BLS Insights

The Risk of Not Honoring Donor Restrictions

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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)

About the Author

Jonathan Moll, CPA

Director/Executive Director of Strategy
Accounting & Auditing

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