Case study: Restricted gifts and record keeping

We cover a lot of ground in my nonprofit law course, and at times it may seem that the penalties on groups that do wrong have little application to mainstream charities.

After all, we're all good here, aren't we?

Except good intentions can lead to any number of bad acts--and because these things are done in the name of doing good, even the most respectable group won't see anything wrong.

Here's an interesting case study from California.  Although some legal details may differ from state to state--not all states would apply the language of trust law to gifts to a corporate charity, for example--the core principles and lessons remain the same.  In a nutshell, a California United Way spun off a separate charity to manage charitable contributions, and then . . .

When you cut through the numbers, the problems and issues are relatively straightforward. The court concluded that PipeVine was undercapitalized when it split off from United Way, with the result that PipeVine was forced to use new contributions to meet its obligations to remit amounts attributable to older contributions. The court also concluded that Pipeline's financial statements, as a result of an adjusting entry, hid these facts by overstating PipeVine's worth.

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