Pump the Brakes! Did We Really Meet the Restriction of that Donation?

The latest view on not-for-profit accounting issues

Dual restricted contributions remind me of driving a vehicle with a standard transmission. If you release the clutch but forget to put the car in gear, you probably won’t go anywhere unless your vehicle is on an incline or decline. Even then, you will most likely, eventually roll to a stop. On the other hand, from a complete stop, it would be highly unlikely you would even get your vehicle into gear without first pressing in the clutch. Correctly using the clutch and shifting into gear to put your vehicle in motion is synonymous to releasing dual-restricted contributions.

Prematurely releasing restrictions will result in a misstatement of your net assets and potentially could result in the donor requesting the funds be returned. Properly understanding the donor’s intention and what restrictions must be met is vital to properly accounting for restricted contributions.

For example, if your donor notes their contribution must be utilized for salary expense for the following year, you can only release that restriction when you have incurred salary expense in the proper period. Releasing the restriction for salaries paid in the current year would be a violation of the donor’s intent.

Don’t sit in your driveway with your vehicle in neutral. Make sure all restrictions have been fulfilled when releasing funds to ensure your financial statements are accurate and your donor’s intentions are met.

By Samantha E. Mahlen, CPA