Trust-Based Philanthropy: Both Sides Need to Do Their Part

Funders and nonprofits – two sides to a very important coin. Sure, nonprofits would not last long without the resources provided by individual donors, foundations, corporations, and (in some cases) government agencies. But without nonprofits, the work provided for our citizenry, environment, and animals would not happen at all, or at the very least, at the scale it is. Nonprofits do so much above and beyond the services provided by our governmental agencies.


Can you imagine communities without food banks, battered women shelters, free primary care clinics, after-school care, animal shelters, substance abuse resources, housing assistance, and the extensive list of services made available because a nonprofit exists? Picture a world without the YMCA, Doctors Without Borders, American Heart Society, Compassion International, Feeding America, World Wildlife Fund, Smithsonian Institution, and the Red Cross.


Foundations create a tax shelter for companies, families, and individuals, and in return, each year, they must expend at least 5% of their previous year’s assets on their stated mission. But while foundations may have a stated mission to end hunger, house the unhoused, or serve veterans, typically, they do not create their own programs and do the work. Instead, they fund nonprofits that align with their mission. Nonprofits hire program staff, implement programs, and serve those in need.


But foundations never want to fund 100% of a nonprofit, which means nonprofits must diversify their funding streams. They spend money on fundraising and overhead activities to secure individual donations, increase marketing, host fundraising events, and submit and manage grants. And that is on top of implementing their programs and serving the people.


To ensure that nonprofits are good stewards of their funding, foundations first create an application process to better understand the nonprofit’s use of the requested funds. And foundations often ask what a nonprofit’s overhead percentage is – and frequently decline to fund nonprofits whose overhead they deem too high. Yet these same foundations require hoop after hoop for nonprofits to jump through during the grant management process. Foundations require regular (sometimes monthly) reports. An accounting of every penny is necessary. Site visits happen. Foundations usually request additional documentation (IRS letters, audits, financial statements, annual reports, etc.) to ensure a nonprofit is in good standing.


And why is this necessary? Because unfortunately, there are individuals, nonprofits, and other agencies who do not spend awarded/donated money as promised. (You can hear about fraud stories in the latest episode of Fundraising HayDay here: Ripped from the Headlines: CARES Act Funding, the IRS, and Other Grant Management Woes | Fundraising HayDay ( Fraud, mistakes, and all the mishaps in between lead to more future requirements, and more work for the rest of us. And the more work necessary, the higher the percentage of a nonprofit’s budget will be dedicated to overhead – the essential operations needed to run a nonprofit.


It is a vicious cycle. So how do we put an end to it? We practice trust-based philanthropy. Foundations work with nonprofits to find management requirements equal to the amount of funding awarded. Nonprofits build trust by carrying out their programs as outlined in their grant proposals or seeking permission for changes when warranted. If you work with the same nonprofits over time, that trust will grow. As trust increases, the number of hoops to jump through should decrease.  Trust must run both ways. So let’s put an end to this vicious cycle. Let’s all do our part to keep our promises, do the work, and communicate with one another. Less time spent documenting the management of all the work means more humans, animals, and landscapes are served. And isn’t that a beautiful thing?


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