Question

9. (10 Points) In the world of not-for-profit fund raising there are activities that are legal and activities that are illegal. Likewise there are activities that are ethical and there are activities that are not ethical. Describe and discussion two not-for-profit fund raising activities that would be considered legal yet would also be considered unethical.

Answer 1

Fundraising for nonprofit organizations has been likened to driving across the country with the caveat that gas must be purchased a single gallon at a time. The danger is that the destination will fade in importance while the driver searches for the next gas station. A secondary danger is that a few unscrupulous souls will find dishonest ways to fuel their vehicles. Fortunately, most drivers (and nonprofit organizations) remain honest and follow the rules. This article spells out some of these rules for donors who hope to avoid being duped by fundraising scams and for nonprofits that plan to follow both the letter and the spirit of the law.

Most nonprofits and donors are aware of this basic rule, but many are unaware that most states have adopted charitable solicitation laws designed to protect donors, the general public, and charities themselves from fraud. Generally, these laws require charities and their fundraisers to register with the state, describe their fundraising activities, file financial documents, and pay a fee that covers the administrative expenses of monitoring charities.

The most basic rule of fundraising is that the donors must actually give away funds. They cannot receive goods and services in return for their gifts, nor can they obtain dividends on their investment. Donors can receive recognition and small tokens of appreciation, but if they receive a monetary return for the donation, they will lose their tax deduction, and the nonprofit organization could lose its tax exemption.

In the nonprofit world, fundraising is as inevitable as death and taxes in the for-profit world. If only a small percentage of fundraisers are unscrupulous, the general public may lose trust in the entire sector. Thus, charitable organizations must register with all applicable states and follow the charitable solicitation rules in order to help maintain trust in the sector.

The federal and state governments reward nonprofit organizations for the good work they do by not requiring them to pay taxes. The trade-off is that all of their funds must be allocated for the purpose stated in their charter. Nonprofit organizations can accumulate profits, but they can’t distribute them to the founders or owners, or use them to increase employee salaries beyond the norm.

Each type of nonprofit organization has government regulations that it must follow to retain its nonprofit status. The federal government delegates most of the responsibility for regulation and oversight of nonprofit organizations to the state governments. Currently