[source: eCivicus]

RESPONDING TO QUESTIONS ABOUT USE OF SEPTEMBER 11 FUNDS
[Canadian Centre for Philanthropy]
2 November, 2001

Media reports about a controversial decision by the American Red Cross to
use some of the funds raised post-September 11 for administrative and other
purposes have prompted many inquiries and comments about the obligation of
charities to honour donors' intentions. In responding to these inquiries,
we have been emphasizing 3 key points:

- Charities must use donations only for the purposes indicated during the
solicitation, or they will lose donors' trust;
- Every project entails some administration costs (accounting, managing,
monitoring, etc.) and such costs are properly counted as part of the
overall program costs;
- but they must be reasonable (10-15% is usually an appropriate range).

It appears that the board of the American Red Cross has acted quickly and
decisively by firing the President/CEO who made the disputed decision about
the use of post-September 11 funds, so this is a case where the systems of
governance and board oversight seem to have worked as they are supposed to.

A recent decision by the Ontario Superior Court of Justice, involving The
Aids Society for Children (Ontario), sets out the legal obligations of
charities and charity directors concerning the control and use of
fundraising revenues. (A full description of the Court's findings and the
implications for charities has been prepared by lawyer Terrance Carter of
the firm Carter & Associates, and can be found in his Charity Law Bulletin
No.9 at www.charitylaw.ca.) Every charity board member should be aware of
at least the following points:

- The charity has a legal, fiduciary obligation to use donations only for
its charitable purposes;
- The charity is responsible for the actions of its fundraiser(s), and
cannot avoid responsibility by describing the fundraiser as an independent
contractor;
- The charity is responsible to account for the gross amount of all
donations received from the public and not simply the net amount paid to
the charity by the fundraiser;
- The charity and its directors will have breached their fiduciary
obligation if the charity signs a contract with a fundraiser that causes
prejudice to the charity (such as one that misrepresents the purposes for
which donations are to be used);
- Directors of a charity must therefore ensure, either by enacting policy
or through direct oversight, that all fundraising activities of a charity,
including the terms of contracts with professional fundraisers, meet all
legal requirements;
- The charity must ensure that all aspects of fundraising literature and
communication accurately describe how donations will be used; the charity
and the board of directors will be held accountable for ensuring that funds
are used in accordance with the donors' reasonable interpretation.

These provisions, and more, are included in the Canadian Centre for
Philanthropy's Ethical Fundraising and Financial Accountability Code. For
more information about the Code, and how your charity can reassure donors
by adopting it, please go to www.ccp.ca.