Donor Advised Funds

Aaron - Thanks for your great comment on this.


Just interesting - I work for a community foundation and we do NOT primarily use Raiser's Edge for fundraising. We use RE primarily to hold our core information about constituents who have established funds with our foundation.  So our focus is more on the financial and legal relationships our constituents have with the foundation and their funds.  


Not all Raiser's Edge clients use the system in the same way. 

Aaron Rothberg:

I'll put my neck on the chopping block to say that with DAF gifts I break all the rules everyone else has mentioned and I'll add that Bill Connors agrees with me.

 

It is true that DAF funds do not belong to the donor and cannot legally pay off a pledge from a donor. If your organization's auditors audit the Raiser's Edge for tax compliance you will not be able to follow the practice I'm about the describe. Bill Connors has often said that Raiser's Edge is not accounting software, but rather fundraising software and as such our database needs to support our fund raising and stewardship efforts. At my organization if the IRS shows up to audit us, they are going to audit our Business Office books, not the Raiser's Edge database.

 

Given that, when we receive a check from a DAF we, unlike everyone else, hard credit the donor that directed the funds and soft credit the DAF. We also use a Gift Attribute of Name on Check so we can capture the legal entity that gave us the donation. This practice better supports stewardship in that when we produce a list of donors Fidelity is not one of them. Additionally, because the donor that directed the funds did not legally own the money we received, we mark the Gift Receipt Amount as zero dollars and we do not issue a receipt to the constituent, only an acknowledgement letter and we recognize the DAF in that acknowledgement letter. If the DAF requires a receipt we will send them one, but we don’t run into that request very often.

 

Quote from Bill Connors book "Fund Raiding with the Raiser's Edge: A Non-Technical Guide" pg. 27

 

"Many fundraising database users in the United States say, ‘The IRS requires that the name on check be entered as the hard credit constituent in our database.’ My research and experience have shown this is not the case. The IRS requires acknowledgement letters clearly indicate the name of the true donor. However, the IRS does not dictate how we set up our database and who the constituents are. Correct this belief among your data entry staff to avoid duplicates and difficulty retrieving data."

 

Thanks for that clarification. I come from an education background and tax laws are still very murky to me.

Hi Gracie-


Sounds like you and I are following two variants of the same process. I store the DAF name in a Gift Attribute for capture in the Ack letter and you store the DAF name in Gift Code for the same purpose. You bring up an interesting idea, that is to not soft credit the DAF since you already have their name in the Gift Code field. Have you ever encountered a need to report on total dollars coming from DAFs and if so, is your Gift Code dimension enough to calculate summaries? I'm guessing it is because Gift Code prevents free text entry which would allow you to summarize DAF gifts in Excel. You've even got me tempted to drop the soft crediting, but I'm wondering if there's a scenario neither of us have considered that would make soft crediting beneficial?

 

Hi Daphne-Ann-


This is a brand new process I'm just starting at our organization so I'll let you know if the cops show up. 


The way I think about DAF gifts is like this. Let's imagine we don't have any DAF constituent records in our database and we handle all DAF donations as though they came from the donor. What problems do we need to overcome?


We need to ensure our Donor Ack letter clearly states the money came from the DAF

We need sufficient evidence to demonstrate to auditors we did this

We need a record of the legal donor's name (the DAF) that was on the check

We need to make sure the donor isn't getting any benefits in return


That's all I can think of and as such this is why Gracie now has me thinking about ditching DAF soft crediting as well. If we design a means to record which DAF the gifts come from (Gift Attr in my case, Gift Code in Gracie's) then why bother with soft credit for an Org we otherwise don't care about? I can't think of a good reason.

We don't allow DAF gifts to pay off donor pledges. We can't defend that paper trail since it's very clear DAF money doesn't belong to the donor. If I were faced with that situation I think I would either write off the pledge or adjust it to zero and then follow the same process above, that is to hard credit the donor with a Cash gift (including DAF Name on Check) and thank them with an ack letter that acknowledges the donation came from the DAF. I'd probably adjust it to zero versus a wrtite off since Write Offs seem to be more trouble than they're worth in Raiser's Edge reporting.

Sort of goes back to interpretation of legal enforceable..."Many pledges however, are considered to be enforceable and are legally binding debt obligations of the donor. These pledges cannot be fulfilled by grants from a DAF."

While signed pledge documents for most organizations could be considered enforceable, many are not going to enforce them. Too much bad PR.

Hi Jill-

Help! I'm confused. Looking at this language:

 

Ryan's post is a good way to say what I've experienced at most of my former orgs.  We used RE pledge records to track intent, even without a binding document.  This allowed us to record a pledge when we knew the donor had made the request to the DAF and move the donor into the stewardship phase regardless of whether or not the actual gift was received yet.  We had several donors who would send us a copy of the form submitted to the DAF, as an alert that the request had been made, and therefore the solicitation process was complete.  In one case, this saved us a potentially lost gift, because the DAF misplaced the paperwork and we were able to follow up with the donor when approaching the end of the year and we had a "balance" on their pledge.


Essentially, we used a Pledge as a placeholder for an intended gift (similar to sending an LOI to a foundation before compiling the proposal).  The fundraisers often wanted to count the gift in the month the "pledge" was made or intention declared because that's when their work shifted from solicitation to stewardship and they wanted their performance indicators to be accurate to the work they were doing, not to the timing of the DAF's checks arriving.


However, opposite to what Ryan said, often our Finance department would also book a pledge in these cases.  Because they needed to be able to track spend-down and many times that spend-down could start before the check arrived.  Not to mention, the program staff preferred to see the amount hit their budget reports as available funds before they started spending.  We always wanted to encourage responsible spending, but if they waited for the check, sometimes we would end up losing (needing to return) part of the money because it wasn't all spent within the specified timeframe in the agreement with the donor.  Of course, if the pledge was "made" and then something changed and the DAF was not sending the check, the donor would likely use a different funding method/account, or we'd need to do some scrambling to fix it.


We also would not enter a Pledge without something in writing (email counted) from the donor.  Not a scrap of paper from a fundraiser saying that Dr. Hernandez would be requesting a gift of $5k from his DAF, but an email from Dr. Hernandez with the intention stated.  Phone calls and passing comments in the hallway after a board meeting could count as a verbal pledge on the Proposal Record (Proposal Status) but no Gift Record until follow-up with the donor resulted in something written.


I would say that you need to set up policies for your organization with input and approval from your Finance Dept and auditors (and, of course, Development Dept).  Then document them and be consistent in applying them.  And be sure that if you offer benefits, that the policies include how that is to be handled (which should be a separate payment from a non-DAF account, or agreement from the DAF about whatever the situation is).  Cover the basics and then document with a Gift Note any exceptions or extenuating circumstances as they occur.

Jen Claudy:


We also would not enter a Pledge without something in writing (email counted) from the donor.  Not a scrap of paper from a fundraiser saying that Dr. Hernandez would be requesting a gift of $5k from his DAF, but an email from Dr. Hernandez with the intention stated.  Phone calls and passing comments in the hallway after a board meeting could count as a verbal pledge on the Proposal Record (Proposal Status) but no Gift Record until follow-up with the donor resulted in something written.