One common question we see at MoneyMinder is about the difference between Restricted and Reserved funds. What are the rules for the different kinds of funds that are raised? How they can be allocated? And how can changes be made, if at all?
These questions came up a lot during Covid as organizations had to adapt not only their fundraising events, but the projects for which they were intended.
What are Restricted Funds?
Restricted funds are grants and contributions that have been received for specific programs or projects. The project to which funds are restricted is most commonly defined by the donor. But sometimes the nonprofit defines the project by way of their fundraiser (i.e. “donate to our fundraiser for new playground equipment”). The type of grant for which you are applying could also define the project or activity to which the funds are restricted.
Some examples of Restricted Funds include:
- playground equipment (Parent Group)
- STEM, science or technology lab (Booster Club)
- roof replacement or building painting (HOA)
- serving equipment for a soup kitchen (Service Clubs)
- financial aid for camp attendance (Scouts)
- new equipment (Sports Teams)
- improvement to youth facilities (Faith-Based Groups)
What are Reserved/Unrestricted Funds?
Unrestricted Funds, on the other hand, can be used in any way that the nonprofit’s management and board chooses. Although they are usually earmarked for a particular activity anyway, they can be shifted more freely to be used for general operating expenses or another legal purpose appropriate to the organization.
Reallocating Restricted Funds
Restricted funds give donors assurance that their money is being used in the manner they desire. Generally, they should not be reallocated without the donor’s permission.
If, for any reason, the non-profit fails to honor the donor’s wishes and utilizes the funds for other unintended purposes, the donor can demand a refund of his or her donation.
If the group chooses not to take action on the event or activity for which the money was donated, they can return the money to the donor or ask the donor if the restriction could be released and the money used in a different manner. This type of permission should be received in writing, and depending on the number of donors can be quite cumbersome.
Reallocating Reserved/Unrestricted Funds
Unrestricted funds can be re-allocated to a different cause by a vote of the board and/or membership. For instance, Covid changed a lot of plans for organizations last year. Some of the funds set aside for other programs were re-allocated to meet the unexpected and different needs that arose.
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Connect your Bank, Paypal and Square accounts to MoneyMinder PRO to directly download transactions, saving you time and effort. You just review the transactions to ensure they are properly categorized and fill out any required fields.
Connect your Bank, Paypal and Square accounts to MoneyMinder PRO to directly download transactions, saving you time and effort. You just review the transactions to ensure they are properly categorized and fill out any required fields.
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