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Reporting Contributions — When Are They Revenue
Not-for-Profit organizations realize the need for diversification of funding sources. As competition for contributions from donors becomes fiercer, non-profit organizations are becoming more creative, are branching out to various donors and are using differing types of contribution vehicles.
With diversifying into these new paths, organizations need to communicate between development and financial personnel to understand the pledges that are being received from these new donors. It is critical that the conditions or restrictions of the pledge can be met.
Matching Contributions
Matching grants are often a useful development tool, especially in large campaigns where an organization wishes to reach a certain dollar threshold. Development officers will seek challenge — matching grants attract other gifts. If at the end of the organization's fiscal year, the match has not been met, the promise to give is viewed as conditional and, therefore, the revenue is not reportable until the condition is met.
The organization's management must be aware of the amount of challenge. The finance team needs to be aware of the matching grants that the development staff is focused on, and the progress toward meeting conditional requirements. Management's monitoring and review of these types of contributions may help to reduce the risk that a substantial amount of conditional revenue might exist at year-end.
Donor Imposed Restrictions
Donors may restrict the use of a contribution for various purposes. These purposes might include the use in a particular program, the acquisition of capital or the addition to an endowment. It is important that the restrictions that the donor imposes on the organization are not too narrow. If the requirements are too narrow, or unrealistic, it could make it difficult for the organization to comply with the donor requirements. Until the donor restrictions are met, it will not be possible to recognize the revenue as unrestricted.
An organization may avoid this issue by establishing a gift acceptance policy, which outlines to process for gift acceptance. As part of the policy, all gift restrictions should be clarified with the donor and assessed for feasibility and mission. If compliance is in question, the organization should not accept the gift.
Profit Based Corporate Contributions
As certain business sectors become more lucrative, it also becomes an attractive source of contribution revenue for not-for-profit organizations. Some organizations may consider being more creative with the types of donation vehicles that they will offer these emerging companies.
These types of contributions need to be monitored for areas where conditions are inherent in the donations. Some situations might include contributions of stock based on certain prices or cash contributions based on the contributing company's net income at its fiscal year end. Situations such as this could result in conditional, non-reportable income for an organization.
Organizations should never discourage the creativity of their development staff. A gift acceptance policy along with good communication is critical. Financial management should review the types of requests for donations generated by the development staff. If need be, the reasons for concern should be raised before the solicitation of the contribution takes place.
Our Not-for-Profit Services Group can help determine if contributions to your organization are reportable as revenue. Please contact the Not-for-Profit Services Group at (412) 281-2501 if you have questions.
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