Fundraising & Campaigns
A restricted gift is a promise You Have to Keep.
When a donor says what a gift is for, the organization is legally bound by it, and tracking those promises is basic stewardship.
By The Editors · The Game of Giving
Most small nonprofits receive two kinds of money without always noticing the difference. Some gifts can be used for anything the organization does. Others come with a condition, stated in a letter, a grant agreement, a pledge form, or even the wording of the appeal the donor answered.
Two kinds of restriction
A purpose restriction limits what the gift can pay for, such as a scholarship fund or a new roof. A time restriction limits when it can be used, such as a gift intended for next year's budget. Some gifts carry both.
Nonprofit financial statements report these separately. Under current accounting standards, net assets are divided into those with donor restrictions and those without. Your treasurer and accountant need to know which gifts belong in which column.
Board-designated is not the same
When a board sets money aside for a purpose, such as an operating reserve, that is a designation, not a restriction. The board can change its mind. Only the donor, or in some cases a court, can change a donor's restriction.
Your appeal can create a restriction
If you raise money by saying it will buy a van, gifts given in response may be restricted to the van. If you might need the flexibility, say so in the appeal, with language such as "gifts will support the van and, if we exceed our goal, our other programs."
When a restriction cannot be met
Projects change. If you can no longer use a restricted gift as intended, contact the donor and ask whether it can be redirected, and keep the answer in writing. If the donor cannot be reached, state law governs what happens next, and endowment funds may be covered by your state's version of the Uniform Prudent Management of Institutional Funds Act. Talk with a lawyer before moving restricted money.
A simple system
Record every restricted gift when it arrives, with the restriction in the donor's own words and a copy of the document that created it. Report restricted balances to the board at each meeting, and release them in your books as you spend them for the stated purpose.
General information for donors and nonprofit leaders, not legal or tax advice. How we report is set out in our editorial guide.
