Donors made donations to a nonprofit foundation that were restricted for the purpose of securing a building property. The foundation declared that it would not be able to secure the property and asked the donors to allow them to re-allocate the funds to other purposes. Some donors requested that their funds be returned, but the foundation has refused. Can the foundation legally refuse to refund the restricted donation when the funds will not be used for the purpose intended?
A nonprofit that receives funds for one purpose may not use the funds for another purpose without the consent of the donors. In Pennsylvania nearly 20 years ago, the CEO of a charitable hospital system was convicted of taking funds entrusted to the hospitals for education and research purposes and misusing them to pay general obligations of the hospitals before they filed for bankruptcy.
The organization can certainly ask for a waiver on the purpose of the gift, but if the donors don’t agree, the organization cannot use the money for another purpose. The state Attorney General would be interested if the organization goes ahead and misuses the funds.