When Unhappy Donors Want Their Money Back
Disappointed Gift Givers Increasingly Are Asking For—and Getting—Refunds From Charities
ENLARGE A legal dispute over a 138-acre land gift that Elizabeth Banks made to Johns Hopkins University in 1989 was decided by a judge rather than a jury. Newell Family
By
Charlie Wells
For most people, giving money to charity feels great.
Asking for the money back is a whole different story.
Yet philanthropy experts say donors increasingly are doing just that: requesting "refunds" on gifts they feel have been misused, ignored, or spent in a way that strays from their original reason for giving.
"Donors are becoming savvier, [and] they are becoming more engaged in how their money is being used," says Doug White, director of Columbia University's fundraising-management graduate program.
The ease of accessing financial data on the Internet, as well as a string of high-profile court battles involving donors seeking refunds, are behind the shift, he and others say.
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"Twenty years ago, there was just no information market for nonprofits," says Chuck McLean, a vice president of research at GuideStar, which publishes data on charitable institutions. "Nonprofits would just tell you what they wanted to tell you. And that was that."
As the changes continue to unfold, there are a few key points donors should keep in mind:
Gift Rules Can Vary
One of the main problems facing refund seekers is the conflicting—and often confusing—information available on how charitable gifts are regulated.
Historically, U.S. law has operated on the principle that "once a gift is given, it can't be taken back," says Robert Bennett, a professor of law at Northwestern University who teaches a course on contracts.
ENLARGE These days, however, the thinking on gifts is in a transition period, says Winton Smith, a lawyer who works with charitable organizations to set up planned-giving programs. Some courts are beginning to give donors more power over their gifts after they've been given.
Still, charitable-gift enforcement varies by state; different courts have different rules on whether a donor has "standing," or permission to bring a dispute before the court.
"About 30 states have the Uniform Trust Code, which authorizes donor standing to enforce a charitable trust," says Robert Sitkoff, a professor at Harvard Law School who studies wills, trusts and estates. But "a New York court has gone further, recognizing donor standing to enforce other kinds of charitable gifts, too."
Craft an Agreement
The best way to protect your right to a refund is to draft a charitable gift agreement before making the donation, Mr. Smith says.
In an ideal world, such an agreement would include a "gift over" clause permitting the donor to request a transfer of a misused or unused donation to a different charity, one willing to carry out the donor's original intent. There is less awkwardness, confusion and ill will if you tell a charity to give the money to another charity, Mr. Smith says.
Such agreements should give donors the right to go to court to enforce the terms of the gift, he says.
They also should protect the donor's right to a jury trial, says Tim Newell, a 56-year-old from Hunterdon County, N.J. who lost a legal battle when Maryland's highest court declined in 2013 to take up a dispute involving Belward Farm, a 138-acre land gift his late aunt, Elizabeth Banks, made to Johns Hopkins University in 1989.
The dispute over development of the farm was decided by a judge rather than a jury, a legal strategy Mr. Newell now says was a mistake. "There isn't a doubt in my mind we would be in a completely different position if we had gone before a jury," he says.
Johns Hopkins says it is grateful to Ms. Banks and her relatives for their generosity and is abiding by its agreement with them. "We have lived up to, and will always live up to, our agreement with them," spokesman Dennis O'Shea wrote in a statement.
Talk It Through
While detailed gift agreements are a good idea, they aren't the only way to prevent or resolve disputes.
Many disagreements between a donor and institution can be settled by having a rational conversation, says Eileen Heisman, chief executive of National Philanthropic Trust. She recommends focusing on finding the root cause of the dispute.
"Ask yourself why you are having these dissatisfied thoughts," she says. "Are they emotional or intellectual? Are they actually based on what the charity is doing, or is this a personnel issue?"
When having this conversation, keep in mind that the charity's interests aren't necessarily at odds with yours.
Charities have a strong interest in cooperating with their donors—at least while the donor is alive, says Harvard's Dr. Sitkoff. Happy donors tend to do something charities love: keep giving them money.
Prepare for the Consequences
Taking back a donation can have unexpected consequences. The biggest is likely to pop up around tax time.
"If you get money back, it's just counted as income and you pay income taxes on it," says Jill Horwitz, a professor who teaches nonprofit law at the University of California at Los Angeles. "That essentially undoes the deduction that you got before."
Whether this will be better or worse for an individual depends on his or her income-tax rate at the time the gift was made, and the rate when the gift was refunded. There is no adjustment made for a changed rate, says Dr. Horwitz.
Perhaps the most important thing to calculate is how taking back a gift might make you feel, says Ms. Heisman, of National Philanthropic Trust. "It all comes down to one question," she says. "How do you want to be remembered?"
Mr. Wells is a news editor in New York. He can be reached at charlie.wells@wsj.com.
SEC: Accounting Board Is Dragging Feet
Commission Officials Chastise PCAOB for Lack of Progress on New Rules
ENLARGE James Doty, chairman of the Public Company Accounting Oversight Board. Bloomberg News
By
Michael Rapoport
The Securities and Exchange Commission is clashing with federal auditing regulators over their priorities, suggesting they haven't moved quickly enough to enact rules on how auditors do their jobs.
Three senior SEC officials publicly took issue with the Public Company Accounting Oversight Board at a conference last week. They suggested the PCAOB, which lately has focused on new audit-firm disclosures, had dragged its feet on another task: new rules that would govern the nuts and bolts of how accounting firms conduct audits.
Some of the PCAOB's most important rule-making efforts "simply have been moving too slowly," SEC Chief Accountant James Schnurr told the American Institute of CPAs conference in Washington. "Considering the lack of progress on a number of projects," he added, the PCAOB and SEC would take "a fresh look" at the accounting board's process.
Brian Croteau, an SEC deputy chief accountant, echoed Mr. Schnurr's comments, while SEC commissioner Daniel Gallagher said the PCAOB should focus on "core blocking-and-tackling issues" and consider leaving disclosure "for the next wave" of rules.
Accounting experts say it is unusual for the SEC to criticize the PCAOB so openly and directly. Commission officials have voiced similar concerns in the past, though not with the tone of frustration evident this month.
The PCAOB's chairman, James Doty, said at the same conference that the board was trying to make sure its rule writing was "as efficient and effective as possible." A PCAOB spokeswoman declined to comment further.
Still, some observers say the SEC officials' remarks reflect a sentiment by the commission that the PCAOB should shift its emphasis and focus more on setting clear rules for auditors' work, rather than trying to overhaul and set policy for the accounting industry.
They think the criticism could lead to a scaling back of the PCAOB's recent efforts to require more disclosure of auditing firms, like identifying the partner in charge of each public-company audit and providing more information to investors in their audit opinions.
"The PCAOB does have something of an activist streak," said John Coffee, a Columbia University securities-law professor. But the board "is entitled to reach its own judgments on how we should structure accounting."
The PCAOB was created by the Sarbanes-Oxley Act in 2002, after a series of accounting scandals spotlighted a lack of oversight for auditors. It inspects audit firms and writes and enforces auditing standards. The PCAOB reports to the SEC, which appoints the board's members and approves its budget and the rules it enacts.
Since Mr. Doty took over as PCAOB chairman in 2011, the board has put more of its emphasis on proposals to require additional auditor disclosure. A former securities attorney, Mr. Doty contends that improved disclosure from audit firms will boost audit quality, by giving investors more information and making auditors more accountable.
In his speech last Monday, however, the SEC's Mr. Schnurr contended the most effective way to improve audit quality is to update existing rules that "directly address auditor performance." One such rule the PCAOB is considering would revamp how auditors evaluate companies' use of fair-value measurements, for example.
In a later statement Friday to The Wall Street Journal, Mr. Schnurr said while he believes it is important for the PCAOB to act on audit-performance issues, he also recognizes "the significant role of the other projects on their agenda."
The different views from the SEC and the PCAOB seem to reflect a "very different worldview" between the two agencies, said Joseph Carcello, a University of Tennessee accounting professor who serves on a PCAOB advisory panel.
Some of the chief accountant's staff came to the SEC from the accounting industry, including Mr. Schnurr, who recently retired from a decadeslong career at Deloitte LLP. Mr. Doty and some other PCAOB members were either attorneys or government employees before joining the board.
Many of the PCAOB's ideas have been opposed by the accounting industry. The industry has been reluctant to name audit partners, prompting the PCAOB recently to offer a compromise on the issue.
Fierce opposition from the industry and some members of Congress also prompted Mr. Doty to shelve an idea that would have required companies to periodically change their audit firms.
Some observers sympathize with the SEC's contentions.
"If you're spending a lot of time on audit rotation and then the audit report and naming the audit partner, you're obviously not spending nearly as much time on the nuts and bolts of high-quality audits," said Dennis Beresford, a former Financial Accounting Standards Board chairman who teaches accounting at the University of Georgia.
Other SEC watchers such as former commission Chairman Arthur Levitt said the agency should let the PCAOB finish its disclosure initiatives. It's "wrongheaded" to criticize the PCAOB for focusing on auditors' responsibilities, he said. Others note that other countries' regulators have enacted similar disclosure requirements for auditors. "What the PCAOB has proposed is less aggressive than what exists in most of the developed world," Mr. Carcello said.
Write to Michael Rapoport at Michael.Rapoport@wsj.com
How Charities Can Get More Out of Donors
What the Latest Research Says About Getting People to Give
What gets people to donate to charitable causes? Hint: A little public recognition, and a few important people go a long way. TinyGive co-founder Clarence Wardell joins the News Hub.
By
Anna Prior
What gets people to give?
It's a question charities have been grappling with for as long as there have been, well, charities. But researchers in recent years have begun digging deeper into the question, using controlled experiments and psychological testing to better understand why people feel compelled to donate to a good cause—or give it a pass.
Some of their findings turn the conventional wisdom at charities on their head. Lots of charities lean on heart-rending stories to inspire people to give, for instance. But recent research has found that something much less emotional can be just as effective in winning people over—trumpeting the fact that the charity got a gift from a big-name donor. Research has also found that the promise of public recognition works for even the smallest donors, not just people who get their names on buildings.
ENLARGE CJ Burton
Some say tests like these are urgently needed, since donations have been relatively flat for decades. That fact "is an indictment of our dearth of knowledge about this sector," says John List, principal investigator at the Science of Philanthropy Initiative at the University of Chicago. "We will grow the social pie of giving" as researchers delve into why people donate.
Here's a look at some of the latest research on what pushes people to open their wallets for charity and what spurs them to give even more.
Got a Big-Name Donor? Make Sure People Know
Sifting through thousands of charities can be overwhelming and time consuming. One of the most common ways for charities to stand out in the crowd is to use heart-tugging human-interest stories. But there's another step that they often don't take that can be surprisingly effective: advertising a gift from a well-known donor.
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Mr. List and Dean Karlan of Yale University teamed up with TechnoServe, a charity focused on international development and poverty reduction, to look into the impact a well-known donor can have on others' giving.
In one experiment, they sent direct-mail fundraising requests to people who had not previously donated to TechnoServe. Some of the mailings named the Bill and Melinda Gates Foundation as a matching donor, while other mailings noted only that the charity had an anonymous matching donor.
Naming the foundation as the source of matching funds increased the probability of an individual donating by about 22%—rising to 1.1% from 0.9%. And the effect persisted after the matching period, meaning people continued to contribute more if they remembered that the Gates Foundation had once donated.
Big-time donors are important because it's so hard for individuals to evaluate charities these days, experts say. If people see that a big name donated, they will assume that donor carefully vetted the charity, so it becomes a better bet.
"It's serving as a quality signal, that this is a high-quality organization and you should support it," says Mr. Karlan, who is also the president of Innovations for Poverty Action, a nonprofit that researches solutions to global poverty problems. "It shows, 'We passed their bar.' "
ENLARGE The study didn't look at the proportion of charities that trumpet big donors or why some don't take that step. But Mr. Karlan speculates that they fear appearing too "wonky" and would rather make emotional appeals.
Give All Donors a Moment in the Spotlight
Everybody knows that giving people public recognition can be a big motivation to donate. But that spur can work for even small donors—not just rich ones who get their names on stadiums, says Mr. Karlan.
Mr. Karlan and Harvard University global health-economics professor Margaret McConnell recently tested this with a pair of experiments. In the first, a service organization at Yale solicited donations from alumni via phone. When researchers mentioned they would publish the names of donors who gave a certain amount in a newsletter, the probability of giving was 13.7%, compared with 11% for those who didn't get the offer. Average gift sizes, meanwhile, were $66 for those who received the newsletter offer, almost 14% more than the $58 for those who didn't.
Mr. Karlan says he was surprised by the magnitude of the increases, especially given the relatively minor nature of the public recognition in the study.
"It was just a newsletter, it's not like it was their name on a building," he says.
In the second experiment, undergraduates were asked to keep $5 or donate all or part of it to a charity, with their decisions being displayed publicly. Students who decided to give made the choice so quickly, the researchers concluded, that the motivation likely wasn't to influence others into giving. Rather, it was more about social image. "You're giving to get your name out there and say, 'Hey, look at me, I'm so great,' " says Mr. Karlan.
The lesson, he says: Charities should try to recognize donors at all levels. "Charities focus on big donors for obvious reasons, but small donors are moved by similar motivations," he says, adding, "For someone who doesn't have a lot of extra money to throw around, giving some of it to charity may be a bigger sacrifice than it is for someone rich. Why not recognize it?"
Give People a Reason to Spread the Word
Charities increasingly have some presence online, and many reach out to supporters via email, Facebook and Twitter. Yet in some ways they're still figuring out how to handle the online world, experts say.
Clarence Wardell III, co-founder of online microphilanthropy platform tinyGive, says a lot of organizations "still don't know where to begin" when it comes to online social networks. Many just treat them like another version of email and send out mass messages to potential donors, he says. They often don't try to do things like engage in a dialogue with potential donors.
So Mr. Wardell, along with professors Ragan Petrie and Marco Castillo of George Mason University, set up an experiment to test the effectiveness of one particular social strategy: asking donors to spread the word and invite their friends to join them in donating via Facebook.
ENLARGE Donors who made a contribution to a charity through an online giving community were randomly asked to tell others about the donation and ask friends to join them in giving by either posting an announcement on their own Facebook wall or sending friends a private message.
The researchers found that people were more willing to post on their wall than send a message. And they were much more likely to post if there were an incentive. In this case, the online giving community offered to add an extra $1 or $5 donation in the donor's name in return for posting. (The money came from a research grant.)
To some, it may seem counterintuitive for charities, especially ones without large marketing budgets, to devote fundraising dollars to prod current donors instead of reaching out directly to new ones. But Mr. Wardell observes, "If you can't incentivize people to ask, you're stuck in a place where you are fundraising from the same people over and over again." Charities might also tell donors how valuable social sharing can be to get them to post announcements about their gifts, he says.
Ms. Petrie says the team is working on a follow-up study that looks at a third method of sharing—directly asking a specific friend but doing it publicly by posting on that friend's Facebook wall. Asking someone directly and out in the open can carry a higher social cost, she says. But the friends may also be much more likely to donate if they're put on the spot.
Overhead Is a Huge Turnoff
A big stumbling block for many donors can be high overhead costs at charities, especially in light of reports about waste and big salaries for some executives at nonprofits. The thought process is, "I want to help the kid with the money, not the CEO," says Uri Gneezy, a professor of economics and strategy at UC San Diego's Rady School of Management, who says he sympathizes with the sentiment.
Just how much of a problem is it for donors? Mr. Gneezy, along with Elizabeth Keenan and Ayelet Gneezy at the Rady School, undertook an experiment that showed the size of the problem in striking terms, but that also suggested a solution.
As part of the research, they sent 40,000 solicitation letters to people, divided into four groups. One group received a standard letter asking for money, the second got a similar letter saying a private donor had already given seed money to the cause, and the third group's letter noted there was a matching grant available.
But the fourth group got a letter telling them that the charity had already secured donations to cover its overhead costs, so every subsequent dollar donated was going directly to programs.
"We saw a huge jump in giving in that fourth group—it really had a big effect on the amount that people give," says Mr. Gneezy.
According to the study, 8.55% of people in the fourth group donated, compared with 4.75% in the second group and 4.41% in the third. And total donations for the fourth group were $23,120—almost triple the first group's $8,040, and nearly double $13,220 in the second group and $12,210 in the third. "The average donor doesn't seem to care about the size of the overhead, as long as they aren't the one paying for it," says Mr. Gneezy.
Charities sometimes try to address the overhead issue by educating the whole donor base about why costs are high, but that often comes off as condescending, Mr. Gneezy says. Instead, he argues, charities should try to appeal to wealthy givers first to cover those costs.
As Erin Hogan, a senior philanthropic adviser with the Philanthropy Centre at JP Morgan Private Bank, notes, many wealthy donors were perhaps business owners themselves, so they're more likely to understand overhead and be more sympathetic to appeals to pay for it.
Don't Just Stand There—Say Something
It's one of the most familiar solicitation strategies in the charity world: a volunteer standing outside a store ringing a bell. The problem, says Microsoft Research economist Justin Rao, is that many people make sure to avoid being asked in the first place.
As a graduate student at University of California, San Diego, Mr. Rao observed this during the holidays when people shopping at a supermarket seemed to duck into the store via a side entrance, avoiding the Salvation Army volunteer asking for donations at the main entrance.
So, he teamed up with his professor James Andreoni and Hannah Trachtman, currently a graduate student at Yale, to conduct an experiment. Salvation Army solicitors were posted at both entrances or at one entrance, with solicitors either directly asking for donations or remaining silent. Directly asking increased donations by 60%, but there was also dramatic avoidance of the volunteers who were asking, compared with the silent ones. "People don't like saying no," so a direct ask is generally more effective, says Mr. Rao.
There are a couple of lessons here, Mr. Andreoni says. For one, the more human and direct the contact between donors and recipients, the more effective the appeal. Indeed, he says, other research has shown that eye contact is important in generating the empathic and sympathetic reactions that set off the chain reactions leading to generosity.
Another important point: If people avoid a charity, it doesn't necessarily mean they're hard hearted. It may be a sign that the charity is appealing to them on some level and they're afraid they'll say "yes" if asked. So it may be worth trying to find ways to reach them later on. After all, the research shows that directly asking brought in much more money than not asking.
That said, Mr. Andreoni notes, the study doesn't make it clear just how much aggressiveness people will put up with before they get annoyed. So charities should tread carefully until they find an approach that works.
Ms. Prior is a staff reporter of The Wall Street Journal in New York. She can be reached at anna.prior@wsj.com.
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