The needs of our western North Carolina communities are great right now. Individuals are stepping up in communities across the state and beyond to provide funding and resources. (The Blue Ridge Public Radio site lists several donation options to community organizations supporting the relief efforts.) Some are looking to make donations directly to the affected local governments. But that requires the local governments to have a means to accept the donations. As detailed in a previous post a local government may solicit and receive donations and expend the funds for any purpose it has state law authority to undertake. In normal times, we advise local governments to establish a policy related to the solicitation, receipt, and management of donations. But local units are in emergency mode and may not be able to establish policies right now. In the absence of a detailed existing policy, here are some considerations, options, and process requirements related to accepting donations in the middle of a disaster response.

Should a local government accept disaster-related donations directly for local government purposes?

Although there are lots of immediate expenditure needs, local officials need to determine if the benefit of accepting direct donations is worth the administrative burden. In the middle of a crisis situation, there are lots of competing demands. An influx of revenue could be very helpful, but staff may have to engage with more immediate needs. Even using a third-party processor to collect donations (discussed below) requires a local government to engage with the processor, set up processes and systems for accepting and managing the funds, address whether and how to acknowledge donors, identify lawful and practical expenditures, and process budget amendments, obligations, and disbursements. Some local units may decide that the administrative burden is too great and instead partner with local community organizations to collect donations. If a local government has a tourism and development authority (TDA) and/or chamber of commerce, this might be something they can assist with. But other units may not have access to these external resources and may need (or want) to collect the donations themselves.

Process for Implementing a Donation Solicitation/Receipt Program

Assuming a local government wants to accept donations directly, here is a checklist of administrative items to address.

Identify the purposes for which donations will be accepted.

A local government must focus both on its legal authority to spend the donated monies and on its practical ability to expend the funds. Funds donated to a local government become public funds. The monies must be spent only for purposes authorized by state law. General donations (without restrictions as to how the monies must be spent) are the most helpful to a local government in an emergency situation. That way the governing board can determine when and how best to use the monies for short- and longer-terms needs of the local government and the community.

A local government may accept donations that are legally restricted to be spent only on certain purposes. Sometimes it helps in soliciting funds to specify exactly how the funds will be used. But this places an additional burden on local government staff. First, a local government must ensure that it has statutory authority to expend funds for the purposes for which they are being donated before collecting the funds. Second, a local unit must track the funds to ensure proper expenditure over time. A local unit does not want to be in a position of accepting donations and not have the administrative capacity to manage, obligate, and disburse the funds.

Establish process(es) to collect donations.

A local unit may collect donations through various means, including electronic transfers, cash, check, and in-kind donations.

Electronic Donations. In an emergency situation, often the easiest way to solicit and collect donations is through a third-party processor. There are several established companies to provide this service. The benefit of using a third-party is that it often makes it easier on both the local government and the donor. The processor collects the donation through an electronic transaction and holds the monies until the local government directs them to be deposited into its bank account. But the processor will typically deduct a transaction fee from each payment. And the local government needs to have access to internet service to set up the account and link it to its (and/or other’s) website(s).

If it is able, a unit could consult with its bank to see if it has a product that processes external electronic payments. Or a local government could turn to one of many third-party processors, for example Paypal, Venmo, Square, Donorsearch, Stripe, Gofundme, etc. (Students in UNC Chapel Hill MPA Course PUBA 721 recently created a how-to guide to setting up a donation account with seven commonly-used companies. This is not an endorsement of these particular companies, just a guide to help with the process if a local government selects one of these processors.)

Once an account is created, the processor will direct the unit on how to create a “donate” or “pay now” web link. Donated funds are not received by the local government, until the local government gets the electronic transfer from the processor. The processing company provides an acknowledgement (receipt) to the donor.

Cash or Check Donations. Electronic donation solicitation and collection methods may not be feasible or practical for a local government without power or reliable access to internet. A local government can always accept cash or check donations. But cash and check donations require additional staff capacity to manage. A local unit must set basic parameters related to the following:

1. 1. 1. Who, Where, and When. For safety and internal control purposes, a local government does not want every employee out in the community to accept donations. Instead, it should identify specific employees and specific places and times where and when donations will be collected.
      2. Acknowledgements. Donations to a local government can be tax deductible to the donor. The donor may wish to have an acknowledgement letter from the local government to prove the donation was made. (The previous post included sample language to include in a written donation acknowledgement letter.) A local government may not be able to process the acknowledgements immediately. Instead, it could take down the donor’s name and contact information to send the acknowledgement later. If needed, staff could handwrite this information. Staff could write on the paper that it is hereby acknowledging the receipt of the donation to the local government, with formal written acknowledgement to follow when the unit is able. They could then write each person’s name, contact info, amount donated, and whether or not a written acknowledgement is requested, and have both the staff person and donor sign next to that information. At a minimum, the staff person should sign it. This creates a paper trail that can also be used to reconcile donations with deposits. At some point, a local government also may want to publicly acknowledge donors in order to show gratitude and perhaps spur even more contributions.
      3. Internal Controls and Deposits. Perhaps the most difficult challenge in an emergency situation is maintaining proper controls over donated funds. A local government should establish a basic process for handling the cash and checks. Ideally, at least two people are involved in the process, so that the person who accepts the donation is separate from the person who accounts for it. But even that may be difficult to do right now. At a minimum, staff should maintain some sort of paper trail documenting each donation transaction, and all funds should be deposited in the bank daily or locked in a secure location. What constitutes a secure location may simply be a locked bag right now that is assigned to the custody of a designated staff member. If even that is not possible, the local government should not accept donations until it is able to enact basic controls.

In Kind Donations. A local government may accept donations of real or personal property. For example, those wishing to aid the disaster response may donate food, supplies, and equipment for local government staff. A local unit may accept these items and use them for its own purposes or use them as part of a local government program or service.

A local unit should track these types of donations in the same way as cash and check donations.

Soliciting Donations and Combatting Scammers

A local government may solicit donations for general or specific purposes. Some units simply spotlight a “donate here” section on their website and/or social media. Other units will provide a narrative that describes the need and how the funds will be used. If a local government does the latter, it must ensure that it spends the funds consistent with any promises made in the solicitation.

Unfortunately, there may be some people who use this tragedy to scam would-be donors. They may create fake donation accounts claiming to be official. A local government should do its best to communicate to the public where to find its legitimate donation information.

Required Board Actions on Donations

The governing board must vote to accept all donations, unless it has delegated that authority to the mayor, manager, or another employee or official. Although ideally this vote (or delegation) would happen before a donation is processed, again, in an emergency situation that may not be possible. Instead, the board could vote to ratify the acceptance of donations at its next meeting.

But monetary donations must be budgeted before they can be obligated and expended. The governing board must amend the annual budget ordinance to add the donations as estimated revenues and then make appropriations to specific departments, functions, or projects. There is no work-around to this requirement. A local unit may not expend the funds until the board is able to meet and approve the budget amendment. (A budget amendment may be accomplished by a simple majority vote by governing board members present and voting, assuming a quorum is present. G.S. 159-17.)

Should a local government accept disaster-related donations as a pass-through for community members?

Some donors may want the local government to act as a pass-through entity to provide aid directly to affected citizens. This creates an extra burden on the local government to track and manage these private funds. Most local governments choose not to do this and instead rely on community partners to coordinate these efforts. If a local government agrees to do this, any funds collected are held in a custodial capacity. They are not local government funds, but they are subject to certain requirements of the Local Government Budget and Fiscal Control Act, specifically the daily deposit requirement and investment statute. The funds are not budgeted by the local governing board and disbursements are not subject to the statutory disbursement process. Local government staff must make provisions outside the unit’s normal accounting process to track these donations and disburse to the intended recipients.