Finance vs. Development

Mixing Oil and Water and Making it Work in a Non-Profit Organization 

The receiving and the handling of donations made to non-profit organizations are simple to do, but very often poorly done. When that happens, a vital block is taken out of the foundation we strive to build in an effort to ensure donor loyalty for future gifts. Lost or misplaced checks and other communications from donors, late and erroneous recording of gift/pledge dates and amounts, delayed and otherwise neglected acknowledgments, spelling errors of donors’ names, etc., all lead to lost or upset donors. 

We can all agree that this critically important process must be done right. And it starts with the very first check or pledge from a donor when it arrives in the mail room. But in many non-profit organizations, there is a sharply divided opinion regarding just where those checks, pledges, and other donor communications should go next in order to ensure that all goes right with the receiving, posting, acknowledging, reporting, and banking process of donations. 

Show Me the Money 

The Finance Department wants to be the receiver of the first resort. They are worried about possible theft, lost or misplaced funds, and failure, in general, to meet what they regard as standard accounting procedures. They are under the gun to provide up-to-date budgets and forecasts for the monthly meetings of the board of trustees and for all other such timely reports required in between. 

The Development Department wants to be the receiver of the first resort. They want to know the results of their fund-raising campaigns as quickly as possible, with no delay. They not only want to see successes to better gauge their progress toward meeting goals, but they especially need to know of major losses, from donors either refusing to give or greatly reducing their level of giving from what they gave previously. Development is under pressure to move faster to try to reclaim the lost or reduced income by expanding the fund-raising campaign’s activities in time for the end of the campaign year. 

The argument regarding where the contributions are physically received in a non-profit organization is perhaps the most common of what are actually a number of conflicts between the development and accounting departments. These may be easily identified, but resolving them is another matter. And you may be sure that they must be resolved. 

The Finance Director vs. the Development Director 

Right at the beginning, I believe there is a decided gulf in many non-profits between the chief development and finance officers concerning basic accounting standards and financial principles—principles which no doubt were mostly mutually shared in the for-profit world when the Chief Financial Officers (CFOs) worked with their colleague Sales Managers. 

Development professionals work in fund-raising which, after all, is a subjective science of sorts. That seeming contradiction in terms is what gets them into trouble with the more precise and policy-oriented accounting professionals. A development professional’s donor service mentality—as we constantly strive to please our donors, prospects and volunteers, and “flying by the seats of our pants” most of the time while doing so—causes nothing but the most severe consternation in the finance department. 

That’s because we non-profit fund-raising development professionals: 

1. Book pledges “not exactly” confirmed and seek to carry them out for a short period of time past the fiscal year’s end so we can publish that we met our goal. For example: a Board member of a family foundation that has been a generous annual fund contributor over many years tells us that we are in their budget for a specific amount for the current fiscal year—however the foundation board vote, which is simply a formality, takes place a short time after our books close. We would book the pledge, but not acknowledge it to the foundation until we received formal notification. (The Finance Director and I fought tooth and nail with transactions such as this one.) 
2. Refuse to commit to make income projections for the Finance Director of actual endowment or capital cash payments—in amounts by quarter—for fund-raising campaigns not even yet organized, but just being talked about. 
3. See the “bottom line” fund-raising projection for the end of the fiscal year in a way completely at odds with the Finance Director’s expectations. Most commercial sales goals are based on the market potential. The numbers are generally scaled to realistic achievement. Most non-profit fund-raising campaigns are based on the number needed to balance the budget. Those numbers are often far out of the realm of possibility, and the Finance Director just does not understand that while there are many things a for-profit can do to improve its bottom line to meet a sales goal, most are not at all possible for non-profits to do to meet a fund-raising goal. They just cannot accept our inability to forecast as accurately as they insist and think we should.

But still, Finance Directors in small non-profits especially have it tough; many wear too many “hats.” Finance Directors coming from for-profit to non-profit especially often find great difficulty in the non-profit job: having no peer support, frequently receiving no sympathy for financial concerns, being prevented from operating sound internal controls, etc.—all usually distinctly different from what it was like in their for-profit finance jobs.

While the tough times experienced could involve the full scope of non-profit operations and most personnel, I think that the times are made tougher when the Finance Directors and Development Directors deal with each other directly regarding fund-raising activities. I’ve experienced them all—many times—with my own Finance Director, and from what many other directors of development have communicated to me. 

So Who Gets to Open Those Donation Envelopes? 

It seems that the biggest problem between finance and development is when the latter, counter to the finance department’s desired practice to be the first receivers of donations, insists that the routing-of-gifts process must begin with the development department’s receipt of all contributions. Along with the fact that this makes sense from good organizational and efficiency points of view—considering the avoidance of the troublesome problems discussed previously and time lags to thank donors, apprise solicitors, develop timely progress reports for the campaign leadership, etc.—something else is lost on most folks outside of the development department. That is the morale boost and the excitement the development staff experience when contributions are received in the morning’s mail.

I have always insisted that all checks—all gift transmittals—from any source should first go directly to the development department. Not as an after-the-fact from finance when they were able to get around to it, but first and foremost to the department and location where such gifts should logically be directed—whether from donors or from other departments. We differed mightily when it came to my development department’s point-of-receipt of our organization’s charitable gifts. I understood the concern of the Finance Director that antitheft measures were best lodged in the finance department, but opening the mail each morning, with the hope and the anticipation of first seeing those new and renewed gifts, was something I simply would not give up. 

With the above in mind, one of the main things to consider is to create a flow chart that contains the daily donor report listing of all contributions received—perhaps electronically transmitted from the development department to accounting—and the checks then promptly delivered by hand or via internal mail to accounting. Or maybe the flow chart will have both the typed daily donor report listing and checks hand delivered to accounting from the development department once the gifts are reported and posted. Then you will want to be up-to-speed when finance is receiving some checks directly, or when checks are being routed to them from someone else’s office—not from development. 

I’ve seen this happen a great deal. You can impress everyone to be alert for irreconcilable checks and to trace them to where they were received within the organization. A flow chart should be part of a policy for all to follow in the organization—all checks, pledges, letters of intent, etc., are delivered to the development department first. 

What About Pledges?

Just as receivables are booked in a for-profit business, in your non-profit organization, you will be posting donation totals that include pledges. The overall pledge might bring with it a cash installment payment. Or the committed donation could be in the form of a pledge in the entire amount.