RSM Resources

Accounting for fundraising: The how-tos for a well-planned campaign

As not-for-profit (NFP) organizations around the country are required to become less dependent on federal and state dollars, they’re struggling to find ways to replace these revenue streams. To this end, many NFPs are embarking on formal fundraising campaigns.

However, there are several accounting issues you should consider first to make sure you’re in compliance with generally accepted accounting principles. For example, is a transfer of assets, including a promise to give, conditional? Is the contribution unrestricted? In every case, it’s the donor’s intent that determines the answer to these questions.

Conditional pledges
When a donor stipulates a future and uncertain event which must occur prior to the transfer of assets to an NFP – including a promise to give – the pledge is conditional. When a condition is determined, the pledge shouldn’t be recorded as a contribution until that clause is substantially
met. However, a conditional pledge should be disclosed in the notes to the financial statements.

A classic case of a conditional pledge: A matching gift, in which a donor intends to give an amount, for instance $25,000, once the organization has raised an additional $25,000 from other sources. Unless the additional
$25,000 is raised, the donor will be released from their obligation to give the matching $25,000. This creates uncertainty the original $25,000 will ever be received, and therefore shouldn’t be recorded as a contribution. But, if the likelihood of not meeting a donor-imposed condition is remote, the pledge should be recognized as a gift.

Donor-imposed restrictions
Contributions may be received with donor-imposed restrictions. These are different than donor-imposed conditions, in that no future and uncertain event must occur in order for the NFP to record the donation. However, the donors intend the gifts to be used for specific purposes or only after a stipulated period of time has elapsed. These amounts should be recorded
as temporarily restricted contributions and remain in temporarily restricted net assets until the restrictions are substantially met.

Let’s say a donor indicates a donation to a school should be used to purchase a bus, then the amount remains in temporarily restricted net assets until the school buys the bus. Likewise, if a donor indicates a gift should be held in an interest-bearing account for a determined period of
time, then the amount remains in temporarily restricted net assets until that time period has elapsed.

With no notice of intention that a donation should be restricted as to purpose or time, the amount should be recorded as an unrestricted contribution. A donor may also impose limits on a gift which are permanent. In this case, the amount is recorded as a permanently restricted contribution which increases in permanently restricted
net assets.

How will contributions be used?
Often, during fundraising campaigns, an NFP will send out a package with a pledge form to be filled out and returned. Though it’s an effective way to reach donors and solicit contributions, the pledge form should clearly state the planned use of the gifts. Remember it’s the donor’s intent that determines how the contribution is to be recorded. If a donor fills out the form and returns it, then it should be implied that their gift will be used as the form indicates.

In the pledge package, you may want to convey to donors a specific need, such as the purchase of new equipment, but solicit unrestricted contributions to fund programs and operations as well. In this case, the
wording should be clear that the contributions will be used at your organization’s discretion, making the gift unrestricted. Another option would be to list all choices (i.e., procurement of equipment or to fund programs and operations) then donors can check one or more boxes to restrict their individual gift.

A pledge campaign is an effective way for your NFP to solicit needed funds from an existing donor base and reach out to new donors. But remember to consider all of the accounting implications so that the desired results aren’t derailed by the consequences of properly accounting for the campaign in accordance with these rules.

Robert J. Zielinski is a manager with RSM McGladrey. For more information, contact him at robert.zielinski@rsmi.com.