Keeping track of restricted gifts

When supporting charitable organizations, donors and grantors regularly place purpose and/or time restrictions on the use of their funds. In accepting restricted funds, congregations and other charitable organizations are accepting responsibility for managing and using the funds according to the donors’ and grantors’ intended exempt purposes. In addition to satisfying accounting, legal and tax rules, developing strong stewardship practices for restricted contributions can enable congregations to invite more and larger funds.

Restricted gifts can be separated from general operating funds physically and/or through accounting and record-keeping practices. Some congregations choose to open one or more additional bank or investment accounts into which restricted contributions are deposited. This practice can assist in tracking restricted fund activities and ensuring that restricted funds are not used for general operating purposes. However, managing too many accounts can become administratively burdensome. Other congregations choose to maintain co-mingled bank and investment accounts. This practice should be accompanied by a high level of transparency in tracking and reporting restricted fund activity.

Whether or not the congregation’s financial policies call for physically segregating restricted funds, the congregation should follow a consistent practice of keeping track of and reporting on restricted funds. Tracking should be maintained at the lowest level of specific identification. For example, funds restricted for the purchase of new hymnals should be tracked separately from funds restricted for worship ministry in general. Additionally, permanently restricted endowment funds should be tracked separately from other restricted funds.

Fund accounting software may facilitate the tracking and reporting of restricted funds. In the absence of such software, a spreadsheet system can be a substitute. Thorough description of the purpose of each restricted fund should be maintained. Along with the fund balances and activities, there should also be a clear record of the timing and content of reporting requirements to donors/grantors regarding the use of funds and project outcomes. Total restricted fund balances per the accounting system and spreadsheets should reconcile to the bank balance of all restricted funds.

Restricted gift balances and summaries of activities should be reported regularly to the financial stewardship committee and/or congregation council. A review of restricted funds should include a report of progress in utilizing the restricted funds. In the U.S., Generally Accepted Accounting Principles requires that restricted gifts be expended for applicable expenditures first before using any general operating funds to supplement expenditures in excess of available restricted fund balances.