Handle Your Nonprofit’s Restricted Gifts with Care
February 3, 2022

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

If your nonprofit fails to use a restricted donation as intended, it’s possible the donor will request its return, potentially resorting to legal means. Even worse, other donors may hear about the situation and decide your organization doesn’t deserve their support. So you need to handle restricted gifts with kid gloves.

Accountability Is Key

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

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

Tracking Expenditures and Outcomes

Your nonprofit should also record all expenditures allocated to a restricted contribution. Do this in a simple spreadsheet or track restricted contributions as individual funds in the general ledger. 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 “tickler” system to remind you of 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 are more trouble than they’re worth. Contact us for help weighing the potential risks of a restricted gift and for tips on tracking those you do accept.

© 2022

You might also like

Should You Reassess Your Nonprofit’s Office Space?

Should You Reassess Your Nonprofit’s Office Space?

Since the original COVID-19 lockdowns, many nonprofits have allowed their staffers to work from home — or work a hybrid schedule that puts them onsite only part time. This can leave a lot of office space unused. Depending on your nonprofit’s current lease, it may be...

read more
Nonprofits and Insurance: Getting It Just Right

Nonprofits and Insurance: Getting It Just Right

Whether you’re starting up a nonprofit organization or your nonprofit has existed for years, you may have questions about insurance. For starters: What kind do you need? How much? Are you required by your state or by grantmakers to carry certain coverage? Much depends...

read more
Keeping in Compliance with Uniform Guidance

Keeping in Compliance with Uniform Guidance

If your nonprofit receives significant federal funds, it may be subject to the Office of Management and Budget’s Administrative Requirements, Cost Principles, and Audit Requirements (Uniform Guidance). And if your nonprofit spends $750,000 or more in federal awards in...

read more