The Risk of Not Honoring Donor Restrictions

Posted by Jonathan D. Moll, CPA

Restricted Donations If you’re a nonprofit organization that receives donor-restricted contributions, you might want to think twice about spending those restricted funds for purposes other than what the donor stipulated.

An Oklahoma hospital that failed to build a women’s health center in honor of country singer Garth Brooks’ late mother must pay the country singer $1 million, a jury has ruled. Jurors last week ruled that the hospital must return Brooks’ $500,000 donation plus pay him $500,000 in punitive damages. The decision came in Brooks’ breach-of-contract lawsuit against the hospital. According to an article in our local paper, Brooks said he thought he’d reached a deal in 2005 with the hospital’s president but sued after learning the hospital wanted to use the money for other construction projects.

A jury member said she voted in favor of Brooks because she thought the hospital went back on its word. As far as the punitive damages, she said: “We wanted to show them not to do that anymore to anyone else.”

Brooks’ attorney argued, “This case is about promises: promises made and promises broken.”

This case highlights the importance for nonprofit organizations to have a gift acceptance policy.  The thought of being selective when accepting donor contributions seems counterintuitive in this economy where there is increasing competition among nonprofit organizations over a dwindling availability of charitable funds.  However, accepting a gift with a donor restriction may commit the organization to a future act that it does not have the capacity to carry out. As always, be careful what you ask for.

Photo by taestell (License)

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