Promises to Give and the Yearend Surge
As the year dwindles to a close and the Holidays approach, many feel compelled to give. According to the Blackbaud 2013 Annual Giving Report , over 1/3 of donations occur during the last three months of the year. With this yearend spike comes the responsibility to account for contributions, some of which may be difficult to decipher. Promises to give can certainly fall into this difficult area, below we’ll help you sort them accordingly.What it is
A promise to give can be either a written or oral agreement to contribute cash or other assets to another entity; which in your case is your nonprofit organization. Common promises to give are individual or corporate contributions and grants in the form of written agreements, award letters, pledge cards and oral promises documented by written logs or by follow-up written confirmations.
Keep in mind that to accurately reflect a promise to give according to GAAP requirements, you must have verifiable evidence of the promise. An oral promise on its own would be insufficient.
How to document it
When it comes to these promises, there are two categories, the unconditional promise to give and the conditional promise to give. The type of promise dictates when to recognize the gift as revenue on the books.
An unconditional promise to give is not hindered by restrictions or conditions. It should be recognized as revenue when the promise is made and documentation to record it is sufficient.
For example: an individual donor submits a pledge card dated December 30, 2014 to your organization. The donor pledges to give $1,000 in February of 2015. The $1,000 would be recognized as revenue on December 30, 2014.
In a separate example: Your organization just received notice via an award letter that ABC Foundation has awarded you a $50,000 grant. The award letter is dated November 1, 2014. Payment will be received on January 1, 2015 and is to be used between the following time periods: January 1, 2014 through June 30, 2014. The $50,000 would be recognized as revenue on November 1, 2014.
A conditional promise comes with limitations imposed by the donor. These limitations can include the occurrence of a specified future and/or uncertain event to bind the organization. As Kimberly Perkins points out “if the condition(s) are not met, the donor is not obligated to fulfill the promise to give.” In addition, if the donor has already provided the funds but the conditions remain unfulfilled, they can ask that the funds be returned. For this reason, the donation should not be recognized as revenue until all conditions on which it depends are met.
For example: an individual donor submits a pledge card dated December 30, 2014 to your organization. The donor makes a conditional pledge to give $10,000 to your organization if your organization raises $10,000 or more in matching contributions by June 30, 2015. By May 1, 2015, your organization has raised $10,000 in matching contributions. Because you’ve fulfilled the obligations required by the donor in May 2015, you can then record the $10,000 contribution as revenue this same month.
In a separate example: Your organization just received notice via an award letter that ABC Foundation has awarded you a $50,000 grant. The award letter is dated November 1, 2014. Payment will be received on January 1, 2015, but is contingent upon your organization receiving an exempt (501c3) status from the IRS. On December 15, 2014, your organization received its exempt status from the IRS. The condition was met by you in December, and therefore the $50,000 would be recognized as revenue the same day the condition was fulfilled, (December 15, 2014).
Keeping these rules in mind as you receive donations during this increased time of giving will help ensure that your books remain accurate and well recorded when it comes time to file your 990.
Renata Poe Massie, Content Creator for Jitasa