Transparency and Fungibility?

(Added 02/01/2021)

Q

We have a donor who is considering making a $1.5 million gift to fund a named scholarship. (Before I get going, please know that, even though it’s not technically accurate, I use the term “financial aid” and the word “scholarship” interchangeably.) We get to that number by dividing the tuition, about $60,000, by four percent, our endowment’s spending rule. The head of the finance office has stood her ground to ensure that this scholarship, any scholarship, actually, is funded with the proper amount, and not something less — an argument that some of the trustees, as well as the president, have made in order to encourage the gift by allowing the donor to get recognition without paying as much. I agree with the finance office. All good. That is, until I asked what the current budget for scholarships is, thinking that adding $60,000 per year will be a great addition. My boss answered my question by saying it doesn’t matter, that money is fungible. He told me that the actual budget won’t be increased, but that the donor will have the satisfaction of seeing his name associated forever with such a good project. My concern is that, while the donor wants to be recognized by having the scholarship named for him, he also wants — and maybe wants even more — to increase the scholarship budget.

A

Ah, yes, the old fungibility defense: It doesn’t really matter that the money swims around deep in the accounting ledgers as long as things get paid for; funds in one account are mutually interchangeable with funds in another. Which is fine — as long as the donor never finds out that he’s really funding $60,000 of the university’s general operations, which might include the dining hall, lawn care, the light bill, or any of a number of other budget items. Then, it could get messy.

The issue here is what the donor expects. The question is pretty much never asked because it would sound so awful: Do you mind that we don’t actually use your gift to expand our scholarship budget and instead use it for other purposes? Not to worry; your name will still be associated with aid to a deserving student.

Right.

Even though donors almost never ask – mainly because they never think about the question — the university has a moral obligation to satisfy their expectations, even if they don’t fully know or haven’t articulated what those expectations are. I have a strong feeling that if you had that conversation with the donor, he would say he wanted to add to the financial aid budget. And if the university doesn’t ask the question for fear of that answer, then shame on the university. You are making an agreement with the donor: He gives you money for something in return — recognition as a financial aid donor — and you are ethically bound to determine and fulfill the expectation, even when it is only understood, vague as the understanding may be, and not in writing.

The president might say that donors don’t have the right to tell him how he should set the budget or how he can spend revenues, that only the board has that authority. Otherwise, the argument may go, donors would have chaotic control. That would be disingenuous, though, because the endowed gift, which materializes because of a voluntary act, adds to the budget. The president may say that the budget is going to rise next year anyway, not by only $60,000 but by $100,000, so the gift could be considered a part of that increase. Again, disingenuous: the impact of a gift should not be whittled down to nothing because of other financial decisions.

As you can see, the real issue is hardly financial; it’s ethical. It’s a matter of understanding where donors are coming from and fulfilling their expectations. If you don’t know those expectations — and you almost never will, as it’s something most people don’t think about — then it’s your duty to ask.

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