We have covered the basics of tracking restricted grants here, but that article assumes a single source of funds. Sometimes we need to track what I call a Pooled Fund – a pot of money with a clear restricted purpose, coming from a bunch of unique donors.
Houses of Worship have long been familiar with these – there is The Education Fund, The Building Fund, The Coffee Fund, The Garden Fund – while many other organizations have had revenue models that relied more on unrestricted individual donations or larger, often programmatically restricted, contributions from foundations.
Over the last few years, as we faced sudden “unprecedented” needs in our communities, many nonprofits put out calls for donations to support specific, short-term challenges.
Many found that money came pouring in.
And then… then the folks charged with tracking those donations, releasing them from restriction, and reporting the activity in 990s and audits were hit not only with a joyful tsunami of cash, but a tidal wave of doubt as they tried to figure out how to get it all into their financial systems.
Does this resonate?
You already have solid systems for tracking restricted grants, and you may even have implemented Locations for tracking net assets without and with donor restrictions. But this situation still leaves you with questions, partly because it does not fit neatly into a box.
Your first thought might have been to set up a new Class in QuickBooks, and while I understand the impulse, we want to be able to use Classes to get the Statement of Functional Expense. Most likely, this is a short-term project rather than a long-term program of your organization.
So what should you do?
How can you track this information in QuickBooks in a transparent, scalable, and sustainable way?
The first step is to ask whether you need the details of the individual contributors to this new fund in your data file. If you have an outside donor database, the answer may be “No.” In that case, create a customer called “POOLED FUNDS” with a Project for your project – let’s call it our “NIFTY PROJECT.” You can see the steps to do that here if needed. Donations coming in can be coded directly to this project, and expenses coded back to it just as if it were a regular restricted grant.
Things get slightly more complicated if you need to track the individual donors in QuickBooks.
If this is the case, you will want to:
Create a Product/Service for each type of contribution to your fund. Maybe this is just NIFTY FUND, pointed to Donations Directed by Individuals, but maybe there are Corporate or Foundation gifts. You can see the process here.
Record contributions using Sales Receipts or Invoices as you normally would, but using the special Service item created in Step 1.
Create the Project under a POOLED FUND customer, just as I recommended above for those organizations NOT tracking the details of specific donors in QBO.
At month end, run a Sales by Product/Service Detail report filtered for only the Services credited in Step 1 and totaled by Account. Save this Custom Report so you can quickly run it each month.
Record a Journal Entry debiting each income account for the amount shown in the report and crediting the same account, POOLED FUNDS Project. This has the effect of connecting the income to the Pooled Fund.
I like to print the Sales report from Step #4 to PDF and attach it to the journal entry, leaving a trail of breadcrumbs for whoever comes later and wants to know where the numbers came from.
Pro tip: Using a bank-type account called JOURNAL as the first line of all journal entries creates a register, making it easy to find them later. You can also export this register to have a separate person review and sign off on your journal entries, which is always an excellent internal control to have in place.
From there, you can assign expenses to the Project and follow the usual process for releasing them from restriction. (Relatively) easy and straightforward, once you think about it, right??
This post was originally written for and published on High Rock Accounting.
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