SUBJECT: CATEGORIZING RAISED FUNDS AS RESTRICTED OR UNRESTRICTED FUNDS
Issue
Should contributions raised during the recent campaign that highlighted Gateway’s Day Care Centers be allocated as restricted or unrestricted contributions?
Background & Findings
Though it seems straightforward, documenting and accounting for contributions from donors takes time and effort. It is important that contributions are accurately represented in funding pipelines to ensure that Gateway as an organization remains in good standing. Without precise accounting principles in place, inherent risk is incurred for board members, the executive leadership, and our relationship with the public and our donors.
The recent Fall fund campaign was highly successful, increasing our donation revenue 120% over last year. Our Director of Development has worked consistently to bring in needed donations to help continue to drive the mission of Gateway. Her commitment to Gateway’s success is evident.
However, in processing these funds, we have come across a discrepancy among our senior leadership in how to categorize these contributions. A handful see these contributions as unrestricted funds, allowing them to be used anywhere within the organization and at our full discretion. Others are not entirely convinced the organization has free reign over how we utilize these funds.
The specific concern centers around how these funds were raised. This was a direct mail campaign which featured a letter highlighting a child with disabilities in need. The letter states, “children with disabilities can reach their full potential and lead a happy, productive life. They need the right start. That’s why I’m asking you to support Gateway’s Day Care Center” (Courtney, 1999). The letter then wraps up with a clear ask for donors to support the “Early Intervention Fund”. While the Gateway Day Care Center is a real entity, the “Early Intervention Fund” was not created prior to this campaign.
Upon review with the executive team, members pointed out that this tactic is used in many fundraising campaigns, where a personal story is shared and incurred donations are driven toward a fictitious fund. In the past, Gateway has used these kinds of mechanisms and utilized funding from the various created funds as unrestricted contributions.
A past example of this kind of fundraising technique by Gateway includes the “Rose Creek Rebuilding Fund” after the Rose Creek fire. Donors met Louise, a resident who lost everything to the fire, and then were invited to give to the “Rose Creek Rebuilding Fund” (Courtney, 1999). Donations from this campaign were then categorized as unrestricted funds and used by Gateway in other programs. The Rose Creek Residential Center was never rebuilt, instead the residents were moved to other residential facilities.
In allocating our received donations, it is important to understand the difference between restricted and unrestricted contributions. According to Ruppel (2007), to categorize a donation as an unrestricted contribution the donation must meet two specific conditions. First, the contribution must be unconditionally transferred or have no strings attached. Unconditionally transferred contributions are given freely by the donor with no expectations as to how the money will be spent. The second merit of an unrestricted contribution is that the donation is promised unconditionally. The donation itself will be given without any additional requirements that need to be met before the promise is fulfilled.
Recommendation
A conservative reading of the situation notes that the donor likely assumed that any donation for the “Early Invention Fund” were going to be used to enrich the lives of the children in the Gateway Day Care Center. If that is true, then these donations were conditional, as they were understood by the public to be used specifically for the Gateway Day Care Center. In this case, it is recommended that these funds be allocated as restricted funds. As an upstanding organization, it is important that we honor donor intent and utilize the raised donations in the way that the donor had in mind. Opting not to do this could risk the reputation of the organization as a leader in our community.
We know that serving as our fiduciaries is something that our board of directors takes very seriously and we trust your decision making process in this matter.
Sources
Courtney, T. (1999). Sleight of Hand. Nonprofit Management Case Collection.
Ruppel, W. (2007). Not-for-Profit Accounting Made Easy (2nd ed.). Wiley.
The post SUBJECT: CATEGORIZING RAISED FUNDS AS RESTRICTED OR UNRESTRICTED FUNDS Issue Should contributions appeared first on PapersSpot.
