It was the charitable shot heard round the world. Susan G. Komen for the Cure, or Komen as it is known to most donors is the largest, best-known breast cancer organization in the United States (if not the world). In early 2012, the charitable organization walked into a firestorm of criticism when it announced that it was cutting financing to Planned Parenthood. The move was immediately polarizing with conservative groups applauding the decision due to Planned Parenthood’s stance on abortion and liberal advocacy groups sharply rebuking the decision because it would limit the availability of breast cancer screenings for low-income women.
In the days that followed, both sides went on the defensive. Planned Parenthood received a number of donations to replace the lost funding and Komen fought to keep its reputation intact. Eventually, Komen’s Board of Directors issued a statement advising that they were restoring funding to Planned Parenthood, stating: “We do not want our mission marred or affected by politics – anyone’s politics.”
With Planned Parenthood back on board, it will be interesting to see how Komen rebounds. Will donors flock back to Komen? Or will groups on both sides of the debate remain disillusioned with what had the appearance of political maneuvering on both sides of the aisle? It’s not an argument that’s going to be resolved on a tax blog. But it does raise interesting questions about the mechanics of charitable organizations. More specifically, it makes you wonder:
Could donors have prevented the drama?
Believe it or not, the answer is yes. Well, sort of yes.
When most donors write a check or make a credit card donation for charity – even when those donors intend for the donation to be used for a specific purpose – they simply turn the money over to the organization. Donors tend to assume that their funds will somehow benefit a pet cause but that’s not always the case. Funds that are not specifically earmarked by a donor can be used in any number of ways, including for administrative costs.
Perhaps the most infamous case of donor confusion and frustration occurred months after 9/11 when donations to the Red Cross which were intended to benefit 9/11 victims were directed to local chapters and for other causes. Red Cross wasn’t prepared for the backlash from donors who felt misled. Like Komen, Red Cross eventually reversed course, bowing to outside pressures. It took years for the previously popular charity to win back donors – and its reputation. When Hurricane Katrina struck the Gulf, Red Cross went on the offensive, assuring donors that a similar mistake wouldn’t happen again.
What donors learned from the Red Cross controversy is that accounting can be divided into three camps: unrestricted funds, temporarily restricted funds, and permanently restricted funds.
Unrestricted funds are the easiest to define. Those funds are basically general funds. These are the donations that are not earmarked or specified for a particular use so that trustees can use them for any purpose that furthers the mission of the charity. Those checks that you write directly to a charity? Those are unrestricted funds. As general donors go – like you and me – these are the most popular.
Temporarily restricted funds are those funds that donated with the intention they are spent for a specific use in the near future. A temporarily restricted fund is usually terminated when the purpose of the fund is complete or the passage of time. Examples include a fund to replace a sign at a local library or to install art in a public space.
Permanently restricted funds are those that are donated for a designated purpose that will never expire. A common example is an endowment at university. The idea is that permanently restricted funds (or assets) are to be preserved as much as possible (and generally invested) while the income or other benefit of the assets are spent to further the designated purpose.
Options for restricting or earmarking funds allow donors to give to causes that matter to them. If donors to Komen were concerned about money being diverted to Planned Parenthood, those donors could have place restrictions on their gifts that funds not be used for such purpose (or in the alternative, specifically designated for breast cancer research or other use). Conversely, donors that wanted to support breast cancer screenings for low-income women through programs like Planned Parenthood could have marked their designations at such. If done the right way, such designations might – might – have headed off the controversy.
So with that in mind, earmarking your donations is the best practice, right? Maybe not.
It’s awfully satisfying to give money for a specific purpose. It’s not so gratifying to give money to pay salaries and keep the lights on. Let’s face it: operating budgets aren’t as sexy as saving lives. But the reality is that saving lives can’t happen without the underlying infrastructure. You can’t cure cancer without research and development. You can’t provide health care without paying staff. You can’t … well, you get the point.
But there’s still a lesson to be learned here. You can’t micromanage every dollar that you donate. If every donor did that, charitable organizations would collapse. But you do have some choices.
If you care about how your money is used – I mean, really care about it being used for a specific event or purpose (a la Katrina, 9/11, or Haiti) – inquire about whether a restricted fund exists and earmark your gift appropriately. If you support a long term idea, such as a scholarship fund, find out how you can contribute.
But if you aren’t in a position to designate funds the way that you want, or if the charitable organization doesn’t offer an alternative for restricted funds and it matters to you, consider moving on. The win-win solution for most charities – and for you – is to find an organization that’s more in line with your ideals and your concerns.
Remember, it’s your money. Donate it wisely.