The Charity Accountant - Restricted Funds Use Wisely
RESTRICTED FUNDS - USE WISLY
Fund accounting, as it is commonly called, can be a very successful tool for raising money (or saving up) for a specific project or cause. The benefit from a member of the public's point of view is that they know where their hard earned cash is going to be spent. This does of course rely on how well your campaign emphasises the fact that the money they donate will only be spent on this specific project. People always like knowing where their money is going and more importantly they are more likely to hand it over with this knowledge readily available.
As mentioned above from a charities point of view having this tool is very useful but there are also a number of drawbacks. Once a restricted fund has been set up this money and any further money added to this restricted pot can only be used for the reason the restricted fund was set up. At this point you may be thinking well that’s good isn’t it? Well yes and no, it entirely depends what the fund has been set up to do.
Let’s use an example of a charity that provides sports and recreation for a town or local authority. If they were to set up a restricted fund to repair or replace all goal posts and nets any money set aside for this purpose will only be available for goal posts and nets. A much better reserve to set up would be a maintenance, repair and replacement reserve for sports facilities. This reserve can include almost everything that you need to maintain any sporting facility you have. It could include your indoor courts, tennis courts, rugby equipment etc. The other option would be to set up a restricted fund for each single item you may need to replace or repair. Apart from being a huge administration pressure you will end up with pots of restricted funds that are unable to be used. In other words, there is no flexibility having to many different restricted funds set up.
Often large donations come with a catch i.e. you must set up a restricted reserve (only use the money for a particular activity) to accept the donation. This can be restricting to a charity especially if extensive effort has been expended to draw in this particular donation. Although it can be restricting, I would suggest continuing to work for these sorts of donations and keep encourage current donators. Providing the work you are expected to do falls within the scope of what your charitable aims are, you can find a way to make these donations work to your charities advantage. At least you are getting income even if it is restricted you are still making a difference. The more willing you are to work with people who make large donations the more likely they are to continue supporting you and over time you will be able to guide them to what you need the most.
The point I am trying to make is be wise with your restricted reserves. Use them to your advantage in fundraising campaigns. Be savvy with setting up the restricted funds in the first place and make sure they have a broad enough scope so they do not hold you back or leave pots of money stranded.