Donor Advised Funds and Conflict of Interest for Community Foundations Case Study

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Donor Advised Funds1. What is your assessment of donor advised funds? What are the pros and cons?Seth makes very good points about the issue donor advised funds (DAFs): the nonprofit sector on the front lines is not able to tap the charitable donations via grant money like it used to because of all the focus going to DAFs and The Pacific Coast Community Foundation (PCCF) essentially acting like a bank (Libby & Deitrick, n.d.). If that is the way the PCCF is going to operate, it should allow representation of the nonprofit sector on the board. The conflict of interest that the board originally intended to avoid is now happening regularly as the PCCF essentially exists to serve the interests of the donors who, although they are not on the board, get to say how they want their funds distributed in the community. As Seth points out, it has robbed the community of the collectivist spirit that had been instilled originally through the PCCF.The pros of DAFs from the donor’s perspective are that they provide a tax-friendly way to make a charitable contribution without having to go through the hassle of starting a fund; instead, the money is donated to an organization like PCCF and the organization is then “advised” on how the donor wants that money to be spent. The con of this arrangement is that it leads to a lack of transparency and prevents nonprofits from building real relationships with donors (Fischer, 2020). So on the one hand, money is pumped into the community in the way donors want it to be; on the other hand, the community collective spirit is not empowered, and there is a fissure between nonprofits and the philanthropists who would traditionally get to know those organizations and the work they are doing first hand.2. From the donor perspective and the nonprofit management perspective, describe what is gained or lost for each group under the donor advised funding model.From the donor perspective and the nonprofit management perspective, two different things are happening. The donor gets to donate money in a way that is beneficial to him and the causes he believes in. He does not have to establish his own charitable fund to do so, but can merely use a DAF to do it. It is essentially hassle-free. The DAF is managed like an investment fund and the money distributed as the donor would like it to be. The donor is happy and the organizations receiving his money are happy.

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Those nonprofits that are kept out of the loop because they are not on the donor’s radar and do not get to submit a proposal for grant money are not happy about it because they do not get to submit their cause and work for review and thus their cause and work can be halted, since no funds are forthcoming.Thus, the nonprofit management perspective is that DAFs prevent the community from getting the funding needed to advance aims like fighting homelessness or helping at-risk students. In a fair market for charitable funds, nonprofits…

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…Deitrick (n.d.). In the long-run, DAFs diminish the relationship that should exist between the community foundation and the community; between the community foundation and the nonprofit sector in the community; between the community foundation and the issues that need to be or are deserving of being addressed in the community. It breaks the trust between the nonprofit sector and the foundation. It breaks the dialogue between the two. The nonprofit sector no longer has a place to turn to for funding. That foundation that had been set up to help the nonprofit sector is not set up as a bank for donors who want to control their funds long-term.Nonprofit leaders should thus consider two things: 1) they should consider finding funding from alternative sources if the DAFs are to continue; and 2) they should consider lobbying Congress to ban DAFs from community foundations because of the harm they do to the community. DAFs essentially act as special purpose vehicles for donors and do not align with the mission of the community foundation. Yet they are legal and nonprofit leaders have to face facts. They should understand that community foundations are no longer going to be a legitimate source of funding in the future so long as they cater to DAFs. That means nonprofits have to find new sources of funding or find ways to establish relationships with donors on their own. It is not an ideal situation in the least, but it is born of necessity because of what the law has allowed and what….....

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