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Accounting and Reporting Considerations for Online Contributions

 

According to a recent study published by Nonprofit Technology Network, despite the continued economic slump, contributions raised by nonprofit organizations through online fundraising activities continue to increase.

With expanding social media and technology applications for fundraising, nonprofits need to keep in mind the special considerations of accounting and reporting. The nonprofit organization should have a documented system of internal control for online contributions to ensure that all contributions to which the organization is entitled are captured and recorded in the accounting system.

Recording Contributions

There are a number of options for generating online contributions and each has advantages and disadvantages (see the right column for more information):

  • The nonprofit's own Web site
  • Application service provider ("ASP") or third-party service bureau
  • Giving Web sites

Each option differs as to timing from when the donor makes the contribution and when the nonprofit organization collects and deposits the proceeds. Statements provided by the credit card company, ASP, or giving Web site should be agreed to the deposit amounts on the monthly bank statement. Any amounts donated but not yet received and deposited by the nonprofit should be recorded through a journal entry as accounts receivable and a corresponding reversing journal entry when collected.

Charities Registration

Nonprofit organizations need to be cognizant of state regulations with respect to online fundraising and creating a nexus that triggers a corresponding reporting requirement. Most state attorneys general require nonprofit organizations to register prior to conducting solicitations in the state; these laws, however, vary from state to state. (For more information on state charitable solicitation statutes, see the recording or presentation from GuideStar's May 8, 2012, webinar.)

Acknowledgement

The Internal Revenue Service requires donors to obtain an acknowledgement from the nonprofit organization to substantiate contributions of $250 or more. Many nonprofit organizations send acknowledgements to donors when a contribution of any amount is received. These letters are also an effective internal control procedure, providing additional assurance of completeness of recorded contributions. Donors expect to receive an acknowledgement and will typically complain when one is not received.

OPTIONS FOR GATHERING ONLINE DONATIONS

Through a Nonprofit's Web Site

A nonprofit that allows donors to contribute directly over the internet makes a significant investment in technology, including firewalls, encryption, and other safeguards in order to maintain the privacy of the donor database and protect credit card numbers. The costs required to support this type of online contribution are typically beyond the resources available for the average nonprofit organization.

Application Service Providers

Application service providers (ASPs) are fee-based services that provide the mechanism for accepting and processing credit card contributions through a link on an organization's Web site. There is no significant financial investment. Typically, donor information collected by ASP can be downloaded into a spreadsheet and used to support accounting or development records. The Association for Fundraising Professionals (AFP) has developed AFP Internet Transaction Guidelines to address issues such as schedule for remitting payments to the nonprofit organization; basis for determining fees; policy for collecting donor information; privacy policy; and use of the nonprofit's name and logo. The document listing the full guidelines recommended by AFP can be found on AFP's Web site.

Giving Web Sites

Giving Web sites have emerged in various forms that encompass online fundraising, call to service, advocacy, and raising awareness, combining the latest social media trends and cutting-edge technology. Giving Web sites typically charge fees on a sliding scale, ranging from basic services that charge a fee for each transaction to preferred services with flat fees and no individual transaction charge. Network for Good, Crowdrise, Causes, and Razoo are just a few of the many giving Web sites that provide this type of service. Although this is a low-cost option for nonprofits with a low volume of transactions, the fees as a percent of each contribution can be significant. Acknowledging contributions can be difficult if the Web site does not report or remit payment on a punctual basis.

Sarah Avery, CPA, Friedman, LLP
© 2012, Friedman, LLP. Adapted from Nonprofit Advisor, issue 17 (summer 2012); adapted with permission.

Sarah Avery is a director at Friedman LLP with 30 years of experience. A considerable number of her engagements are with not-for-profit clients, who rely on her for audits, reviews, compliance documentation, tax preparation of federal and state filings, and a variety of other services.

Topics: Fundraising