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How Not-for-Profits Can Make Pledge Forms More Transparent

PB maresDonations and contributions are the lifeblood for many not-for-profit organizations. Without the generosity of donors, these organizations would cease to exist. For this reason, keeping accurate records for auditing and reporting requirements is extremely important, as well as for internal tracking and monitoring by management. Ultimately, donors should know that their funds are being spent according to their wishes and auditors should be able to verify this.

Chances are, any not-for-profit has both electronic and hard copies of donations – or pledge - forms stored on the computer or in a file. These pledge forms are typically used to solicit individual donations, capital campaign pledges, or for other targeted fundraising efforts. Some common areas of confusion related to pledge forms and recommendations to address these are described below.

Quite frequently, the questions and options listed on the donation forms are too vague and not well-defined. Donors - as well as auditors, accountants, and the IRS – need to know that donations were recorded properly according to the donor’s wishes and accordingly, that the money was spent as the donor desired. This can only be verified through review of accurate and detailed documentation, including the pledge form itself. An easy way to accomplish creation and maintenance of this documentation is by improving the pledge forms, allowing for more transparency and ultimately saving the organization time and effort in the future.

For starters, donation forms should always identify the entity to which the donation is being made. Many times, multiple related entities use the exact same form. It’s not always clear where the donor wants the money to go, at times even leading to the same donation being counted twice on the books of multiple entities! This can also happen if the organization uses the same donation form for all fundraising initiatives and events without adequate documentation of the donor’s intent for the gift. This could cause the organization to experience questions and other difficulties related to fundraising from the IRS. This can easily occur when a not-for-profit has the backing of a foundation, and exchange information and documents on the thought that the two entities are working more efficiently by not duplicating efforts.

Another issue stems from the categories or options donors have to choose from on the form, allocating where their donation is to go and how it is to be used. When generic boxes, sometimes titled “other” are listed, it makes it impossible for the user to know how the donor intended those funds to be used.

Lastly, pledge forms don’t always clearly define the terms used on the form. One of the most common areas of confusion is in reference to the term “endowments.” Typically, this term refers to funds that are permanently restricted, where only the earnings on those funds can be spent. However, this isn’t always the case. If a not-for-profit has a quasi-endowment fund, meaning they are not permanently restricted but rather are board designated, it should be properly identified on the form.

For auditors coming in to review the financial health of a not-for-profit or perform an audit, there are a variety of potential problems created by vague donation forms. Through no fault of the organization, the donor may not have filled out the form completely. It is easier for the not-for-profit to follow up and get the needed information as soon as the pledge is received, versus waiting a year to follow up, at which time the entity is being audited. In the same vein, the organization should contact the donor if more than one box is checked.

Perhaps the donor’s intention was to split the funds 50/50 between two campaigns or purposes but this shouldn’t be assumed. Management should not make decisions that are entitled to donors. At times, the opposite takes place: no boxes are checked for the purpose of the gift. For auditing requirements, this should be clearly marked. Even if the donor does not care how the funds are allocated, the organization needs to follow up. The restrictions associated with a donation should be clear to any user reviewing the pledge form.

What are some easy tips to avoid these headaches? Use branded pledge forms – with both the entity and program identified, if possible. Clearly define all the terms on a pledge form, including whether a designation is unrestricted, temporarily restricted, or permanently restricted. Remember, follow up immediately if it isn’t filled out completely or if there is room for interpretation on the form. If a pledge form is online, require all forms to be completely filled out before submission is complete.

A few simple steps now can avert everything from minor headaches to major migraines down the road!

Shawn Middleton Shawn Middleton

Ashley Alverson Green Ashley Alverson Green

Shawn Middleton, CPA is a Supervisor and Ashley Alverson Green, CPA is a Senior Accountant at PBMares, LLP, a regional accounting and business consulting firm serving clients throughout the Mid-Atlantic. For more information, please contact the authors at smiddleton@pbmares.com or aalverson@pbmares.com or visit: www.pbmares.com

Topics: Impact