Accepting membership fees via personal PayPal account

September 8, 2013 8:44 AM

I recently took on a role as club treasurer for a local chapter of a 501(c)3. I'm preparing to collect membership dues and was told that previous treasurers have accepted membership fees through a personal PayPal account which they then transferred to the club bank account, from which they then paid the membership dues to the parent organization. The personal PayPal account is to avoid the hassle and possible fees of setting up a Paypal account for our chapter. My gut feeling is that accepting membership dues through a personal account is potentially problematic. Is it, and if so, why? References are appreciated, as I may have to argue my case.
posted by anonymous to Law & Government (13 answers total)

When I was treasure of a non profit we got verified ton have a PayPal and a Google money account through our bank. It was pretty easy.
posted by k8t at 9:07 AM on September 8, 2013

This is a bad idea. What you are describing is called commingling. I'm not sure about legal references, but there are at least a few things that make this problematic.

From the organization's standpoint, the person accepting the membership donations could be skimming off the top.

Recordkeeping is also problematic. Basically the money for memberships is coming from the person with the paypal - not from each individual member. Thus it will be hard to verify/document who has paid their membership and who has not. The person with the paypal account could provide documentation, but what guarantee is there that the documentation is complete or accurate? If someone contests their membership or uses it as legal evidence of some sort, how easy will it be to provide backup?

And from the standpoint of the person with the paypal account, if the organization ever gets audited, their personal paypal account is now subject to audit. This is at best a pain in the ass, at worse a real financial and legal problem.
posted by natteringnabob at 9:20 AM on September 8, 2013 [5 favorites]

Co-sign the commingling issue mentioned by natteringnabob above. Also, depending on how much money is being passed through, there are likely also tax implications for both the person whose account is being used, and for the organization. I would not want to be an individual exposing myself like this - let the organization take that on. PayPal provides nonprofit accounts specifically for this reason - I would switch it. Heads up, this is a huge pain in the ass, but worth it for all the reasons mentioned above.
posted by deliciae at 9:26 AM on September 8, 2013

This seems silly to me. PayPal has a non-profit account type. It's easy to setup. Transactions are discounted at the business level with 2.2% fees.

I just went through this with a NJ 501(c)3 and I don't know why people are saying it's a huge pain in the ass. Create [e-mail] and complete the application steps. When the account is approved and connected to your bank account, switch your buttons and whatever over.
posted by DarlingBri at 9:32 AM on September 8, 2013

Yes, commingling is the correct term. You don't want to commingle your personal cash flow with that of the organization for which you work.

Presumably your non-profit has an accountant and lawyer that does work for it; get them to explain to your co-workers why it is a bad idea for donations to the non-profit to be passed through your personal PayPal account.
posted by dfriedman at 9:40 AM on September 8, 2013 [1 favorite]

If Paypal get wind of this (for example someone pays membership to the treasurer's personal Paypal, then changes their mind and asks Paypal for a refund/chargeback), they can lock down the treasurer's PP account indefinitely.
posted by EndsOfInvention at 9:43 AM on September 8, 2013 [2 favorites]

I work for a credit union that has a branch on a university campus. Hundreds of student groups have organizational accounts - their treasurers change all the time, they go in and out of existence, their faculty advisors change, etc. It's absolutely routine & pretty much hassle-free to maintain these, and makes no sense not to for reasons noted in other comments above. Whatever hassle there is to set it up right on PayPal, it's worth it.
posted by headnsouth at 9:57 AM on September 8, 2013

One more thing - I'm not sure but if people are taking a chartitable tax deduction for their donation to the organization, there could be a problem (for you and for them) if they get audited and the IRS finds that the payment went to an individual and not the nonprofit as claimed.
posted by metahawk at 11:15 AM on September 8, 2013 [4 favorites]

If paypal is being used to accept credit cards, there's also the option of going with another company, such as Square, to do the same thing, and just set up an account for the business (assuming the issue is that they don't like paypal)

I'm a little confused about the fee part of why they don't want to do it with paypal. Isn't the person accepting the money getting the same fee (or higher), which would then be taken out before going to the organization?
posted by markblasco at 1:25 PM on September 8, 2013

What is wrong with them just using their internet banking to transfer the funds direct from their bank account to the non-profit's bank account? Both parties get a receipt (if the payee sets it up properly), no hassles, no intermediaries, payees pay the fees (if any) ... what is not to like?

Internet banking rocks, I couldn't live without it :-)
posted by GeeEmm at 2:49 PM on September 8, 2013

Double check with the national organization - they may actually have a specific rule about this kind of thing.
posted by SMPA at 2:52 PM on September 8, 2013

I wouldn't worry about the tax angle; you're clearly taking the contributions as agent for the organization. but its problematic as a matter of internal controls, and it's easy to set up a nonprof account. do make sure you send acknowledgment letters for any contributions over $250, of course.

IANYL, TINLA, but I am a fellow volunteer treasurer. good luck, have fun, feel free to memail me if ya ever have any questions about accounting, procedures, whatever.
posted by jpe at 2:55 PM on September 8, 2013

What is wrong with them just using their internet banking to transfer the funds direct from their bank account to the non-profit's bank account? Both parties get a receipt (if the payee sets it up properly), no hassles, no intermediaries, payees pay the fees (if any) ... what is not to like?

They are in the U.S. It is just cruel to bring up the super efficient banking found in almost all of the rest of the world.
posted by srboisvert at 9:46 PM on September 8, 2013 [1 favorite]