Filed under: Charitable Gift Planning, Not-for-Profits, Tax Compliance & Planning

As we enter the fall season and the end of the calendar year, donors are preparing for the upcoming tax season and how they will be allocating donations to their charities of choice. Charities are working aggressively to get out in front of these donors to make one last fundraising push. It’s a good time to remind your employees that they adequately document contributions and adhere to your gift acceptance policies. This may require sending a brief reminder to your accounting and development staff to make sure that your documentation standards and policies are adequately communicated.

First, here are a couple reminders for your gift acceptance policy. You want this in place before you start soliciting donations as it provides a roadmap to development staff. There are those that believe a charity should be happy with whatever donations it receives, but there are donations that a charity should thoroughly review prior to even considering accepting. It is the charity’s responsibility to ensure that complex donations do not become overly burdensome. Below are items that should be addressed by a gift acceptance policy:

  • Gifts that the organization will accept, will not accept, or will accept subject to certain requirements.
    • Requirements may include additional review by legal counsel, approval of the board, or due diligence by management after consulting other specialized professionals. This also includes who is responsible for the costs of the due diligence.
  • Minimum thresholds for the establishment of term or permanent endowments – While a donor may have great intentions, it may not be feasible for an organization to administer a $500 endowment. The policy should include a minimum amount required for the establishment of a new endowment. Anything below the threshold would have to designate an existing endowment.
  • Overly restrictive gifts – if a gift has a purpose or time restriction that is overly restrictive and thus may prevent or unduly delay the organization from using the money, it may be in the organization’s interest to not accept the gift.
  • Gifts not managed by the charity – these usually include trusts or other estate planning gifts. The policy needs to be clear as to what information the charity will need on an ongoing basis in order to properly record and monitor these types of gifts.
  • A description of how non-cash or illiquid gifts are treated – These types of gifts are usually real property, stock, equipment or other assets that may not be quickly or easily liquidated.

When soliciting and receiving donations it is the charity’s responsibility to ensure it receives adequate documentation from the donor. Restrictions on donations come in all varieties and can be very complex. As such, it is important that the accounting and development departments keep in touch with each other to ensure that donations are recorded in the charity’s financial statements appropriately. Charities at a minimum should include the following documentation for gifts received:

  • Donor name
  • Date of the gift
  • Amount of the gift and payment terms
  • Restriction or an indication that the gift is unrestricted

Charities should also provide donor acknowledgement letters. This acknowledgment letter should include the same information above and gives the donor the opportunity to correct any misunderstandings.

So why is this documentation so important? Practically speaking, charities are required by law to adhere to donor restrictions and your auditors will likely be taking a close look at the supporting documentation. Auditing standards require auditors to treat significant revenue streams as a higher risk audit area. Often contributions are a significant portion of a charity’s revenue stream and therefore more scrutiny will be applied to that revenue stream. Having a through gift acceptance policy and following clear documentation standards can help protect you from accepting a gift that may not be in the best interest of your organization and will also ensure that you are adhering to the donors’ wishes.

© Clark Nuber PS, 2015.  All Rights Reserved

This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.