Nonprofit Q & A: Donor Restricted Contributions

Q:  We are a social service agency that receives about $2 million a year in donations restricted to supporting our programs. The donations are solicited through grant requests, a fundraising luncheon, and an annual giving campaign. Our administrative and fundraising costs represent about 15% of our total expenses. We have a policy to allocate those overhead costs to the temporarily restricted program funds. My accounting manager has some concerns that this is not in compliance with generally accepted accounting principles (GAAP). Are we allocating correctly?

A:  From a GAAP perspective, donor restricted contributions are considered temporarily restricted until the donor purpose or time restriction has been met. When an NFP accepts a contribution, it has a fiduciary responsibility to use the funds as the donor intended.

Unfortunately, a NFP cannot assume a donor intends to fund the organization’s supporting costs when a contribution is given to specifically support a program.
As such, if an NFP has a policy of allocating supporting costs to temporarily restricted funds, it needs to communicate this to the donor prior to receiving the contribution.

The AICPA’s Financial Reporting Executive Committee (FinREC) believes that when NFPs communicate this policy to donors when soliciting contributions, it is also appropriate to allocate the supporting costs. However, if the donor is unaware of the policy, the contribution should only be used to support program-related costs.


Nadia Oliveira, CPA specializes in providing audit and assurance services for nonprofit organizations and commercial companies, across a variety of industries. She has experience in providing such services to both public and private companies.