Generally on Fridays, Tom and I like to send you into the day with gentle thoughts – not to spoil your weekend.

But, this Friday we urge you to do some weekend thinking and worrying. Worry about whether your organization is truly ‘donor-centric’ or whether, and how much, you’re abusing your donors.

How do you know if you’re not meeting the donor-centric test? There are many signs, but certainly the clearest is when a subpoena announcing a Congressional investigation of your nonprofit arrives on your CEO’s desk.

That’s what happened in the case of the Disabled Veterans National Foundation  (DVNF) that now finds itself in the midst of a $57 million ‘scandal’ involving the charity and a Congressional investigation, triggering, as you can imagine, a knock-on tsunami of charges, counter-charges, innuendo and back-stabbing among consultants and suppliers, each trying to look more pure than their competitors.

It’s a miserable but instructive lesson for us all in organization-centric behavior; the donors be damned.

Here’s the background.

  • For two years the investigative reporting unit of CNN attempted to get to the bottom of where the $57 million DVNF raised from hundreds of thousands of donors was spent. (I urge you to take the time to watch the CNN reports online.)
  • Rather than explain to the press and its donors, DNVF stonewalled. And so, CNN revealed what they could find on their own and put it on the air.
  • Here’s what DVNF donors and the public saw. In return for $57 million from its donors DVNF gave to one homeless veteran’s group in Alabama:
  •  11,500  bags of coconut M&Ms
  • 2600 bags of cough drops
  • 700 pairs of Navy dress shoes
  • hundreds of chef’s aprons and 20 pairs of football pants
  • CNN also pointed out that virtually all of the donors’ contributions were used to pay Quadriga Art, the firm that produced the mailings and presumably financed them as well. Quadriga, like DVNF also stonewalled and refused to speak on the record.
  •  In response to CNN’s revelations the U.S. Senate Finance Committee launched an investigation. More on that in a moment, along with the helpful donor-centric checklist the Senate investigators provided.

Although this DVNF/CNN/Senate Committee drama is a case study in extremes, it does carry lessons for us all. Here are my takeaways from this case. Takeaways that I’m sure are contrary to the views of many.

  • Takeaway #1: Don’t Ignore or Lie to Your Donors. If you’re too embarrassed or stupid to clearly explain to donors and the press what you’re doing with donors’ money, you probably shouldn’t be doing it.I assume that rather than explain that it was investing heavily to build a donorbase that would require time for a return on investment, DVNF tried to avoid dealing with ‘fundraising costs’ by reporting it was giving $X million in ‘gifts in kind’ (the Coconut M&M’s) to benefit veterans.
  • Takeaway #2: Never Stonewall or Get in a Pissing Battle with Folks Who Buy Ink by the Barrel or Hold a Broadcast License.Both DVNF and Quadriga Art chose to dodge the investigative reporters for CNN. Consequently, the reporters – and more importantly the donors and viewers – were left to draw the most sinister of conclusions that flow from silence.By not fully and openly answering questions and, yes, confronting and countering interpretations that sometimes overly zealous reporters want to put on stories, the nonprofit dishonors itself, its vendors, its consultants and, most importantly, its donors.
  • Takeaway #3: Understand Fully and Be Able to Explain Publicly All Your Business Arrangements. Almost everyone, including donors, understands that it costs money to raise money. There’s nothing inherently wrong and certainly nothing illegal for a company like Quadriga Art to advance funds to help a nonprofit build a larger donorbase. It’s a practice that has been followed for years by large, respected and successful nonprofits.Where trouble arises is when the money being advanced is substantial and the time it takes to return the investment and begin putting money back into programs is too long. At that point, justification and explanation become difficult.Every fundraiser, CEO, board member, vendor and consultant has a duty make certain the financial implications of all contractual arrangements are fully understood and are able to be clearly explained in terms of how they advance the mission of the organization.

It’s far too easy in an extreme situation like DVNF to shake your head, point fingers and think, “This would never happen to us.”

Probably not at this extreme level, but I’ll bet Tom’s next raise that few nonprofits have a full grasp of the business arrangements not only with their vendors, but also the arrangements that may exist between their fundraising consultants/agencies and the vendors.

And if you don’t know fully, then frankly there’s no way you can really claim you or your consultants are ‘donor-centric’.

Here’s a simple test you can take in the quiet of your weekend, courtesy of the investigators at the Senate Finance Committee.

Here’s the list of questions asked of the DVNF. Just substitute names and see if you can readily answer these points for your own organization. And, if you want to see the full information request letter from the Committee you can get it here.

  1. Please provide the amounts spent to raise funds for each of these years.
  2. Please provide a list of the persons or contractors employed to raise these funds and the amount paid to them.
  3. Please provide the total cost of salaries for staff and management, and any compensation provided to DVNF board members for each of these years.
  4. Please provide an estimate of the number of disabled veterans and/or other veterans assisted by your organization, a detailed description of the assistance that was provided to those veterans, how your organization determined that such assistance could be helpful to those veterans, and the cost of providing the assistance.
  5. What percentage of your organization’s financial resources, staff time, and volunteer time are devoted to exempt activities?
  6. What are the organization’s exempt activities?
  7. Do DVNF and Quadriga Art, LLC share common board members, and or officers, and or employees?
  8. What are the terms of Quadriga Art’s fundraising contract with DVNF?
  9. Does DVNF have any financial interests or relationships with contractors other than Quadriga Art LLC?
  10. Please provide a copy of the DVNF’s original application for tax exemption.
  11. Please provide samples of the organization’s solicitations for charitable contributions.
  12. DVNF apparently attributes a portion of the direct mail expenditures to program service expenses and to management and general expenses, as opposed to fundraising expenses. What is the basis for DVNF allocating the direct mail expenses to categories other than fundraising?
  13. Please provide any written agreements or contracts with fundraisers Brick Mill and Convergence Direct.

Have a good weekend.

Roger

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