The Restricted Gift With a Side Letter
A family foundation offers a $150,000 grant to a domestic violence shelter for a new case-management software system. The grant letter says funds may be used only for software licensing and training. During negotiations, the foundation's trustee asks the shelter to sign a side letter agreeing that no grant funds will be used to provide legal advocacy for undocumented clients, and to report the immigration status of clients served. The shelter's legal advocacy is core to its mission and funded separately. The grant would cover 60% of the software cost and the deadline is two weeks away. The executive director says sign it and ignore the side letter; the finance director says the restriction is a donor's right.
1. What ethical and accountability issues does the side letter raise, and what should the development professional do first?
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The side letter raises conflicts between donor conditions, mission, client confidentiality, and truthful stewardship. A donor may restrict how its money is used, but the organization cannot sign a condition it intends to ignore. Reporting clients' immigration status would breach trust and may violate privacy or legal obligations. Restricting legal advocacy also touches core mission even if that work is funded separately.
First, do not sign. Inform the executive director and board chair, consult legal counsel, and document the request. Review the gift acceptance and confidentiality policies. Clarify whether the side letter is a firm requirement or a trustee request. The finance director is right that restrictions can be legitimate, but that does not make any restriction acceptable, and signing while ignoring it would be misrepresentation.
2. How should the organization respond to preserve the gift if possible while protecting mission and clients?
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Respond respectfully and propose a counterproposal: accept the grant restricted to software licensing and training, with reporting on software use and de-identified outcomes only. Offer a briefing or site visit so the trustee understands the legal advocacy program without receiving client-level data. Explain that the organization cannot report immigration status or restrict core mission services.
If the foundation insists on the side letter, the board should decline the gift or seek alternate funding. Keep the relationship open for future unrestricted or software-only support. The board, not the executive director alone, should decide because the issue affects mission and accountability. Document the decision and communicate it consistently.