Donated Raffle Prizes

Dear Kim:

Recently a local jeweler donated a loose diamond to our nonprofit organization.  The diamond was conservatively appraised at $2,800.  We sold raffle tickets for $1 each and raised $1,700.  When the winner of the diamond came in to pick up her prize, she immediately donated it back to the organization so that we could use it to raise more money.

At this point, one of our board members offered to buy the diamond from the organization for $1,700, matching the amount we had just raised, and noted that we would not have to use our organization’s time and energy conducting another raffle.

Some members of our development committee are concerned that if we sell the diamond to this board member for $1,700, he would be receiving a special insider benefit by purchasing the stone at a discount from its appraised value.

A second jeweler has told us that the wholesale value of the stone is approximately $1,400, so some committee members feel that $1,700 is a fair price, especially since it would be a quick and simple transaction.

Another contingent of the development committee suggested that we try to get a story in the local newspaper about the diamond being donated back to our organization and announcing that we will take public bids on the diamond for two weeks with a minimum bid of $1,500.  By doing it this way, they believe the board member will bid $1,500 and then wait to see if there are any other bidders.  If there are no other bidders, he gets the stone at a discount from what he would have paid.  If there are other bidders and the price goes beyond $1,700, he will have to pay more for the diamond, but there will be no perception of conflict of interest, because the highest bidder in a public auction won.  If the bidding goes beyond $1,700 and the board member drops out, it means he was getting a bargain at $1,700 and the organization wins by getting more money from the sale.

Which of these scenarios provides the best solution?  What happens if the board member is offended that we are asking him to bid on a diamond that he has offered to buy?  What do we say to committee members who think that he took advantage of his position to purchase the stone at a discount?  Are there other issues we are overlooking?  Does selling a donated diamond for cash, to save the organization time and money, have to be so complicated?

~A Whole New Twist on “Diamonds Are Forever.”

Dear Twist:

Your dilemma has a number of parts, and one that should be fairly easily resolved is the actual market value of this diamond.  You have the wholesale value at $1,400 and, I assume, a retail value at $2,800.  This may well be the mark up on diamonds, but where did you get that information?  You cannot use the word of the jeweler that gave it to you because his or her deduction is the fair market value of this diamond, and it must be appraised independently.

To find out if your board member will be offended that he is being asked to bid on the diamond can be easily solved by talking to him about it.  Surely he does not want people talking about him behind his back about how he took advantage of a situation when his intent may well be to save time and give the organization a very nice gift.  You can frame the conversation without impugning anyone’s motives.  If there is a problem between this board member and other committee members in general, then the diamond is just giving it a focus.

Going public with the winner’s generosity in donating it back and setting it out to public bid may well get you the most money, it would not be that much time (and the committee members might be willing to take care of all the details) and it does allow the board member to compete in a fair process and avoid any appearance of impropriety.  I am assuming that you and your organization are quite certain and can prove, and will advertise, that this is not a “blood diamond” or the publicity you will get will hurt you.

To me the real ethical dilemmas in this scenario are about talking behind backs and ascribing motives to their actions.  That kind of dishonesty is unfortunately very common in nonprofits but does far more damage than many other more overtly unethical actions.  Use this opportunity to put an end to that behavior and it won’t matter what amount of money you make off the diamond—your organization will be infinitely richer.

~Kim Klein