Keep a Close Eye on Restricted Contributions
DANIEL R. OMAHEN, CPA
The expectation for not-for-profit organizations is that they will act as good stewards of all contributions. However restricted contributions, as the name implies, impose a higher level of responsibility. Failing to comply when it comes to ensuring that donor-restricted contributions are used as intended can lead to adverse consequences, making detailed and accurate tracking essential for your organization.
Why you track
Donors increasingly pay close attention to whether not-for-profit organizations strictly adhere to the restrictions on their contributions. Proper tracking of these donations is a vital part of the accountability and transparency that they and other stakeholders prize.
Moreover, donors have been known to sue not-for-profit organizations if they believe that their restricted contributions have been used for other purposes. Even if they do not pursue litigation, the misuse of funds — fraudulently or not — cannot only generate negative publicity, it can also lead to donors cutting the organization off from future funding opportunities and potential criminal charges for misappropriation. With many organizations struggling with the economic uncertainty surrounding the ongoing COVID-19 pandemic, maintaining relationships with donors is more essential than ever before.
How to track
There is no one-size-fits-all approach for tracking restricted contributions. No matter what approach your organization takes, you will need to develop and consistently apply well-defined procedures that suit your circumstances.
Generally, this means that you need to train employees to properly identify and label incoming restricted contributions. Employees should know to pass along the paperwork to the appropriate coworkers to document the restriction and how it will be fulfilled. There should be open communication among management, as well as safeguards put in place to ensure all funds are being expensed in accordance with the stipulations noted in the award letter or grant agreement. Also, the organization needs to track how funds are being used, to ensure that there is no “double-dipping” in which the same expenditure is being applied towards restrictions of multiple donor-imposed restrictions.
The methods used to track restrictions will vary from one organization to another based on the size of the organization, as well as the magnitude and complexity of the restrictions. Organizations can track restrictions in a simple spreadsheet or track restricted contributions as individual funds in the general ledger. Also, management should implement a process for regular review to confirm the proper use of restricted funds and, in the event of inadvertent misuse, prompt remediation. Additionally, you will need a “tickler” system to remind you of any donor-imposed reporting requirements.
Follow the outcomes
In addition to keeping close track of how and when restricted contributions are applied, it is crucial to track the outcomes of such spending. The ability to demonstrate everything that a contribution accomplished can prove powerful in soliciting more contributions from the original donor and others.
JEFFREY L. CHILES, CPA, MST
Recipients of COVID relief could run into surprise audits
The Paycheck Protection Program (PPP), which has offered 100% forgivable loans to eligible organizations, has provided critical support during the pandemic. But Accounting Today warns that not-for-profit borrowers could unexpectedly find themselves undergoing “single audits” of their compliance with the federal program’s requirements. So too can organizations that receive assistance under the recent American Rescue Plan Act (ARPA).
The Small Business Administration (SBA), which administers the PPP, has stated that PPP loans will not count toward the $750,000 single audit threshold. However, many PPP borrowers also received SBA COVID-19 Economic Injury Disaster Loans, and those are subject to single audit requirements.
In addition, the SBA has said it plans to audit any PPP loan greater than $2 million as if the SBA were a federal funding program — suggesting it will apply single audit standards. Moreover, the federal Office of Management and Budget, which gives auditors guidance on how to conduct single audits, has directed federal agencies to analyze ARPA-related programs to determine if their risk level requires single audit oversight.
How long will it take the not-for-profit job market to recover?
The Center for Civil Society Studies (CCSS) at Johns Hopkins University predicts it could take nearly two years for the not-for-profit industry to recover pandemic-related job losses. As of January 2021, the not-for-profit workforce was down almost 960,000 jobs compared to February 2020 — a 7.7% decline.
Initial job losses (March through May 2020) are estimated at 1.64 million. Based on not-for-profit job growth since then, CCSS estimates it will take the sector another 23.6 months to recover the estimated 957,731 job losses remaining as of the end of January. Not-for-profit arts and entertainment organizations have seen the greatest job cuts, losing 36.3% of their workers.