the nonprofit's metrics for success while ensuring the organization's mission and values align with short and long-term goals. Or, as the National Council of Nonprofits states, "what does success look like?" for your organization.
2. Use the appropriate information from programs and services for the annual performance evaluation while considering the organization’s impact on the population served.
3. Be upfront about services and program expenses provided by the nonprofit organization. Include direct and indirect costs such as space usage, salaries, utilities, etc.
4. Calculate the total overhead costs for the organization, including the estimated value of volunteers.
5. As a board, discuss with leaders and key stakeholders which donations are acceptable. Consider monetary donations, physical items, property, etc. Include language for rejecting a gift and an internal procedure for applicable staff.

Once completed, the executive director and board must establish a written donor policy. It needs to be honest, transparent, clear, and concise. The policy must be published on the organization's website and shared with all staff and volunteers. Along with the written donor policy, an internal manual needs to be developed. The manual will include the donor policy, language guidelines for gift rejections, and leadership decision-making protocol. Communication is essential to allow for questions, clarifications, and feedback.

Every nonprofit organization needs an effective and transparent donor policy to maintain public and client trust. It must include the importance of the evaluation plan and how it affects the organizational and community impact. It is essential to justify necessary overhead costs and how they affect the program value. Finally, clarification is key regarding which donations are acceptable and what disciplinary measures, if any, can be taken if a donor scandal occurs. Including all of these items will strengthen a nonprofit organization and help reinforce its values. These are the reasons a vibrant nonprofit needs a strong donor policy.

Allison de Lorimier is a 2024 graduate of the Masters of Nonprofit Leadership and Management program at Arizona State University, and a member of the Nu Lambda Mu Nonprofit Honor Society. She has a Bachelor of Arts in Liberal Studies from Sonoma State University, and lives in Napa, CA. She is currently developing plans to open a nonprofit teen center that will provide access to mental health services, tutoring, and other services for teens in the community.

Image by Lillian Finley

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