New York is one of the leading bases for charitable nonprofits nationally. Two million New York taxpayers reported giving $42.5 billion to charities in 2017.[1] Raising money has its own costs, however. Many charities use professional for-profit fundraisers as outside contractors to increase donations. Fundraisers play a crucial role in educating the public about and furthering a charity’s mission. Whether you are part of a nonprofit organization seeking to outsource fundraising, or a fundraiser for charities yourself, read on to learn about fundraising contracts and the costs and regulations related to fundraising in New York.
Giving by the Numbers
The New York Attorney General’s Charities Bureau is responsible for supervising charitable organizations to protect donors and beneficiaries of those charities from unscrupulous practices in the solicitation and management of charitable assets. Fundraising professionals who contact donors in the state are required by New York law to register annually and file fundraising contracts with the Attorney General’s Office. Depending on the nature of the activities, financial reports may also have to be filed. Additionally, the Association of Fundraising Professionals publishes a Code of Ethical Standards to foster and promote high ethical behavior in the fundraising profession.[2]
The Charities Bureau publishes an annual report called Pennies for Charity, which identifies trends in the charitable sector and shows the amounts retained by the actual charities, as opposed to professional fundraisers. The 2020 report includes data from 824 fundraising campaigns conducted in 2019 by professional fundraisers in New York; those campaigns raised over 1.2 billion dollars, but not all that money went to charities, or their intended beneficiaries.
More than $364 million was retained by professional fundraisers, while charities received $918 million (28% to 72% of funds raised, respectively). In 31% of campaigns, charities received less than 50% of funds raised. In 17% of campaigns, expenses exceeded revenue, which cost charities about $17 million. Since 2016, the percent of funds given to fundraisers has decreased from 33% to 28%.
Fundraising Contracts
Professional fundraisers are hired for many reasons, including due to inadequate staff available to raise funds and insufficient expertise to conduct fundraising campaigns. Further, retaining a professional fundraiser may be a means by which to get more people involved in a cause or mission. No matter the reason for hiring a professional fundraiser, it is important to learn about the fundraiser’s prior experience, reporting, and ethics before signing a fundraising contract.
To make the success of a fundraising campaign more probable, and to assist in avoiding problems that may result from hiring an inexperienced, non-compliant fundraiser, an organization should:
- Check to make sure it is properly registered with the Charities Bureau and is current in its annual financial filings
- Check with the Charities Bureau to see if the fundraiser is registered and has filed the required contracts and financial reports
- Find out which other charities the fundraiser represented
- Request copies of the fundraiser’s contracts with other charities and copies of the fundraiser’s financial reports
- Ask the fundraiser for a list of references and contact those charities where the fundraiser worked
New York law requires that all fundraising contracts must be in writing and include no less than provisions as follows:
- Within five days of receipt, all funds solicited by a fundraiser must be deposited in a bank account exclusively controlled by the charity
- The charity has the right to cancel without penalty within fifteen days after the fundraiser has filed with the Attorney General
- Descriptions of the services to be provided by the fundraiser and the financial terms of the contract must be clear
- Names, addresses, and registration numbers of both parties
Other areas relevant to the engagement should be addressed as well. Like any business contract, the terms of the fundraising agreement must be drafted, reviewed, discussed, and negotiated completely before signing.
Whether you are a professional fundraiser or are considering hiring a professional fundraiser, please contact us for guidance.
Thank you to Daniel Axelrod for his research and writing assistance with this article.
[1] 2017 is the most recent year available to find tax return statistics.
[2] See https://afpglobal.org/ethicsmain/standards-guidelines (visited 3/2/2021). Specifically, it provides, in part, that members shall not accept compensation or enter into a contract that is based on a percentage of contributions, not accept finder’s fees or contingent fees, be permitted to accept performance-based compensation, and neither offer nor accept payments for the purpose of influencing the selection of products or services.