Prohibited Practices in Fundraising

Below are six common prohibited practices in nonprofit fundraising.

I’ve limited the list to six for the sake of brevity and this should not be mistaken for a complete litany of standards. Still, while most fundraisers do operate ethically most do not review prohibited practices which is why this list can be useful.

In a few instances I have linked a prohibition to one or more industry sources, such as The Association of Fundraising Professionals, The National Council of Nonprofits, or The United States Conference of Catholic Bishops.

1. Misrepresentation, Misuse, or Fraud

• Using Restricted Donations for Other Purposes: If a donor restricts a gift for a specific purpose, diverting it to another use without donor consent is illegal and unethical.

  • Example: Saying donations fund a specific building project or scholarship fund when the money is actually used for general operations.

2. Improper Fundraising Compensation

• Paying Fundraisers Based on Commission: The Association of Fundraising Professionals, the National Council of Nonprofit, the IRS, and the United States Conference of Catholic Bishops all strongly discourage or prohibit paying fundraisers a percentage of the funds they raise, as it can incentivize aggressive or unethical solicitation.

  • Ethical Standard: The AFP and USCCB promote flat fees or salaries instead.

3. Conflicts of Interest

• Self-Dealing in Fundraising Events: Nonprofits cannot allow board members, staff, or their families to profit improperly from fundraising events (e.g., a board member’s company overcharging for catering).

  • Legal Consequence: Violates IRS rules on excess benefit transactions, potentially leading to excise taxes or loss of tax-exempt status.

4. Violating Donor Privacy and Rights

• Selling or Sharing Donor Information Without Consent: Nonprofits cannot sell, trade, or share donor lists or personal information without explicit permission, as this violates privacy laws and donor trust.

  • Legal Consequence: Violates state privacy laws (e.g., California Consumer Privacy Act) and the Donor Bill of Rights.

5. Targeting Vulnerable Populations

• Exploiting Vulnerable Donors: Targeting elderly, disabled, or otherwise vulnerable individuals with coercive or deceptive tactics (e.g., convincing an elderly donor to give beyond their means) is prohibited.

  • Legal Consequence: Violates state elder abuse laws and consumer protection statutes, potentially leading to lawsuits or criminal charges.

6. Non-Compliance with Tax Laws

• Not Providing Donation Receipts: Failing to provide proper receipts for donations over $250 (as required by the IRS) or misrepresenting the tax-deductible portion of a gift (e.g., not disclosing the value of goods/services received, like gala tickets) is prohibited.

  • Legal Consequence: IRS can impose penalties on the nonprofit, and donors may lose deductions if audited.

Best Practices to Avoid Prohibited Practices

• Transparency: Clearly state how funds are used on donation pages, in emails, and at events.

• Donor Consent: Always obtain permission before sharing donor information or repurposing restricted gifts.

• Ethical Compensation: Pay fundraisers salaries or flat fees, not commissions, and disclose fundraising costs.

• Donor Respect: Honor donor preferences (e.g., anonymity, opt-outs) and avoid coercive tactics.

To prevent misuse, and moreover to be a more connected part of the community, I would add that it is a good practice for fundraisers to do more than simply solicit funds for their organization. In school fundraising, for example, fundraisers should also be encouraged to teach, go on school trips, coach a sport, and to be involved in as many ways as possible that link them to the mission of the school. By adhering to these guidelines fundraisers can work to maintain trust, comply with laws, and foster a culture of generosity.

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