Hello,
We are having a conversation about unrestricted pledge recording on the Development side. In my 20+ years in Development Operations at different non-profit organizations, this was never an issue. Now I find it is an issue in the performing arts sector. I can't quite put my finger on why one would record what are essentially pledge payments literally across fiscal years rather than using the pledge payment functionality built into the database to record and report cash flow. What is the benefit to your development dept. to spread out the pledge over future FYs rather than using the payment schedule?
I am assuming that memberships may need to be set-up manually to accommodate using the pledge payment functionality. Also assuming that your finance dept. is recording the entirely of the pledge as a receivable according to FASB guidelines.
I am interested to hear from other orchestras about specifically what method/process you use to record unrestricted pledges and pledge payments. Please feel free to contact me directly at alawson@laphil.org, if you prefer.
Thank you!
Anita
Anita Lawson
Director of Development Operations
Los Angeles Philharmonic Association
151 S. Grand Ave.
Los Angeles, CA 90012
Tel: 213-972-0731
Internal: x7731
Hi Anita!
This is a great question and we see this come up quite a bit in the community. There was even a session at this year’s Tessitura Learning and Community Conference called Pledge Tracking, Collections, and Reporting – the discussion notes will be posted in the Conference Archives later this month for all to review.
But, let’s get to the matter!
There are two types of multi-year pledges that we see frequently. Let’s take the following example (please note, this is assuming accrual based accounting standards):
The donor makes a pledge of $5,000 and will pay it out in $1,000 installments over 5 years.
1) The $5,000 could be booked as income in the current fiscal year ($5,000 as income in 20X0) and the installments paid throughout the future fiscal years.
2) $1,000 could be booked as income in the current fiscal year and $1,000 booked in each of the following four fiscal years ($1,000 as income in 20X0 and $1,000 as temporarily restricted income in 20X1, 20X2, 20X3, 20X4, each), with installments paid throughout the fiscal years.
The decision on how to process this usually comes down to donor intent. If the donor states (whether directly or based on the phrasing of the fundraising ask) “I want $1,000 of my donation to go to this season and $1,000 to go to each season following through 20X4”, then the second processing option is often chosen because this represents a purpose and time restricted contribution. Reporting then shows the appropriate dollars for their restricted season and the future restricted dollars can be released as the fiscal years change. This might be slightly different from other non-profit sectors in that upcoming seasons may be considered projects and therefore gifts can be designated to them.
You ask about recording “unrestricted pledges”, specifically, and that might be the key in this discussion. If your organization does not interpret the above example as a restricted donation, then perhaps the first processing option is more accurate for your organization’s accounting purposes than the second.
These are very important discussions to have with your finance teams and I am glad to hear you are having them. I would also suggest you check with your auditor about their preference on how to process such pledges, as ultimately, their opinion will have some weight in the conversation.
Nick