Nonprofit Contribution Management: Key Accounting Standards and Policies

At a Glance

• Key Accounting Actions: Identify conditional language, distinguish between restrictions and conditions, and classify contributions to meet donor intent.
• Gift Acceptance Policy: Define acceptable gift types, conditions for declining gifts, and establish standards for valuation, particularly for non-cash contributions.
• Best Practices: Ensure transparency with clear documentation, regular reconciliation, donor communication, and staff training for consistent contribution management.

The Full Story

Contributions are crucial to funding for nonprofits, making accurate accounting essential for transparency and compliance. This guide highlights core accounting considerations, gift acceptance policies, and recommendations for nonprofits to manage contributions effectively.

Accounting Considerations

The following should be performed when evaluating a contribution:

1. Identify Conditional Language: Review donor agreements for conditions that indicate requirements for specific actions before revenue can be recognized. If the contribution contains conditions, it is conditional, and revenue should be deferred until conditions are fulfilled.
2. Assess for Restrictions vs. Conditions: Differentiate between conditions and restrictions, as conditions must be met before recognition, while restrictions only affect asset classification but not the recognition timing.
3. Evaluate Collectability: For unconditional promises to give, apply an allowance if collectability is uncertain, adjusting the fair value recognized as revenue.
4. Classify Restrictions: Proper classification between with and without donor restrictions is essential to ensure the nonprofit meets the donor’s intent when the resources are eventually used.

Establishing a Gift Acceptance Policy

A clear gift acceptance policy guides decisions on accepting or declining contributions based on mission alignment and financial impact. Key elements include:

• Acceptable Gift Types: Specify acceptable contributions like cash, securities, and in-kind gifts.
• Declining Conditions: Outline situations where gifts may be declined, such as incompatible restrictions or undue liabilities.
• Valuation Standards: Set valuation standards, especially for non-cash contributions like real estate or securities.

Best Practices for Managing Contributions

• Clear Documentation: Record donor restrictions, conditions, and valuation methods for transparency and audit readiness.
• Regular Reconciliation: Monthly or quarterly reconciliation ensures accurate financial records.
• Consistent Donor Communication: To build trust, update donors on fund usage, especially for restricted contributions.
• Internal Controls: To minimize risk, implement controls for secure cash handling, financial reviews, and large gift approvals.
• Staff Training: Regularly train staff on standards, gift policies, and communication practices to ensure consistency.

Conclusion

Accurate contribution accounting supports nonprofit transparency, compliance, and donor trust. By following best practices, nonprofits can effectively manage their finances and demonstrate accountability, reinforcing their mission.