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Use of Donor-Restricted Funds in a Crisis

Can my not-for-profit use donor-restricted funds for operating expenses during this COVID-19 crisis?

As a general matter, not-for-profits cannot use donor-restricted funds for other expenses. If funds have been restricted by a donor, then that restriction remains, even in these extraordinary times. Restrictions on donations are typically made in writing by the donor (verbal restrictions are also acceptable) when the gift is made for a certain purpose or time period. Not-for-profits should comply with the donor’s wishes, not only from a legal standpoint but also from a public relations perspective. It is very important that your organization preserves donor trust and demonstrates that your are a good steward of these gifts.

However, if your not-for-profit is in a dire situation during this pandemic, reaching out to donors who have placed restrictions on their gifts may be one strategy to consider. To do this, you could contact each donor directly to see if they would be willing to lift the restrictions to allow the use of the restricted funds for operating costs. If they agree, we recommend getting a written donor consent to release or modify the restriction that was put in place originally. Hopefully, most donors would be understanding to this request and lift the restrictions if asked, since having restricted amounts set aside may not be beneficial for an organization that could be struggling to survive.

The COVID-19 crisis has affected almost every organization, some more severely than others. If you have any questions regarding use of donor-restricted funds or any other issue affecting your not-for-profit organization, please contact your Blue & Co. advisor.

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