First Thoughts

Arts Finance. Building stronger nonprofits.

Beware, the unbudgeted gift!

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Annual Fund goals are tough challenges to meet. Unexpected gifts in support of your operations are wonderful windfalls for your Annual Fund campaign.

What do you do, however, when a donor offers your org an extraordinary, unsolicited gift, with an attached restriction requiring that your organization take on an unbudgeted project? This is a very important donor (what donor isn’t?), and it’s a remarkable, unexpected gift in support of your mission.

To make things easy, let’s assume the gift is pledged and paid, and the terms of the restriction are to be fulfilled, all within the same fiscal year, keeping the transaction off the Balance Sheet and eliminating the need for related restriction/release transactions.

It would be so easy to book the gift into the Annual Fund, and then just charge the unbudgeted expenses where they may fall.

As easy as that would be, this decision creates a nasty unintended consequence. An unbudgeted shortfall, in the amount of the expenses incurred by the gift, is created (and often buried) in your unrestricted income statement. Yes, your performance to your Annual Fund goal looks rosier, but beware; that rosier demeanor comes at a cost.

Consider creating a special line item, with a zero budget, to capture gifts associated with unbudgeted projects. This will allow clearer visibility of your over budget conditions on both the revenue and expense sides of your P&L, and keep your performance against your Annual Fund goal cleanly representative of your activities in support of operations.

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