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Handle Nonprofit Restricted Gifts with Care

Most non-profits encourage donors to make unrestricted contributions that will give the organization flexibility to use the money where it is needed most. But there will always be some donors who place restrictions on their gifts — and these require a higher level of responsibility.

If a nonprofit organization fails to use a restricted donation as intended, it is possible that the donor will request its return, potentially resorting to legal means. Additionally, such situations could lead to poor public relations with other existing or potential donors. Therefore, it is important to handle restricted gifts with great care.

Accountability is Key

Proper tracking of restricted donations is a vital part of the accountability and transparency supporters expect. There is no one-size-fits-all approach for tracking restricted contributions. It is important to develop and consistently apply well-defined procedures that suit each organization’s circumstances.

However, in general, nonprofits should train employees to properly identify and label incoming restricted contributions. Involved parties need to understand how to deliver paperwork to the appropriate employees to document the restriction and how it will be fulfilled.

Tracking Expenditures and Outcomes

Nonprofit organizations should also record all expenditures allocated to a restricted contribution. This can be tracked in a simple spreadsheet, or as individual funds in the general ledger. Many accounting systems have a method for tracking such information.  

To minimize the risk of errors, implement a process for regular review to confirm the proper use of restricted funds and — in the event of inadvertent misuse — prompt remediation. Additionally, put in place a system that provides reminders for any donor-imposed reporting requirements.

Finally, track the outcomes of such spending. The ability to demonstrate everything that a contribution accomplished can prove powerful in soliciting more contributions from the original donor and others concerned about the outcomes of their gift-giving.

When It Makes Sense to Refuse an Offer

If a donor wishes to make a gift with particularly onerous restrictions — such as retaining control of an asset or preventing you from selling it — you might consider refusing it. Simply put: Some gifts may be more trouble than they are worth. Contact us for help weighing the potential risks of a restricted gift and for tips on tracking those that are accepted.

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