These requirements apply to all types of scholarship funds held at the Community Foundation, unless otherwise noted.
Structure of Scholarship Criteria
When donors establish a scholarship fund, they want to help students achieve their educational goals. At the Community Foundation, we want to partner with donors to carry out this intent while also informing them of how they can make the greatest impact. For ideas on how donors can maximize their impact, even with a relatively small scholarship fund, check out “Creating Scholarships that Help Students Succeed.”
Donor Involvement in Selection Process
We welcome, and even encourage, donors who want to be involved in the selection process for their scholarship fund. Their involvement helps the Community Foundation preserve the donors’ intent, which is a key function of the Community Foundation. Additionally, engaging donors annually in this effort helps build a strong relationship and allows them to see the direct effect of their philanthropy.
While there are obvious positive outcomes related to donor involvement in the selection process, there are a few pitfalls we need to avoid to protect both the donor and the Community Foundation. Donors may join an established scholarship committee in making the final selection of the recipient. However, they may not be the only ones making the decision, nor can they have undue influence (i.e., a “veto”) over the selection. Everyone on the committee, including the donor, gets a vote and decisions are made based on the original criteria set up in the fund. In this way, the donor does not represent a majority of the decision-making group. If a family has established a scholarship, the family only gets one vote.
The reason for this has to do with the use of “charitable dollars” and grants to individuals, which is what scholarships technically are. A donor cannot take a charitable deduction for giving money directly to another individual, even if the person is needy. They can, however, take a deduction for setting up a fund that benefits a class of people – in the case of scholarships, students who meet certain broad criteria such as attending a certain high school, attaining a certain GPA, and/or showing financial need.
Once the donor has given money to the scholarship fund at the Community Foundation, he or she may take a charitable deduction on his or her taxes, and those funds become charitable dollars. We need to ensure that the donor does not retain too much control over those funds. If the donor were to be audited, and the IRS determined that he or she still had control over the money given, they could find that the money was never truly “given.” The donor could then suffer penalties for improperly taking a charitable deduction. We all want to avoid this situation.
Documenting Scholarship Decisions
With Foundation-managed scholarship funds, the Community Foundation is responsible for collecting and maintaining all documentation. For Foundation-managed scholarship funds with an outside committee, and Designated scholarship funds, the Community Foundation needs to collect this documentation from others.
In some cases, recipients of Foundation-managed scholarships are selected by a committee that operates outside the Community Foundation. Although committee members may be part of another organization (such as a school foundation or a service group), in their decisions they are representing the Community Foundation and the wishes of the donor. For that reason, the Community Foundation is responsible for collecting certain information initially and annually from the outside committee. Additional responsibilities are listed in the Foundation-Managed Scholarship chart.
When the scholarship is first created or the committee is first involved, it should provide the Community Foundation with:
Application format (blank copy of the application)
Criteria for scholarship decisions
Names and roles of committee members
Signed the Community Foundation conflict of interest forms for each member
When the committee has selected its scholarship recipients, it should send the following to the Community Foundation to request the scholarship be paid to the college for the benefit of the student:
A spreadsheet of all scholarship applicants (both awarded and denied), with the scholarship name, amount awarded, and recipient(s) identified. The Community Foundation can provide a template.
Electronic copies of all awarded and denied scholarship applications.
Brief minutes of scholarship committee meetings. At a minimum, minutes must include:
The names of those who attended the meeting.
The results of scholarship decisions.
Whether any member abstained from a decision or removed themselves from the discussion of an applicant.
Signed Community Foundation conflict of interest forms for each member (updated annually).
The committee should provide the Community Foundation’s Student Information Sheet to its recipient(s). The student will fill this out and submit it to the Community Foundation when he or she has decided what college to attend, and will let the Community Foundation know where to send the scholarship check.
Designated scholarships are paid to an intermediary organization rather than the student's chosen college. The intermediary organization can be a school district, a school foundation, or another eligible entity outside of the Community Foundation or affiliate. Any intermediary organization must provide the Community Foundation with the following for a designated scholarship.
Scholarship criteria and selection process (Initially and updates any time they change)
Application format and requirements (Initially and updates any time they change)
Description of their selection process (Committee members, donor involvement, etc.)
If the organization is not a 501(c)(3) or governmental institution, they must provide the Community Foundation with documentation of expenditures for all funds provided.
The Community Foundation must also ensure that the intermediary organization follows best practices and legal requirements for awarding scholarships. This includes ensuring that the scholarship check is made payable to the recipient's college or university and not directly to the recipient. Also, the intermediary organization must follow the legal guidelines regarding donor involvement (see above). The Community Foundation will work with you to make sure that all legal and documentation requirements are satisfied when working with an intermediary organization.