Navigating Restricted Gifts: When Contributions Come with Conditions

Emma, the fundraising director for a national arts foundation, was elated to hear from a donor relations manager that one of the foundation’s long-time benefactors was planning to make a significant donation. However, there was a caveat: The donor wanted to impose specific conditions on the use of the funds, such as restricting the money from being spent on certain artistic programs the foundation supports.

While Emma was enthusiastic about the potential gift, she also understood the complexities associated with restricted donations. It's crucial for any nonprofit organization to handle such contributions with care.

Establish Clear Procedures

Donors who impose restrictions on their gifts are often meticulous about ensuring that their contributions are used exactly as intended. Nonprofits that misuse restricted funds, whether deliberately or accidentally, risk facing legal action or damaging their reputation.

To maintain accountability and transparency, it’s essential to implement and consistently apply well-defined procedures for managing restricted donations. While there’s no universal method for tracking these contributions, nonprofits should train staff to properly identify and document incoming restricted gifts. Designated team members should then ensure that all restrictions are clearly recorded and that there is a plan for how these conditions will be met.

Show Accountability

Your organization must meticulously record all expenditures linked to a restricted donation. This can be done through simple spreadsheets or by tracking restricted contributions as individual funds within your general ledger. To avoid errors, establish a routine review process to ensure that restricted funds are being used appropriately and address any discrepancies promptly. Additionally, set up reminders for any donor-imposed reporting obligations.

It’s also important to track and document the impact of spending restricted funds. Demonstrating the positive outcomes of a donor’s contribution can be a powerful tool in encouraging future donations from the same donor or others who are equally invested in the effectiveness of their charitable giving.

Advocate for Unrestricted Gifts

Complying with donor restrictions can sometimes be challenging, and in certain cases, may even be unfeasible. For example, if a donor offers your educational nonprofit a collection of rare books but insists they must remain unsold, it might be more practical to decline the gift. However, before doing so, consider inviting the donor for a discussion to express your appreciation, explain your reasons for declining, and explore alternative ways they can support your mission.

Finally, to maximize operational flexibility, encourage donors to make unrestricted contributions. Donors are more likely to agree if your message is conveyed effectively and they trust your organization’s ability to use their gifts wisely. For more guidance on managing restricted gifts and promoting unrestricted donations, reach out to us.