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What Happens When a Promise to Give Goes Unfulfilled? It’s Time to Weigh the Cost vs the Benefit

Aubrey McClendon was the former CEO of Chesapeake Energy Corp. when he died in an auto accident in March 2016. He was facing legal and financial challenges at the time of his death. Mr. McClendon was also a generous donor to his alma mater, Duke University. It is estimated that his contributions to Duke over the years were in the vicinity of $20,000,000.

On August 12, 2016, Duke filed a claim against Mr. McClendon’s estate claiming that multiple charitable pledges made by Mr. McClendon in 2013 and 2015 still had outstanding balances remaining in the amount of $9,942,000 at the time of his death. Several legal experts weighed in that Duke had a legal standing in the estate similar to unsecured creditors as the university said the pledges were in writing and documented. However, other commentators questioned the potential public relations backlash that Duke would face for making the claim.

For accounting purposes, an unconditional promise to give is a written or oral agreement to contribute cash or other assets to a not-for-profit that depends only on the passage of time or demand by the not-for-profit for performance. Such promises are recognized for financial reporting at fair value when received and they must be supported by verifiable documentation.  Unconditional promises to give carry rights and obligations (i.e., the not-for-profit has a right to expect that the promised assets will be transferred in the future, and the donor has a social and moral obligation, and generally a legal obligation, to make the promised transfer). However, just because donors generally have a legal obligation to fulfill promises to give, it does not mean that not-for-profits pursue donors that fail to fulfill their promises. So, what happened in the Duke case?

On August 26, 2016, Duke withdrew its claim against Mr. McClendon’s estate as it said its original claim was routine and that its action was misperceived as being adversarial to the McClendon family as that was never their intention. The Duke statement in part said that “Aubrey was one of our most passionate and loyal graduates, always willing to support Duke when asked. We are deeply sorry for any pain this has caused the McClendon family.”  In my experience, Duke’s decision to drop the claim is not unusual. While not-for-profits may have good legal standing in cases like this, they also need to weigh the cost of the potential backlash from donors. Quite often they decide the cost is not worth the benefit.

Interested in learning more? Attend one of these webinars on Not-for-Profit Financial Statements: Everything You Need to Know Today, Everything You Will Need to Know Tomorrow.

Charlie Blanton, CPA is Senior Director of Governmental and Nonprofit Content for Surgent, where he authors Surgent’s government and not-for-profit CPE courses and is a frequent webinar instructor. Charlie has over 25 years of experience in auditing and industry having worked at KPMG, the Texas Society of CPAs, Taylor Publishing, Texas Wesleyan University, and the AICPA.

What Happens When a Promise to Give Goes Unfulfilled? It’s Time to Weigh the Cost vs the Benefit was last modified: June 5th, 2017 by Surgent CPE
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