What exactly IS a “direct expense?”

Want to set a development director’s teeth on edge? Insist that your $100 donation be used for “direct expenses” only.

Totally aside from the fact that not even Microsoft has software set up to specifically track any given hundred dollars that comes in, most donors have no idea what they mean by “direct expenses” or “program expenses” only. Mostly what they want is for not a single dime to go to fundraising.

National scandals
A few high profile scandals– Susan G. Komen, Red Cross, United Way, [insert name of politician here]– have fostered an impression that fundraising is an inherently dishonest activity, and that expenses associated with raising funds is somehow not “program related.” Even nfp accounting follows this misinterpretation by forcing organizations to break out fundraising expenses, even when all fundraising is done in house (more on that, below).

Outside fundraising firms
Aside from outright fraud or embezzlement (which happens in every industry), fundraising fraud is as rare as other kinds of fraud.  The most common involves outside firms contracting to raise money, and then giving the charity only a few cents on the dollar, keeping the rest for themselves, without disclosure (if the charity and/or the donors know this going in, no fair complaining when it happens).  The most notorious of these are the dime/quarter collection boxes at the local quickie mart– the charity basically gets a fee to post their sign in the window. The owner of the box gets all the money collected.  Walkathon-type fundraising often work this way as well– a fundraising firm does all the set up, collection and management and the charity gets a fee based on contract– it might be a guaranteed total, or a guaranteed percentage, or some combination of those– but then the firm keeps the rest, no matter how much is raised. Kickstarter and its ilk also work this way– the site gets a set fee and provides all the infrastructure; the project owner gets the balance.

And you know what?

This is fine.  The charity, which is probably understaffed (most are), outsources expertise to people who know what they’re doing, for a guaranteed return.  Instead of dedicating the entire development staff to a major event for 3 or 4 months for an uncertain return, they’ve got a guaranteed donation and no costs.  I don’t even mind the little boxes and the 7-11, as long as I understand what the deal is.

Your organization
But most organizations, your organization, are not running large community events, or contracting outside firms. They’ve got 1 or 2 people on a development staff who are doing all the fundraising for that organization, and every dime is going right back into the organization, including their salaries.

Think of it as marketing– no one questions the legitimacy of reasonable marketing expenses, yet somehow fundraising is vilified.

I recently had a client complain about the 5% charge that Kickstarter charges; he wanted “all” of his money to go to the organization. This is someone with a senior position at a major firm; it seems impossible that he wouldn’t understand that cultivating and soliciting clients isn’t free, even when done in house. Was he under the impression that I, for instance, was volunteering my time to talk to him?

It is reasonable to ask if the fundraising is done in house or by an outside firm. If you’re a large donor (I would say over $5000 in most organizations) it is reasonable to ask if it’s possible to restrict your gift to some extent. But restrict it to a certain program, not to a type of expense.  Fundraising is a program expense, because the programs don’t happen without funds.