Donations to a non-profit organization can be classified two ways for the purposes of accounting and tracking. These are restricted and unrestricted. Restricted donations are donations with instructions and stipulations on their use, and they are required by law to be used for their described purposes. While most non-profit organizations will request donors to make unrestricted contributions, there will always be some who request restrictions on their donations. Unrestricted donations allow for the organization to use the money where it is most needed, while restricted ones require higher levels of responsibility. Restricted donations can be time-limited, meaning it will eventually expire and can only be used for a limited time, such as a grant, or permanent which means it will never expire.
Should the non-profit not use the restricted donation properly, its return may be requested. This may even result in legal issues, and other donors may hear about the misuse and choose not to gift your organization. It’s important to handle restricted gifts with great care.
Tracking Expenditures and Outcomes
Make sure your non-profit accurately records all expenditures relating to the restricted contribution, such as via a spreadsheet or as individual funds in a ledger. To cut down on the risk of potential errors, review the document regularly in order to verify that the restricted funds are being used properly. Make sure any misuse is promptly dealt with. Lastly, make sure you keep track of the outcomes of this spending, as the ability to show everything accomplished due to the donation is a powerful tool for soliciting more donations from the same donor, and others too.
Keeping track of restricted donations properly is a big part of accountability and making sure your non-profit organization is transparent. There is no for sure method of keeping track of restricted gifts, so you will need to develop your own method that best suits your organization. You should have properly trained employees tasked with labeling and tracking restricted gifts, making sure they understand how to handle the paperwork and deliver it to the required staff to make sure the documentation is properly done.
Contact our experts for a more in depth look at dealing with restricted gifts. We offer accounting, tax preparation, payroll, and other accounting-based services in the Racine and Kenosha areas for businesses and individuals.