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Restricted Fund Tracking and Cash Management

By Andrew Brock, CPA, Senior Manager at Blue & Co.

Earlier in June 2023, an article was published by our not-for-profit services team titled “Unveiling the Dynamics of Donor-Restricted Contributions”. This article serves as a great prerequisite into this discussion of restricted fund tracking and cash management as that article provided context and definitions into what constitutes a restricted donation and the different type of restrictions that exist within the organization.

Upon receipt of donor restricted contributions by the organization, it is the responsibility of management and the board of directors to properly track these donor restrictions to ensure funds are not released until the restriction has been satisfied, which could occur within the same reporting period, or could extend into future reporting periods.

There are several ways organizations track these restrictions, which include holding the restricted gifts in separate bank accounts by restricted purpose area, creating general ledger net asset accounts to track the activity, or through an external, outside-of-the-system spreadsheet to name a few of the more popular methods. There are accounting software options that include fund accounting and reporting, as well.

While most organizations do include policies and procedures to track these gifts, there still are several organizations who do not. Furthermore, some of these organizations have deposited the donor restricted funds into their general checking or savings accounts. If there are no formal methods of reconciling or tracking the activity, the organization could potentially overspend their operational dollars and unintentionally tap into the donor restricted dollars.

It is strongly recommended organizations put into place policies and procedures that address the tracking of restricted balances and the cash management behind managing the liquidity of those restricted balances. This ensures that these amounts will be consistently treated over the years and during times of transition in board members and management.

If you have any questions regarding restricted fund tracking, please contact your local Blue & Co. advisor.

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