The Hidden Administrative Work Behind Fundraising

SPEAKER_03: 0:00

Welcome to the Nonprofit Compliance Brief, where we explain charitable solicitation and multi-state fundraising requirements in clear, practical terms for nonprofit leaders and finance teams. This podcast is produced by Ironwood Registrations.

SPEAKER_01: 0:13

It’s really great to be here today.

SPEAKER_03: 0:15

Yeah, I’m excited for this one. So uh today we are going to talk about the iceberg.

SPEAKER_00: 0:20

The iceberg.

SPEAKER_03: 0:21

Right. And no, I don’t mean the lettuce, and I uh I don’t even mean the Titanic, although, you know, depending on how your quarter is going, that sinking metaphor might feel a little too real right now.

SPEAKER_01: 0:30

Right. Yeah. For some finance teams, definitely.

SPEAKER_03: 0:32

Aaron Powell But we are talking about the massive uh submerged reality of fundraising operations.

SPEAKER_01: 0:38

Aaron Powell It’s a perfect visual for this topic, really. Because um when you think of fundraising, you naturally visualize what’s above the water.

SPEAKER_03: 0:46

Aaron Powell The glamorous stuff.

SPEAKER_01: 0:48

Exactly. You see the gala dinners with the nice centerpieces, uh the direct mail campaigns with the glossy photos, right. Shaking hands with major donors, the big ask. That is the visible part.

SPEAKER_03: 1:00

Aaron Powell Yeah, the exciting stuff, the revenue. That’s what the board sees, and you know, that’s what the public sees.

SPEAKER_00: 1:07

Always.

SPEAKER_03: 1:07

But the sources we are looking at for this deep dive, they are focused entirely on what is underwater. The invisible side of fundraising.

SPEAKER_01: 1:16

The part nobody really wants to look at.

SPEAKER_03: 1:17

Right. It’s the administrative work, the uh operational systems, the compliance headaches that nobody puts on the brochure, because frankly, they aren’t very sexy.

SPEAKER_01: 1:27

Aaron Powell No, they definitely are not. And the mission for this deep dive is to expose those systems. We want to really understand the operational infrastructure that uh that actually supports the fundraising.

SPEAKER_03: 1:37

Okay.

SPEAKER_01: 1:38

The big question we are trying to answer today is why does this administrative workload seem to grow so much faster than the donations themselves? And more importantly, how do you plan for it so the actual mission of the nonprofit doesn’t suffer?

SPEAKER_03: 1:51

Aaron Powell That’s a great setup. So let’s start with the reality of this infrastructure. I think for a lot of organizations, especially when they are smaller or, you know, just starting to scale up, this stuff feels well, it it feels manageable, maybe even a little informal.

SPEAKER_01: 2:03

Aaron Powell I mean informal is probably the polite word for it.

SPEAKER_03: 2:06

Fair enough.

SPEAKER_01: 2:07

In the early days, administrative tasks feel small because the volume is low. You get a check, you write a nice little thank you note, you drive to the bank and deposit it.

SPEAKER_02: 2:16

It’s a straight line.

SPEAKER_01: 2:17

Exactly. It’s a very straight line. It is incredibly easy to ignore the need for a complex system. You can hold the entire operation in your head. Or, you know, in a shoebox of receipts.

SPEAKER_03: 2:31

I think we have all seen that shoebox. Or maybe it’s a single Excel spreadsheet named uh donors underscore final underscore final underscore v2.

SPEAKER_01: 2:40

Yeah. The classic v2. And that works, you know, for a while. But the sources highlight that fundraising success depends on much more than just the outreach. Right. Behind every single campaign, as you scale, there are core systems running in the background that simply cannot be managed in a spreadsheet anymore.

SPEAKER_03: 2:57

So if we if we peel back the curtain, what are the pillars of those systems? What actually makes up this invisible infrastructure?

SPEAKER_01: 3:05

Aaron Powell We are looking at four main categories that usually start to cause friction as you grow.

SPEAKER_03: 3:09

Okay, what’s the first one?

SPEAKER_01: 3:10

First, there is donor tracking, knowing exactly who gave what and when.

SPEAKER_03: 3:14

Makes sense.

SPEAKER_01: 3:15

Second is financial reporting. Actually getting those numbers out of the donor database and into the real accounting books. Right. Third is compliance filings, that’s the legal side. And fourth is communication management.

SPEAKER_03: 3:27

Aaron Powell Okay, let’s unpack these. Because donor tracking, that sounds innocent enough. To me, that just sounds like a list of names. Why does the source material flag this as such a potential nightmare?

SPEAKER_01: 3:38

Aaron Powell Well, it starts as a list of names, sure. But as donor numbers increase, the nuances just explode.

SPEAKER_03: 3:45

How so?

SPEAKER_01: 3:45

The source material breaks down a growing list of tasks that fall under just tracking donors. First, you have acknowledgements, you have to send receipts.

SPEAKER_03: 3:54

Just a quick thank you email, right?

SPEAKER_01: 3:56

No, and that’s the trap. These aren’t just polite notes saying thanks. They are crucial for tax purposes. If you mess that up, you hurt your donors’ ability to claim a deduction on their taxes.

SPEAKER_03: 4:05

Oh wow. Yeah, they wouldn’t be happy about that.

SPEAKER_01: 4:07

Exactly. And then you have to track the contributions accurately. But here’s where it gets really interesting and really complicated. Restricted gift documentation.

SPEAKER_03: 4:17

Oh, okay. Yeah. This seems like a trap for the unwary. Can you break down what that actually means?

SPEAKER_01: 4:21

It is absolutely a critical detail. A restricted gift is when a donor says, here is$10,000, but you can only use it for the after school reading program. Or here is money specifically for the new building fund.

SPEAKER_03: 4:36

So legally your hands are tied.

SPEAKER_01: 4:38

Completely tied. You cannot use that money to pay the electric bill or buy office supplies. Yeah. Even if the main bank account looks full, you can’t touch it for operations.

SPEAKER_02: 4:47

Wow.

SPEAKER_01: 4:48

From an administrative standpoint, you now have to track that specific pot of money completely separately from your general operating funds. You need to document that it was received for that purpose, and eventually you need to document that it was actually spent for that purpose.

SPEAKER_03: 5:00

So if you get 50 of those restricted gifts for a specific campaign, your admin work just multiplied significantly compared to getting 50 unrestricted checks where you can just throw them in the general fund.

SPEAKER_01: 5:12

Precisely.

SPEAKER_03: 5:20

Right, because the donor wants to know you built the building.

SPEAKER_01: 5:22

Exactly. Then add in recurring donations, people who subscribe to give monthly. You have to monitor those for failed credit cards, expirations, people moving and changing addresses. It becomes a full-time data management job very quickly.

SPEAKER_03: 5:35

Which naturally leads us directly into the money side of things. The intersection of development, you know, the people raising the money and finance, the people counting it. I have always sensed a bit of a Mars versus Venus dynamic between these two departments and nonprofits.

SPEAKER_01: 5:51

That is a very common observation. The workflow here is incredibly critical. The sources note that fundraising activity directly impacts the accounting team, but they often operate in total silos.

SPEAKER_02: 6:02

They don’t talk to each other.

SPEAKER_01: 6:04

Right. Development is focused on relationships and the promise of money. Finance is focused on the bank statement and the audit trail.

SPEAKER_03: 6:11

So what are the specific chores that have to happen between these two teams to keep the peace?

SPEAKER_01: 6:16

It is all about reconciliation. Does the donor database match the bank account? You would be surprised how often those two numbers drift apart.

SPEAKER_03: 6:26

But how does that happen? Money is money, isn’t it?

SPEAKER_01: 6:29

You would think so. But maybe development logged a pledge as received because the donor promised it at a gala, but the check hasn’t actually cleared the bank yet. Oh or maybe there were credit card processing fees that finance recorded, but development just entered the gross donation amount without subtracting the fees. Or honestly, maybe a check is just sitting in a drawer somewhere.

SPEAKER_03: 6:50

In the shoebox.

SPEAKER_01: 6:51

Right, the shoebox. If you aren’t reconciling constantly and monthly, is the strong recommendation, you are going to have a massive mess at the end of the year.

SPEAKER_03: 7:00

And that mess lands right on the Form 990, correct?

SPEAKER_01: 7:03

Correct. The Form 990 is the big annual tax return for nonprofits. The IRS asks very specific questions about where money came from and how it was raised.

SPEAKER_03: 7:12

They want the details.

SPEAKER_01: 7:13

They want all the details. They want to know about fundraising efficiency, professional fundraising fees, and the specific sources of income. If the development team is just throwing cash in the bank without tagging it correctly, going back to that restricted gift issue we talked about, the finance team has to basically do forensic accounting at tax time just to reconstruct reality.

SPEAKER_03: 7:34

That sounds incredibly expensive and stressful.

SPEAKER_01: 7:37

It is both. As fundraising grows, these two teams simply must coordinate much more closely.

SPEAKER_03: 7:42

Okay, so we’ve got the data, we’ve got the money. Now let’s talk about the compliance expansion pack. This is the stuff that I feel really sneaks up on people. You think you’re just out there raising money for a good cause and suddenly you are drowning in paperwork.

SPEAKER_01: 7:55

It definitely sneaks up on you. The concept here is that growth triggers obligations. Success brings scrutiny. When you are small and local, just soliciting your neighbors, you generally fly into the radar. But as you expand, the workload creeps up significantly.

SPEAKER_03: 8:12

What specifically creeps up? What are the actual tasks that hit your desk?

SPEAKER_01: 8:16

Well, charitable registration renewals are the big one. There are 41 states plus DC that generally require you to register before you can legally ask their residents for money.

SPEAKER_03: 8:27

41. That is a lot of forms.

SPEAKER_01: 8:30

It is a staggering amount of forms. And it’s not just filling out a form once and you’re done. It’s annual renewals. It’s paying the fees, it’s updating your address with the state if you move, it’s responding to correspondence from regulators.

SPEAKER_03: 8:42

And you have to provide documentation too.

SPEAKER_01: 8:44

Constant documentation. You have to assemble your bylaws, board lists, contracts with professional fundraisers, financial audits, the list goes on.

SPEAKER_03: 8:52

But how does a nonprofit actually trigger this? If I send an email from my office in Chicago and someone in California reads it and donates, did I just trigger California?

SPEAKER_01: 9:01

That is the million-dollar question right there. It’s called Nexus. Practically speaking, if you are actively targeting donors in a state, sending them direct mail, running ads there, or specifically asking them for support, you are soliciting. And once you trigger that requirement, you have to maintain it.

SPEAKER_03: 9:17

It sounds like death by a thousand paper cuts.

SPEAKER_01: 9:20

It really can be. But there is a core theme here that the sources emphasize. And it is really the golden rule of this entire deep dive. Compliance tends to expand alongside fundraising growth. And organizations that review requirements periodically avoid most problems.

SPEAKER_03: 9:38

I really like that. It’s not about avoiding growth, it’s about reviewing the requirements periodically so you aren’t caught off guard.

SPEAKER_01: 9:45

Exactly. The danger is the sneak factor. These responsibilities increase gradually. You had one state here, maybe one new grant there, maybe you hire a professional fundraiser in New York. It is very easy to underestimate the total workload until suddenly you are missing deadlines and paying fines.

SPEAKER_03: 10:03

Let’s move to something that feels a little less paperwork, but is apparently just as regulation heavy. Communication. The source material mentions that even the very words you use in an email create admin work. How does that happen?

SPEAKER_01: 10:14

This is public-facing compliance. It is not just about filing forms with the state, it is about what you tell the public. The requirements here are about ensuring disclosures on solicitations are perfectly accurate.

SPEAKER_03: 10:25

You mean the fine print at the bottom of the email?

SPEAKER_01: 10:28

Exactly. The fine print. Many states require specific verbatim disclosure language on the donate button page or in the footer of the solicitation email. Things like a copy of the official registration and financial information may be obtained from, and so on.

SPEAKER_03: 10:44

So the marketing team can’t just write whatever catchy copy they want. They can’t just delete that footer because it looks ugly on a mobile phone.

SPEAKER_01: 10:50

If they do, they might be breaking the law in Florida or Maryland or New Jersey. They have to make sure the messaging aligns with what is in the legal filings.

SPEAKER_03: 10:58

That sounds like a headache for the creatives.

SPEAKER_01: 11:00

It is, but it’s necessary. And they have to ensure donor communications are consistent with reported activities. If you tell the IRS you are an animal shelter, but you tell donors you are building a space rocket, you have a massive compliance disconnect.

SPEAKER_03: 11:14

That makes sense. Consistency is key across all channels. Now let’s talk about the aftermath of the party. Events. Everyone loves a gala until the lights come on.

SPEAKER_01: 11:23

The event administration is a beast of its own. The host points out that it is not over when the guests leave. In fact, that is actually when a huge chunk of the admin work begins.

SPEAKER_03: 11:34

What is on the post-party to-do list?

SPEAKER_01: 11:36

First, sponsorship tracking. Did the sponsors actually get the benefits you promised them? Did their logo go on the banner? That is a contract issue. Then there is the issue of quid pro quo. Which means Okay, if a donor buys a$100 ticket to your gala and they get a steak dinner and a glass of wine worth$40, they haven’t donated$100. They’ve donated$60.

SPEAKER_03: 11:59

Right.

SPEAKER_01: 12:00

You have to calculate that fair market value and state it clearly on their tax receipt.

SPEAKER_03: 12:04

That sounds like a terrible math headache for whoever is running the event.

SPEAKER_01: 12:08

It is. And then comes expense allocation. This is crucial for accounting. You have to figure out how much of the event costs was fundraising expense versus program expense versus management expense. This is often called joint cost allocation.

SPEAKER_03: 12:21

Why does that allocation matter so much? It’s all money out the door, right? Why parse it out?

SPEAKER_01: 12:27

It matters because donors and watchdogs, like Charity Navigator, look at your overhead ratio. If you dump all the event costs into one bucket without breaking them down, you might look far less efficient than you actually are.

SPEAKER_02: 12:42

Ah, I see.

SPEAKER_01: 12:42

If you can legitimately say part of this event was educating people about our mission, you can allocate some of those costs to program.

SPEAKER_03: 12:51

Yeah.

SPEAKER_01: 12:51

But you need the rigorous documentation to prove it to an auditor.

SPEAKER_03: 12:55

It really emphasizes that for every hour of fundraising, there are hours of back-end work.

SPEAKER_01: 13:01

Absolutely.

SPEAKER_03: 13:02

This brings us to what I think is the real aha moment of this entire discussion. We’ve touched on it, but I want to drill down. Why does this feel so heavy even with modest growth? If I just grow my revenue by 10%, why does my workload feel like it doubled?

SPEAKER_01: 13:15

This is the concept of nonlinear growth. The expert explanation here is vital. Administrative workload does not grow at the same rate as donations. It is nonlinear.

SPEAKER_03: 13:24

Can you give us a concrete example of that? Let’s make it real for the listeners.

SPEAKER_01: 13:28

Sure. Let’s say you have a modest increase in fundraising reach. You decide to enter just one new state, say Tennessee, to solicit donors because you have a few good prospects there.

SPEAKER_03: 13:38

Okay, Tennessee. Sounds great.

SPEAKER_01: 13:40

To do that legally, you have to file the registration. You might need a registered agent in that state. You have to get documents notarized. You have to set up the annual reporting. Let’s say that costs you fifteen hundred dollars in state fees, legal fees, and staff time.

SPEAKER_03: 13:54

And if those prospects in Tennessee only donate$500, then you have lost money.

SPEAKER_01: 14:00

The complexity grew much faster than the revenue. Or take the restricted gift example again. If you accept a grant that requires quarterly impact reports and specialized accounting, and it takes your staff 40 hours a year to manage that grant, are you actually netting any resources for the mission?

SPEAKER_02: 14:17

That is a tough pill to swallow. It challenges the idea that all money is good money.

SPEAKER_01: 14:22

It really does. Some money is simply too expensive to accept. And you only know that if you understand your infrastructure costs.

SPEAKER_03: 14:29

So how does a nonprofit know they are struggling with this? What are the symptoms before the patient, the organization just collapses?

SPEAKER_01: 14:38

There are very common symptoms the sources identify. The first is what we call the hybrid role. You see a development director who is writing grant proposals and trying to file state charity registrations and doing data entry in the CRM.

SPEAKER_03: 14:50

Which sounds like a fast track to burnout.

SPEAKER_01: 14:53

It is. Another huge sign is deadlines overlapping with campaign periods. If your big end-of-year giving campaign is happening in December and your state renewals are also due in December, and the same person is doing both, that is crunch time and mistakes happen.

SPEAKER_03: 15:09

I imagine the paperwork takes a back seat.

SPEAKER_01: 15:11

Usually the compliance gets dropped because the fundraising feels more urgent.

SPEAKER_03: 15:14

Until you get a letter from an attorney general.

SPEAKER_01: 15:17

Exactly. Also, unclear ownership. Who is responsible for this state form? Is it finance? Is it development? When ownership is unclear, things just fall right through the cracks. And the final symptom is reactive responses. If you are constantly scrambling to respond to documentation requests from regulators or auditors rather than having them ready to go, you are way behind the curve.

SPEAKER_03: 15:40

But, and I really like this reframing from the notes, these aren’t necessarily failures, are they?

SPEAKER_01: 15:45

No, and that is so important to remember. These are signals of organizational growth. It means you are succeeding in your mission to get bigger, the car is going faster, you just need to upgrade the brakes and the suspension.

SPEAKER_03: 15:57

So how do we fix it? How do we build that support system?

SPEAKER_01: 16:00

The solution starts with centralizing tracking systems. Stop living in 12 different spreadsheets. You need a single source of truth, usually a robust CRM that talks directly to your accounting software.

SPEAKER_03: 16:10

Technologies are the first step.

SPEAKER_01: 16:12

Second, align finance and development processes. Make those teams sit down in a room and agree on how to categorize gifts before the check arrives. Define what a pledge is, define the accounting codes.

SPEAKER_03: 16:23

And I assume, going back to our theme earlier, reviewing compliance.

SPEAKER_01: 16:27

Yes. Review compliance periodically. Don’t wait for a warning letter to force your hand. And finally, plan administrative capacity alongside fundraising goals.

SPEAKER_03: 16:37

That seems like the most actionable advice yet. When you budget for the campaign, budget for the admin work.

SPEAKER_01: 16:43

Exactly. If you plan to raise a million dollars, don’t just budget for the marketing to get that million. Budget for the payment processing, the reporting, the compliance fees, and the staff time that the million dollars will inevitably generate.

SPEAKER_03: 16:56

That is such a crucial shift in mindset. It stops treating admin as this annoying overhead to be minimized and starts treating it as infrastructure that enables revenue.

SPEAKER_01: 17:05

Precisely. If you were building a skyscraper, you wouldn’t say, let’s save money by skipping the foundation.

SPEAKER_03: 17:09

That’s a great way to put it.

SPEAKER_01: 17:10

Okay.

SPEAKER_03: 17:11

Let’s wrap this up. We have covered a lot of ground from the iceberg of admin work to the dangers of nonlinear growth. If you have to summarize the big picture here, what is it?

SPEAKER_01: 17:21

The summary is that fundraising brings tremendous opportunity, but it also brings responsibility. This hidden work isn’t just red tape for the sake of it. It supports transparency, it supports donor trust, and ultimately it supports long-term stability. You just can’t have a sustainable organization without it.

SPEAKER_03: 17:39

That leads me to a final thought for you, our listeners, to chew on. We often hear about the starvation cycle in nonprofits, where no one wants to pay for overheads, so organizations essentially starve themselves. But here is the reality we have uncovered today. When nonprofits recognize and fund this hidden infrastructure early, growth becomes sustainable.

SPEAKER_01: 17:59

But if they ignore it, if they ignore it, success can actually break the system.

SPEAKER_03: 18:03

The very money you raise to solve the problem can create a problem you can’t solve. Success without infrastructure is just fragility in disguise.

SPEAKER_00: 18:10

That is a very powerful thought to end on.

SPEAKER_03: 18:12

Well said. That brings us to the end of this deep dive.

SPEAKER_00: 18:15

Thanks for having me.

SPEAKER_03: 18:16

If you found this discussion helpful, you can find additional compliance guides and visual resources at ironwoodregistrations.com. Thanks for listening.