Donor Reporting. A sample letter would look something like the following:
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1 Donor Reporting Nonprofit executives put a tremendous amount of time and energy into raising money. They spend an equal or greater amount of time and energy to spend that money wisely. This leaves very little time for donor follow up and reporting. While the nonprofit executive can justify the lack of reporting with the knowledge that they are focusing on good stewardship, the donors may not make that assumption. This Topic of the Month outlines the best practices involved in donor reporting, as happy donors are more likely to convert into repeat donors. Different Types of Donors At Cathedral Consulting, we group donors into one of three categories: major donors, institutional donors, and individuals. There are several ways to identify a major donor, but ultimately it is a significant gift by an individual. For a fuller discussion of major donors, click here to read our paper on the topic. Foundations and grants, both corporate and government, fall under the institutional donor umbrella. With the institutional donor having the most complex regulations in donor reporting, the majority of this paper will be spent discussing this group. This paper will not address reporting for government grants. Contact Cathedral Consulting Group for help with government grant reporting. Showing Your Appreciation There are several ways for nonprofit organizations to show their appreciation to a donor. A minimal effort should be made in sending each donor a personal thank you letter, regardless of the donation size. The typical donor recognition letter states that no goods or services were provided and confirms that the donation is tax deductible. Sometimes this statement is woven into the text of a letter, and sometimes it stands on its own. Using the simple formula below can also meet the qualifications established by the IRS for a receipt, allowing the donor to utilize it for tax deduction purposes. Such formula contains: The name of the donor. The amount or value of the donation. The date the donation was made. The name of the recipient organization and its Tax Identification Number. That the donor received no goods or services in exchange. A sample letter would look something like the following: Thank you for your contribution of $ (amount) to (organization s name) and (date). Your support will (add a brief description of what the donation will enable the organization to do or state the basic purpose of the specific program for which the contribution was made). Cathedral Consulting Group, LLC Page 1
2 (Organization name) is a 501c3 nonprofit organization. Your contribution is taxdeductible to the extent allowed by law. No goods or services were provided in exchange for your generous financial donation. In some cases some goods or services were provided, such as a meal or a small gift. In this case the letter should note what portion of the donation is tax deductible. One example: Thank you for buying a table from our annual gala. Your gift of $10,000 is deeply appreciated. We estimate the value of the dinner to be $400, reducing the tax deduction of your donation by this amount. As stated, while the expression of gratitude is certainly appreciated by the donor, the letter has important tax implications. Depending on the size of the donation, the absence of this type of letter may challenge a donor s tax deduction or even deny it for lack of proper documentation. Having a donor chase a nonprofit down for this type of letter is surely not a good way to garner repeat donations. Your Annual Report The Annual Report is much more than just a review; it is an important donor-reporting tool that moves an organization forward. The purpose of an Annual Report is generally three-fold. 1. Shows current donors that their donations have been well spent. 2. Makes the case for a continuing need for donations. 3. Serves as an introduction to attract new donors to the cause. The report itself should follow a basic outline; however, we do encourage organizations to be creative with its structure. Keeping mind that the less that is written, the more donors will read, use charts and photos over long descriptions whenever possible. Remember that there are different learning styles. There are those readers who love words, those that prefer pictures, and those who like numbers. Annual Reports should contain all three elements. Most Annual Reports follow this general outline: Letter from the Executive Director and/or Board Chairman. Organizational Information. Programs & Accomplishments. Future Goals. Financials. List of Donors. How Donors Can Help. The Annual Report is a great way to reach all of your donors at once. There are several means of distribution. An organization will have to assess its budget and determine which will best suit its respective circumstances. Even if an organization can afford to print hard copies for major donors, the Annual Reports can and should be published on the organization s website for virtually no cost beyond the normal web maintenance fees. (For a more detailed description of the annual report, click here to read our paper on the subject.) Cathedral Consulting Group, LLC Page 2
3 Beyond the Annual Report Acceptance of a grant proposal is only the first step in an intricate relationship between a nonprofit organization and a foundation. Typically, a foundation s requirements for reporting can be found on its web site and at the very least it will be provided upon the acceptance of the respective proposal. For example, each Grow Iowa Values Fund grant recipient is required to submit the following reports on the project funded: Project update (by a given date). Project final report (by a given date). This report either will describe specific commercialization or confirm that the project cannot be developed further. Failure to submit the report on time may make the recipient ineligible for future internal seed funding. Clearly understanding and discussing the guidelines and deadlines for any interim and final report is the first step in favorably managing this relationship. Failure to comply equates to failure to grant funding in the future. A successful grant report is often structured similarly to a grant proposal and can be used as an outline in writing a grant report. The elements of a grant report include a cover sheet/letter, a narrative section and financial statements. In some cases additional information may be required; however, at minimum, institutional donors generally utilize the aforementioned components. Cover sheet/letter Depending on the structure of the foundation, a cover sheet may be provided or have the ability to be downloaded from its web site. Typically the required information on a cover sheet includes basic information, such as the organization s name, project name, grant amount, date of grant and contact information. In the absence of a cover sheet, a cover letter is written. A cover letter should be addressed to the appropriate foundation representative and is a good place to write a personal thank you and highlight one or two successes that were made possible by the funding. The Narrative Section The narrative portion is the bread and butter of the donor report. It tells the reader what happened over the course of the grant period including successes and failures. If a list of questions is provided by the foundation, the report should follow it exactly. If a nonprofit organization s proposal listed specific objectives and goals, the report should address each one following any explanation or short story related to each. It is important to note, an unaddressed objective will raise a red flag. It is best to acknowledge it honestly stating any progress made or a best attempt at explaining why the effort fell short of expectations. Financial Statements This portion of the report explains how funds were spent. Once again, the structure should be modeled off of the grant proposal and/or the requirements of the foundation. If the proposal stated specific line items, the report should reflect each item. If the funds were given for general expenses, a financial statement outlining revenue and expenses may provide enough information. It is always best to err on the side of caution and contact the foundation to found out what format is preferred. Cathedral Consulting Group, LLC Page 3
4 The above three elements are the heart of the donor report; however, the report is not limited to these components. Additional information on the human interest aspect of the work the organization is doing is often included. This can consist of case studies, photos, videos, research reports, or any other related information. This information can be a lead into another function of the donor report requesting additional funding. This, however, is assuming the organization was compliant with the requirements of the foundation along the way. Noncompliance is a quick way to close the door to repeat donations. It is important to note that some foundations do not necessarily require reporting at all. In these cases, a shorter report is still seen as best practices and will usually be very much appreciated. In addition, the act of reporting has benefits for your organization whether it is required by the donor or not. Reporting serves as an internal assessment tool, forcing a reflection on what goals and objectives were obtained and which are still being sought after; it also sends a message of gratitude and good stewardship to the donor both of which are integral elements in donor acquisition. Having a high standard of donor reporting best practices may be the deciding factor that separates your organization from its competitors. It goes without saying that extensive resources are complied into such reporting and it would be foolish to expend such resources on smaller donations. A good rule of thumb regarding the range of donor reporting is it should correlate to the magnitude of the donation. Another important report to consider when discussing donor reporting best practices is the required 990 tax form. When submitting the 990, ensure all of the organization s information is up to date, as this is often a place where a potential donor may start when considering making a donation. If the public form conflicts with other resources from the organization, the nonprofit may lose some credibility in the eyes of the donor. In addition to federal requirements, some states may have their own regulations. We encourage nonprofit organizations to familiarize themselves with the Attorney General s website to be sure it is meeting all of its state requirements. For more information on the new IRS Form 990, click here to read our paper on the subject. Conclusion Donors are almost always people and institutions of significant financial resources. For that reason, they often think in terms of investing, rather than just giving. These are people who are very savvy and very wise about how they invest their money. When they give their money to a charitable cause, they don t see it as a sunk cost, but rather as an investment. They are used to getting quarterly reports on their investment, and reading them very carefully. Once you understand this about your donors, whether they be individuals or institutions, you will begin to see why timely and accurate reporting is so important in establishing long-term relationships with donors. Donors view their gift to an organization as an investment. Proper donor reporting is an explanation of what return a nonprofit organization made on a donor s investment. Articles for Further Reading 1. Reader Question of the Week: How Do We Report Unfavorable Financial Results to Our Donors? 2. How to Write a Good Report to a Donor Cathedral Consulting Group, LLC Page 4
5 Peter Giersch is COO of Cathedral Consulting Group, LLC and a Managing Director in the Midwest Office. Michelle Fitzgerald is a former Senior Associate in the New York office. Susan Russell is a former Intern Associate in the New Jersey office. For more information, please visit Cathedral Consulting Group LLC online at or contact us at info@cathedralconsulting.com. Cathedral Consulting Group, LLC Page 5
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