Community foundations often feel like waiving administrative fees is the right thing to do during a disaster or crisis. Or you may feel your community expects you to waive such fees.
And yet waiving administrative fees is almost always a bad business decision. This is especially true when a global pandemic is causing uncertainty about the value of your assets as well as future fundraising prospects.
It takes significant administrative costs to manage a Response Fund. Your response to the crisis will likely require new contracts with service providers who themselves may charge 10% or more. Service providers may also have direct costs that you may not be able to cover from your Response Fund if the fund wording states that all donations will provide “direct support.”
The nonprofit sector needs funders to pay the true costs of doing its work. When community foundations take a position that all donations should go directly to programs it reinforces a broadly held misconception in the minds of donors. For many years nonprofits were judged positively if they had low overhead costs, but such a mindset has nothing to do with actual impact and perpetuates the starvation cycle that has long plagued our sector. Forgoing administrative fees also may weaken your ability to respond to the current crisis and possibly make it harder for your organization to recover and continue to serve your community well once this crisis passes.
What Are Necessary Steps to Cover Your Costs in a Crisis?
Communicate your value-add and your costs. Community foundations are deeply in tune with both the needs and the resources in their communities. Your experience and networks are critical in helping your community mobilize swiftly and collaboratively in its response to this crisis.
Community foundations incur significant additional costs over a protracted period while responding to crises. Typical costs include staff resources; contracted personnel to direct programs and oversee grant distributions; expanded communications and marketing expenses such as expanding your web presence and managing media coverage; advice on legal protections against fraud and scammers; financial transactions associated with credit card donations and electronic grant disbursements; and more.
Be up front and explicit about your value-add and how your administrative fee is critical to delivering your services.
Activate your founders, former and current board members, and deeply committed donors to engage in the real-cost conversation of what this pandemic is doing to your bottom line and to help you communicate that cost.
What Can You Do to Stay Financially Healthy if You Do Choose to Waive Administrative Fees?
Craft a plan to underwrite the administrative costs. This might come from your discretionary grantmaking pool, operational reserves or endowments, or a special campaign designed to cover administrative costs. You might also engage your board and long-standing donors in helping cover costs. If you use any of these methods, clearly communicate that this is how you are covering the costs so as not to perpetuate the myth that you can run a robust response for free.
When accepting digital donations, consider creating an option for the donor to add an amount to cover the costs to administer the fund.
When establishing funds with specific recipients or beneficiaries, try to negotiate a higher than normal fee with the donor to compensate for this unusual activity.
Whatever Decisions You Make Regarding Your Fees, Be Transparent
The PayPal Charitable Gift Fund Settlement and Variance Power reminds us why disclosure matters.