situations offer many opportuni- ties for abuse and can cause Outsourcing Gift Processing problems in several areas. Problem Areas Advisory Opinion Outsourcing of gift processing may also raise concerns in the following areas: • Accounting and reporting. Organizations may make use When used in this manner there When only net income is of a third party vendor to process is absolutely no problem with received by the charity the mail, including product orders, such outsourcing and, in fact, it temptation exists to book the premium fulfillment and gift may be a wise use of a charity’s net income without any income. Services that can be pro- resources. The charity should sat- accounting for the expenses of vided include picking up mail isfy itself that the vendor operates the fundraising campaign. This from post office boxes, opening with essential controls in place. would result in an understate- mail, processing orders, issuing One method of determining this is ment of fund-raising expenses receipts, data entry for account- to request and receive a report on and therefore would not pro- ing purposes, bank deposits, internal controls of the service vide an accurate picture of the reports of all types for manage- organization by an independent organization’s operations. This ment analysis, etc. The process accountant, a Statement on would clearly not be in accor- of collecting mail, banking gifts, Accounting Standards (SAS) dance with generally accepted issuing receipts, etc. is often report, if such is available. accounting standards and referred to as “caging”. ECFA However, in some instances therefore would be a violation member organizations have fundraising consultants offer of ECFA’s Standard #3. asked questions concerning the caging services for their clients practice of outsourcing “caging” and this is where serious con- • Donor communication. services and whether or not it is cerns begin to emerge. When donors respond to a appropriate for ECFA members. Fundraisers may offer caging particular fundraising effort This advisory opinion has been services as a means of insuring they would naturally expect developed in response to these payment for their services, or as that their gifts are going to the questions. a way to overcome a charity’s charity itself, to be used for These services can be very concern about upfront costs of a the purpose described in the helpful to charitable organizations fundraising effort. This can be fundraising communication. and are often used by charities presented as a guaranteed no When the fundraiser banks the that have very large volumes of loss effort where the fundraiser gifts and only a portion (or mail to process and believe that agrees to limit its expense to no possibly none) of the gift is contracting with specialty organi- more than what actually comes passed along to the charity, zations for these services is a more in. In those cases funds are donors would have been mis- efficient use of their resources. placed directly in the account of led and several of ECFA’s Very small organizations can also the fundraiser (or in a joint fundraising standards may make good use of businesses pro- account with the charity) and have been violated (7.2, 7.3, viding caging services. Small only the net income in excess of 7.4 and 7.6). organizations may not be able to the fundraiser’s costs are for- provide adequate security controls warded on to the charity. Also, in • Legal. Some states have laws in mail opening and gift process- some agreements between stating that all income from ing areas i.e. more than one person fundraisers and charities, the fundraising appeals must be being present at all times. In these charity’s donor list becomes deposited in accounts held cases all income is deposited available to the fundraiser to rent solely in the name of the directly into the account of the or sell to provide additional charity. In those states the charity and the vendor bills the income to the fundraiser. These arrangements mentioned charity for their services. above would be illegal and the charity would be liable for whatever penalties those states have established. Summary Outsourcing of gift processing services can be a proper and appropriate approach for a char- ity to acquire to obtain higher lev- els of efficiency, security and control. However, it is never appropriate for a fundraiser to provide the caging service. The fundraiser must never control the income, bank accounts or have ownership of donor lists of a charitable organization.