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Why you can't lie to a donor or your accountant
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Why you can't lie to a donor or your accountant

Posted: 03 Dec 2011 01:30 AM PST

Here are some conversations I have had with many clients:

“Can’t you just delete that, or ‘write it off’ or something?”

“No.”

“But, why?”

…..

or,

“Well, yes, we said that it was a Scholarship/Sponsor/The Next Big Thing/Fund, but really, we used the money on ______.”

…..

or,

“Can’t we just adjust the report to the donor? They’ll never really know…”

Ok. Let’s get this straight here and now NGO Founders, Directors, etc.

Yes, some organizations manage to get away with misuse of funds, but that does not make it ok, nor does it mean they won’t get caught. And the repercussions for getting caught are not going to be fun. Not only will there be possible fines, lawsuits, and a lack of credibility for your organization, but you personally will lose credibility and all the people involved in your organization.

Is it worth the risk?

I’ll let you decide that. But, what I do want to do is help you understand this mysterious world of “Restricted Fund Accounting” and your fundraising language.

Let’s say I write a grant that says I need $20,000 to help build a school in Uzbekistan. I have provided a detailed budget and back up documentation that all of the money I am requesting will be used for the materials and labor to build the school. And I get the grant. But, I also launched a large fundraising drive on a webpage online, and I actually raised the $20,000 before my grant money came in, so now I have extra money ($40,000! Wohoo!).

I build the school, and then decide to use the grant money to fund my salary as Executive Director, but my reports to the donor say I spent it on building the school, even though that is a stretch of the truth.

What’s wrong with that?

Let’s play the scenario out differently. Same situation, but this time, I write to either the donors on the website or the Grantor and explain the situation: we actually raised the money we needed for construction, but we would love to still use this donation for the administration of the program which we will put toward salaries of the non-profit’s staff who are essential to overseeing and implementing the project. I receive their blessing and keep all the money.

See how that is different?

First of all, most grants fund less than 20% of administrative fees, if any. Secondly, you have basically created a contract between you and the grantor or donors that says you will responsibly use their money for the reasons you specified on your grant proposal/fund drive.

You then have the responsibility to use the money EXACTLY as you said. If not, you have to inform the donor or return the cash.

Now there is a third scenario.

You could have used very different language in your fund drive online. You could have said that all donations will go toward the building, infrastructure, and management of a school program in Uzbekistan. Now, you have covered many more bases as to what you can use this money for. As long as your position really is going to be involved in any of the above options (building, infrastructure, management), and you can document it, then you can use those funds.

Why does this matter?

Well, for one, under the Generally Accepted Accounting Principles (GAAP), it is not just dodgy but pretty unethical and illegal to use a restricted fund irresponsibly. We call it a mis-allocation of funds. If it goes in your personal pocket, it could be seen as embezzlement.

Also, if you donor discovers the truth, you have a lot of legal ramifications you will be facing, and will probably be blacklisted by donors…not a pretty future.

So, language is really important. And, while your accountant or bookkeeper might be able to get a bit creative in how things are recorded, legally, she or he is not a magic genie that can make numbers just “disappear” or “delete”. Trust me, after years of doing internal auditing for companies, it is very hard to just make transactions of money disappear. There is always a trail. And even if there isn’t a trail, the big missing hole it leaves is just as suspicious.

So, the short answer to the questions are:

“No you cannot just delete it.”

“No, you cannot just rename it.”

“No, we can’t just ‘write it off’”. (To write off something is actually a term that describes moving a bad debt or receivable off the books, but it does not mean it disappears, FYI. It is a visible, clear account on your financial statement.)

Are you currently working on some fundraising and you aren’t sure how to word it to avoid this pitfall? Leave your question in the comment section or email us at consultants4acause@gmail.com

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