How should districts manage the risks of crowdfunding?


According to a recent article on Vox Media, due to tight budgets in school districts and limited funds, teachers, schools and districts are increasingly turning to crowdfunding sites. And it’s working. Great!


But there are risks that districts should consider when sites like DonorsChoose, Kickstarter and GoFundMe are used for crowdfunding. A recent article in Education Week highlights the risks to be considered.


The article explains that when crowdfunding sites are used to raise financial support, it presents concerns to administrators. Areas of concern mentioned in the piece are lack of alignment with district standards and challenges keeping track of where the funds are being distributed school by school. But the risks can go much deeper than that. The article points to Metro Nashville Schools as one district that has actually banned use of crowdfunding sites due to the lack of “adequate controls”. But banning use of crowdfunding sites would eliminate this successful fundraising strategy. At this point in time, districts need all of the financial support they can get.


If districts choose to allow crowdfunding, what legal issues might arise? How might these risks be mitigated? Good Harbor Partners’ Dean Millot discovered some good policy work on this topic. Dean's expertise is in K-12 provider due diligence, business models and strategy, federal education policy, public school reform, and the history of the school improvement marketplace.


What legal concerns do districts have about crowdsourcing?


Use of crowdfunding is a manifestation of an “app culture” in K-12 education. Free apps can be downloaded for classroom management, presentations, storytelling, file-sharing, gamification, science, communication with parents - indeed everything. With facility in the use of apps, it is a very short step to create a crowdfunding campaign for any activity.

In most cases use of apps is incidental to district policies. But, there is a widespread perception that crowdfunding has a potentially serious negative effect on district responsibilities. Concerns expressed about unregulated crowdfunding practices, and decisions to manage or ban the practice, are explained in our research as encroachments on districts’ legal powers and obligations. In July of 2018, the Ohio State Auditor’s office issued a report encouraging the implementation of sound policies to manage the risks of crowdfunding. The report calls out “legal, financial and reputational risks” of these activities and provides best practices for putting policies in place to mitigate them. While the report calls out a half a dozen best practices, I've done additional research and narrowed the list down to three key options for districts to consider.


Options for District Regulation of Crowdfunding


Districts may take one or more of the following approaches to regulating use of crowdfunding sites:


1. District Approval of the Crowdfunding Proposal

In this case, the district will be focusing on consistency with district educational (curriculum, standards and instructional) or noneducational (athletic, wellness, etc.) policies. They may want to confirm that the materials to be purchased are not already available or substitutable by the district or to demonstrate that the proposal is not intended to benefit specific (named) individuals.


2. Review of crowdfunding page content under federal requirements The district will be looking to IDEA and FERPA guidelines and confirming that crowdfunding sites comply with these policies.


3. Proper Management of Funds by District

Here, the district will look to be the ones in control of the deposit and expenditures of funds. They will look for assurance that procurement law is followed and monitor the inventory and control of the materials.


The regulation options above should provide a good start on mitigating a district’s risks of crowdfunding. The Education Week article we mentioned in the start of this post highlights Livingtree Give, which is a solution to this problem. Livingtree* has an online fundraising platform that provides easy district oversight and accountability, with a customizable approval process that includes tracking for easy distribution and reporting of funds.

Crowdfunding is bringing in much needed financial support for districts but they should implement the right framework to mitigate risks. Crowdfunding is a hot topic right now so we’d love to hear your thoughts. Looking forward to the conversation!

* Full disclosure, LivingTree is a client of GHP.


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