5 Risks of Third-Party Fundraisers

5 Risks of Third-Party Fundraisers (and How a Fundraising Policy Can Help)

5 Risks of Third-Party Fundraisers

Third-party fundraisers are events run by individuals, businesses, community groups, schools, or organizations to raise money or goods for a nonprofit. Activities can range from hosting a table at a community event, a restaurant night, marathons, and more. 

Fundraising is essential to the success of nonprofit organizations. Yet, this regulated activity should be done with some caution, especially if you’re considering permitting a third party to host a fundraising event.

Some professional third-party fundraising businesses specialize in raising money for nonprofits in exchange for a fee. These special events can be helpful when done well. But third-party fundraisers can also have downsides, including safety, reputational, and legal risks. Before agreeing to a third-party fundraiser, here are some of the risks to consider and ways to protect your organization if you choose to enlist the help of a third-party fundraiser.

5 Risks of Working With Third-Party Fundraisers

1. Your reputations may be misaligned.

When you work with a third-party fundraising group, you’re associating your brand and reputation with that group. If the third party isn’t a group your donors commonly associate with, this can negatively impact your reputation among your target audience. For example, if your nonprofit benefits children in need, you may not want to partner with a local gun club for a fundraiser. 

Even worse, a third-party fundraiser could prove to be incapable or a fraud. You’ll want to carefully and thoroughly understand your third-party fundraiser and their background before you agree to work with them.

2. Your fundraiser could be a flop.

Third-party fundraisers are appealing because your organization can offload the time-intensive work of putting on its own event. Yet, this can lead to problems. You may not have a say on how the fundraiser is run, how your logo and brand are used, or the volunteers running the fundraiser. If the fundraiser goes awry, your regular donors and supporters will likely hold you responsible, despite your relative lack of involvement. 

3. Third-party fundraisers can interrupt the giving cycle. 

Third-party fundraisers often stand to gain from each sale of an item or service; the cost is marked up to your donors, with the excess proceeds benefiting your nonprofit. However, this can create different incentives between the third-party fundraiser and your nonprofit when it comes to how your donors are messaged and targeted. 

You’ll want to ensure that your third-party fundraiser’s activities and messaging align with your nonprofit’s donor stewardship plans. Otherwise, when it comes time for your organization’s annual expected fundraising event, your loyal donors may come up short, resulting in missed fundraising targets. While third-party fundraisers can often help you raise more for your nonprofit, you want to carefully consider their use within the context of your overall fundraising strategy and annual events. 

4. You may risk your nonprofit status if the third-party mismanages or misrepresents the fundraiser.

Before agreeing to a third-party fundraiser, review the charitable solicitation laws and registration requirements in your state. Noncompliance with the rules for your state can put your nonprofit status in jeopardy. For example, if a third-party fundraiser misrepresents certain aspects of the fundraiser or mishandles money while acting on behalf of your nonprofit, your nonprofit could be held responsible for the third-party fundraiser’s misconduct and lose its nonprofit status. 

As a result, you should have processes in place to monitor and audit the third-party’s work. In addition, while the requirements vary per state, most states require nonprofits to be registered to conduct charitable solicitation in the states where the fundraising will take place. You should also confirm that the third-party fundraising group is properly registered.

5. You may not receive the donor’s contact information. 

Many smaller third-party fundraisers don’t collect or provide you with donors’ names and contact information, limiting your ability to thank and maintain contact with the person. While a fundraising event can help raise awareness of your nonprofit’s work, you should ensure that fundraising activities are optimally calculated to serve your overall donor stewardship efforts.

Why You Need a Third-Party Fundraising Policy and Agreement

Taking the time to establish a fundraising policy and agreement form can streamline the process of evaluating fundraising opportunities and help ensure your organization and donors have a quality experience. A well-drafted fundraising policy can help: 

  • Ensure the fundraising event is aligned with your brand
  • Clarify how third parties can use your name, logo, and brand and provide you the right to review the information before the fundraising group uses it
  • Help you avoid conflicts with your donors, other sponsors, or events you have planned
  • Provide a clear process for your organization to vet potential third-party fundraisers

What to Include in Your Fundraising Policy and Agreement

When setting up your third-party fundraising agreement process, you should begin by vetting all third-party fundraisers with a standard application. An application process can help you ensure they are qualified and that they are a good fit for your organization. The application form should include details about:  

  • The type of event and specific details, including how funds will be raised and potential fees charged
  • The target audience and estimated attendance
  • How the event will be advertised and by whom
  • Whether a special event liquor license is required, and if so, request evidence of insurance
  • Designations for the proceeds raised
  • Financial information such as estimated total proceeds, expenses, anticipated net proceeds, and anticipated amount or percentage of net proceeds donated

If you decide to move forward in working with a third-party fundraiser, you should ensure that they sign an agreement that acknowledges their understanding of your fundraising policies and specific requirements for the event. You’ll want to include provisions such as:

  • Indemnification and hold harmless for your organization, officers, directions, and employees from all liabilities related to the event
  • Sponsor agreement to not participate or intervene in any political campaign on behalf of your group
  • Financial reporting requirements such as informing the public about amounts donated to the nonprofit
  • Financial guidelines including ensuring the third-party group are responsible for paying additional expenses related to the event and the time frame for sending the final accounting
  • Requiring advanced written permission from your nonprofit for fundraising activities on your behalf
  • Outlining written permissions to ensure your logo, brand, and name are used only with your permission 

Third-party fundraisers can be helpful but should be structured in a way that ensures your organization receives the benefits intended and that you do not risk harm to your nonprofit status or reputation. Establishing a set policy and necessary forms can help protect your nonprofit’s reputation and insulate you and your board of directors from liability. 

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.