Designated donations are donations given with instructions to be used toward a particular purpose or function. These types of donations can be great toward furthering your mission but can also pose a burden if your nonprofit isn’t prepared to handle these unique gifts.
When a donor includes instructions with a donation, it can be intended for anything from supporting a mission trip or a scholarship fund to purchasing equipment for the worship ministry. Once funds have been received with a designation, the nonprofit organization is obligated to utilize those funds for that purpose. The designation can be something as simple as a sticky note clipped to a check or as formal as a will or estate. On the other hand, unrestricted gifts are made without a specific designation or purpose and can be used for administrative costs or any other exempt propose, meaning the funds must be used as a part of the organization’s mission.
Designated donations or Restricted donations must be tracked and reported separately from Unrestricted donations from a tax and auditing perspective. These do not expire automatically and cannot be moved to an “unrestricted” status by the board or the donor. The donor can make the designation explicitly, meaning they have specifically stated the intended purpose, or implicitly by responding to a particular fundraising campaign.
While determining how your nonprofit organization is impacted by designated gifts is significantly larger and more complex than this article can cover, but some general tips can be applied to the categories offered on your donation page and your online giving program.
- Check Your Policies
Often times, churches and ministries will have a policy on accepting restricted gifts. If gifts are received and designated in a way not previously approved by the board, they will be reviewed and potentially returned to the donor. Find out how your board or finance committee wants to handle gifts designated to specific line items in the budget, as this is often avoided because these are already funded by a general giving.
Sample Policy (not intended as legal advice)
Philosophy of Giving
ORGANIZATION accomplishes its mission by accepting offerings—charitable contributions— from its donors. Givers are strongly encouraged to support first and foremost the operational budget of the church/ministry. The church/ministry receives designated giving in areas that are in harmony with the mission of the organization. Gifts may be unrestricted or designated for a specific purpose. All designated gifts shall include a clause granting to the church/ministry board the privilege of changing the use of the gift in the event the designated purpose has already been achieved, is not a viable ministry of the organization or no longer fits the scope of the organization’s mission.
- Check Your Online Giving Page Categories and Wording
Verify that the categories offered fit within the policy and have them confirmed by your board prior to going into use. Donations made to a category on your giving page could be viewed as restricted and may require unique accounting practices and other activities.
- Donation Instructions
You may also consider adding additional wording to your giving page to describe your organization’s view on giving and the nature of restricted gifts. This does not necessarily need to include your full policy, but if your organization wants to limit designated gifts, consider encouraging the behavior of giving to the “General Fund” or your unrestricted fund.
- Comments or Other Open Fields
Be sure to review the comments or other text fields that may be available on your giving page. These may contain instructions or designations that are not covered in your categories or are otherwise approved by your board. Identify these donations to the appropriate board or committee to be reviewed.
Regardless of how donations are accepted, having a policy on designated or restricted funds and clearly communicating this policy to leadership and to donors (through your bulletin, program, newsletters and online giving page) is a valuable way to keep open lines of communication and to help direct funds to be used to fund the primary mission of the nonprofit organization. As always, please seek the advice and opinion of a professional to determine how designated gifts impact your particular situation.