What this is: This guide explains how fundraising platforms can be used to help manage nonprofit compliance.
What this means: Nonprofits that are looking to maintain compliance using the tools from their fundraising software can benefit from some of the tips in this article.
Your nonprofit’s legal and fundraising teams may seem worlds apart, but there’s one thing they have in common: Compliance. Both teams must comply with applicable regulations to ensure that the organization operates within legal boundaries and maintains its tax-exempt status. By working together to maintain compliance, your nonprofit can establish public trust, which is essential for long-term success.
Fundraising platforms can actually help your nonprofit manage its legal compliance in 3 ways:
- Providing fundraising reports
- Managing donations
- Future fundraising plans
Instead of separating compliance filings with strict due dates from your fundraising efforts, consider how your nonprofit’s team can work together collectively. Let’s begin.
Providing Fundraising Reports
Think of nonprofit compliance like running a marathon. A runner may have a goal finish time for the race, but to accomplish this goal, they must set smaller goals for each mile. In the same way, your nonprofit will only be compliant if it exercises the right practices along the way.
At the end of the “race,” or the fiscal year, your organization should be fully prepared to submit its annual filings and report its finances. Throughout the year, the right fundraising platform will gather the information you’ll need, such as:
1. Fundraising Progress
When you’re ready to show your board of directors all that you were able to accomplish in the year, you’ll need thorough details about the success of each fundraising initiative. Some event-specific software tracks your event’s progress, such as total revenue raised compared to the overall goal or the number of attendees versus the number of people who donated.
2. Donor Data
Annual reports require nonprofits to submit information about their biggest contributors. As your fundraising platform accepts donations, it automatically records donor data, such as their payment method and gift size.
3. Different Activities and Programs
Ideally, your fundraising campaign will bring in the donations you need to further your mission. However, you may need to host another low-maintenance fundraiser to reach your goals. For example, a mobile giving campaign could be run alongside your other campaigns and events to maximize donations. All of these separate efforts can be tracked in your fundraising platform.
The greater your fundraising efforts, the more data your platform will need to track. However, this also means your donations will increase and you’ll maximize support for your cause.
Would you like to read more about building a foundation for your mission? Start with our Nonprofit Services Resource Center.
Managing Donations
Fundraising reports allow your nonprofit to analyze each individual fundraising initiative. However, you’ll likely host more than one fundraiser during the fiscal year. The right platform can also give you insight into your donations year round, allowing you to:
1. Categorize Donations
Let’s say your nonprofit hosts an auction fundraiser. Some supporters will donate items to be auctioned off, while others attend the auction and place monetary bids on the items. Cash and in-kind donations are just 2 types of contributions your nonprofit may receive and they must be categorized differently when reported to the IRS. Your fundraising software can categorize each contribution so that you know exactly where each dollar came from.
2. Allocate Donations Properly
Beyond the varying ways donations are made, you also must consider the way donations will be allocated. Will proceeds from your campaign support a particular program, or are you building your reserve fund to cover future operational costs? Record the details of every donation in your fundraising platform so you’ll know exactly what to do with it after the campaign.
3. Determine Tax Deductibility
Following the example from above, imagine the donations at your auction fundraiser range from item bids to food and beverage purchases to general donations from attendees. Not all of these donations will be tax deductible. Tracking charitable contributions through fundraising software allows your nonprofit to see which donations are which and know how to report them appropriately.
As a bonus, fundraising software protects donor privacy by securely processing payments made through the platform. That way, your organization will comply with Payment Card Industry (PCI) standards when accepting donations and transferring them into your nonprofit’s account.
You likely already know the importance of required registrations, but as a nonprofit leader, you should also know that your own records matter, too. Rather than just using donation data to file Form 990 or another required report, leverage the records your platform tracks.
Future Fundraising Plans
As every fundraiser knows, the end of one campaign is merely the beginning of your next. The information tracked on your fundraising platform can inform your next moves by helping you adjust your strategy to be more successful in the future. For example, you can use your fundraising campaign overviews to guide:
1. Compliance Filings
Form 990 isn’t the only document you must fill out yearly. Many states require nonprofits to annually renew their charitable solicitations registration, which can be tedious as your organization expands its fundraising efforts. Use the information gathered from your fundraising platform to organize your fundraising information and streamline the filing process the next time it’s due.
2. Event Budgets
Different event types require different resources. For example, charity auction websites simplify event planning, while an event doesn’t accompany mobile giving campaigns and simply needs a phone number from a text-to-give provider. Use the information gathered from your fundraising platform to determine what your nonprofit could do without, what it needs next time, and how you’ll fit those adjustments into your budget.
3. Outreach
Your fundraising platform will collect a lot of information and your nonprofit must sort through the data to use it properly in the future. After all, you could be in serious trouble for something as simple as sending messages to people who don’t want them. Specifically, nonprofits must adhere to the CAN-SPAM Act, which ensures email recipients aren’t bombarded with unwanted emails. Double the Donation recommends appending email addresses to ensure your contact list is limited only to the people who opted into it. As you plan to market future fundraisers, be sure to plan your outreach around accurate and updated data.
To guarantee future compliance, standardize how to handle the data collected by your fundraising platform. For example, request that the financial committee compiles a comparison of event budgets throughout the year. These standardized processes will also boost the efficiency of your fundraising efforts when your nonprofit’s leaders know how to apply the data to future campaigns.
As your nonprofit plans, promotes and executes its fundraisers, remember that fundraising platforms are more than just a means for accepting donations. When you use your resources wisely, your nonprofit will maximize donations and guarantee it maintains compliance.
On a related topic, nonprofits listed on platform fundraiser websites in California might be impacted by California’s Assembly Bill 488, which partially took effect on January 1, 2023 and will be fully implemented on January 1, 2024.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
