Why Companies Should Avoid Administering Their Own Relief Fund

November 26, 2019

With decades of experience auditing, advising and administering disaster & hardship relief funds, Doug Stockham, President of the Emergency Assistance Foundation (EAF), is frequently asked by business leaders across the nation what his top piece of advice is for starting a fund. His experience auditing and interviewing numerous disaster & hardship relief funds administered by a corporate foundation have shown that most have costs that are exceptionally higher than they perceived and are either out of compliance or pushing the compliance envelope. His answer, quite simply, is most corporations should avoid administering their own fund. The benefits of securing a third-party administrator are just too great to surpass.

These are Doug’s top five benefits of having a third-party administrator:

1. Established Expertise

Harnessing the expertise of experienced staff who stay abreast of the latest technology, news, and trends relevant to successful disaster & hardship relief funds, third-party administrators are a hub of information honed by serving multiple clients from various industries with diverse team member demographics and needs. This streamlined knowledge-sharing allows them to guide corporations through every stage of program administration; from early design to full operation. Having a trusted partner and resource to answer questions and advise on program tailoring is invaluable for corporations regularly reporting to their leadership on fund governance and impact.

2. Guaranteed Tax and Legal Compliance

Whether direct corporate assistance or organization-sponsored private foundations, the structure of a program dictates the unique set of rules that must be followed in order to comply with IRS regulations. Program nuances, such as international giving, can further complicate due diligence and reporting requirements. Third parties, like EAF, that have been approved by the IRS to make grant payments both domestically and internationally, satisfy any state-specific requirements to accept donations, and completely manage the due diligence process, provide a compliance safeguard and relieve corporations of associated administrative tasks.

3. Lower Costs

People often mention how budgets are cut a little more each year, and they are expected to do more with less. Outsourcing the management of a disaster & hardship relief fund is an easy way to cut costs and save money. In-house startup costs typically range from $56,000 - $94,000, including time spent trying to gather the expertise EAF has readily available. Low-cost third-party fund administrators can result in services at 10% - 40% of their current annual administrative costs. Similarly, remaining compliant with the IRS and state-specific regulations will help avoid unnecessary fines, ultimately adding to total cost savings.

4. Impartiality

Team members often prefer their organization remain impartial through the process of reviewing and making decisions on requests for assistance. Specifically, seventy-five percent of team members do not want their organization to know of their personal problems, meaning privacy is a top concern. Third-party administrators allow corporations to demonstrate receptiveness to team member concerns by creating an objective process for receiving assistance.

5. Risk Avoidance

Lastly, but of great importance, is the benefit of avoiding legal and team member-generated risks. When corporations donate funds to a third-party administrator and are not involved in determining which team members receive assistance, they effectively transition legal liability for the dollars to the third-party administrator. This also helps the corporation avoid team member frustration pertaining to the results of the decision making process by shifting its role from decision-maker to an educator building awareness of the disaster & hardship relief fund.

Author: Doug Stockham, President

Emergency Assistance Foundation