What is the Donor Integrity Project?

The Donor Integrity Project is a strategic initiative by Charitable Allies to protect and restore the integrity of donor intent where it is at greatest risk – in the hands of third-party charitable giving vehicle officials. The ultimate goal of the Donor Integrity Project is to educate, and where necessary hold accountable, those entrusted with carrying out the charitable wishes of donors. 

To achieve this goal, Charitable Allies:

  1. Helps charitable organizations understand their donor-related obligations so that charitable contributions made directly to or through charitable giving vehicles reach their intended recipients and fulfill donors’ intended goals; and
  2. Ensures, through research, education, and where necessary, litigation on behalf of donors and nonprofit organizations, the proper and intended use of charitable dollars.

When donors make a charitable gift, they expect their money will not be used for any purposes other than those they have designated. But too often, charitable organizations use restricted donations for general purposes or, in the worst cases, to line the pockets of philanthropy executives.

Protecting donor intent is essential not only for donors as they seek to achieve their own philanthropic goals, but also for preserving the integrity of our charitable system. Well-articulated and faithfully observed donor intent protection practices help establish healthy organizational cultures and drive the effectiveness of charitable institutions in achieving their missions. 

The Donor Integrity Project takes a holistic approach to raising the bar of charitable giving and ensuring that philanthropic donations reach their intended recipients. 

Why Is The Donor Integrity Project Needed?

In recent decades, the role of third-party giving vehicles has grown exponentially as donors seek to avail themselves of the unique features and benefits of donor advised funds, endowments, scholarship funds, etc, such as anonymity, immediate tax deductibility, and tax-free growth.  

Despite these many potential benefits, charitable giving vehicles carry serious risks when it comes to maintaining the integrity of a donor’s intent. When philanthropy executives have absolute discretion to modify gift restrictions, combined with competing incentives to grow increase the giving vehicle’s bottom line, the ground is fertile for widespread abuse that deprives worthy organizations, communities, and students, of the critical financial resources a donor may have intended to supply. 

When philanthropy executives have absolute discretion to modify gift restrictions, combined with competing incentives to grow increase the giving vehicle’s bottom line, the ground is fertile for widespread abuse

For Example: A 2001 gift from Michael Moritz to Ohio State is currently the subject of an extensive legal battle, after Moritz’s family discovered the $30.3 million gift to the university in 2001 had shrunk over the years to $21.9 million while only being used for 12 to 16 full-tuition scholarships, instead of the 30 mandated in the original gift agreement, all while the university charged an exorbitant “management fee” totaling over $3 million to the fund.

Preserving donor intent is essential to building healthy organizations, and to the stability of our charitable system. Under federal law, donor intent is king. Institutions should take great care to ensure that donor intent is protected and observed – but in the many cases where it is not, Charitable Allies seeks to restore the integrity of a donor’s intent through the Donor Integrity Project.

Donor Integrity Project Strategy

Based on a recent in-depth community foundation audit and an initial review of tax documents, annual reports and websites from more than a dozen community foundations around the US, we estimate that 15-30% of the 800 community foundations in the country are engaged in abusive practices—failing to distribute from currently-spendable funds, keeping investment returns for the organization’s “overhead”, using donor funds to pay unreasonably high overhead expenses for lavish offices and events, as well as exorbitant staff and consultant compensation. Based on a similar review of records from around a dozen of the nearly 2100 institutions of higher learning, we have found a similar prevalence of abusive practices.

Through the Donor Integrity Project, Charitable Allies seeks to end the “echo chamber” justifications for donor abuse and mishandling of charitable dollars that has developed within the world of institutions that regularly hold charitable funds.  

To achieve this goal, Charitable Allies will take the follow three-pronged strategic approach:

  1. Research. Charitable Allies will identify those Charitable Institutions that may have engaged in abusive practices that ultimately deprive the intended charitable recipient from access to the resources the donors intended to provide. Such practices include: 
  • charged charitable funds with excessive “management fees”, 
  • failed to use the funds for their intended purposes,
  • “stockpiled” funds that were supposed to be applied on a current basis to specified charitable projects or purposes
  • allocated investment returns to general operating accounts instead of back to the invested charitable fund, 
  • abused their “variance” power in modifying restrictions on how a fund is used, invested or managed, or
  • failed to distribute funds to charitable beneficiaries. 

2. Education

Charitable Allies will publish articles and online and print publications that educate individuals, businesses, foundations, and nonprofits about ways they can protect their intent and enforce fund agreements. We will share the results of its research findings, including in peer-reviewed professional or academic journals. Charitable Allies will educate attorneys, accountants and nonprofit executives on how to carefully navigate the very unique obligations related to donor intent.

3. Legal Representation

Compliance. Charitable Allies will continue to work with charities that have identified that they may be out of compliance to help them achieve compliance. We will assist charities who wish to improve their fund management practices by conducting internal reviews of the specific obligations under their gift instruments.  

Litigation. Charitable Allies has already identified two egregious cases and will continue identifying others who are clearly out of compliance with federal regulations and other laws related to donor intent. Charitable Allies will represent individual nonprofit organizations and individual donor plaintiffs who may have been harmed by an institution’s donation-related actions in civil legal actions against the institutions or giving vehicles that have impermissibly withheld philanthropic support or have failed to honor donor intent and distribute donated funds. 

For More Information about Charitable Allies’ Pro-Bono Project, please contact Alexander Guin via email at aguin@charitableallies.org or call 463-229-0229.