Financial reporting for fundraisers can be a bit of a mixed bag. When asked to prepare a fundraising report, the implications of that request are often determined by the one asking and the purpose for which the request is being made.
One of the first questions is “Do you want Attainment or Cash Flow?” The response from fundraisers is overwhelmingly Attainment. The Finance team wants to match their financial statements. And, here is where rubber meets the road.
As with all guidance we provide, the goal is not to impose blind best practices on organizations. Best practices are great. We should strive to do the very best we can in alignment with leading industry standards, but that “very best” can be tailored to meet the broader needs of the organization. The following offers a roadmap, but it does not discount the need for an occasional off ramp or pit stop.
Attainment reporting is not accounting. It is not a report of spendable support. It is a measure of the fundraising team’s impact as garnered in the reporting period. It is more in line with merit-based reporting. True financial reporting prepared by Accountants and Auditors can resemble the Attainment report, and it is likely to nearly match it in a less complex fundraising operation. In the absence of planned gifts, pledge commitments and gifts-in-kind, the fundraising operation is basically reporting on a cash basis.
In practical terms, Attainment is how much support the fundraising team achieved within the reporting period – commonly the current fiscal year. In many ways it is the thermometer we all know – with some stipulations.
Leadership expected you to raise $X. You raised 110% of $X – and here is what it looks like. All of the thermometer may not be spendable; it may not be liquid. That is a cash flow conversation.
Gift Types to Include/Exclude
Outright Cash Contributions
Cash – and cash-equivalent – contributions made without prior commitment are included. These come in the form of cash, checks, money orders. This type of support can be deposited to a bank and paid to a vendor.
I want to be careful here, because I do not want to confuse substantiation of a gift to the donor for IRS reporting purposes with recording the gift amount in your system and including it in the report.
Stock contributions are substantiated using a high, low, median price report based on the day of the stock transfer. Many organizations have an immediate sell order with their brokerage house. They do not attempt to mark time and sell when the price improves. Some do attempt to manage the contribution as an asset of variable potential.
Regardless of the details of how the value of the gift is recorded in the database – gross, net of fees, value at day of transfer, liquidated value, etcetera, stock contributions made during the reporting period – and without prior known commitment – are included in Attainment reporting.
New Pledge Commitments
New pledges are fantastic. We all know new pledges result in greater overall support than outright cash gifts. If a donor can pay later – over a period of time and in smaller installments – she is likely to make a bigger gift than if she has to pay it all at once at the time the decision was made.
New pledges are included in Attainment Reporting. Pledge payments are not. Ever. Anywhere. If we include total new pledge commitments, we cannot include the corresponding payments. To do so would be to count the same donation – or some proportion of it – twice.
New pledges include new matching gift pledges, as well. If your database discerns between the two, be sure to include both.
New pledges are also included to the full extent to which the commitment was made regardless of payment terms. This approach certainly can be adjusted to limit applicable pledge receivables to those which can reasonably be expected to be realized in the reporting period. Bear in mind, however that receivable management and cash flow projections are best handled with dedicated analytics. And, if we really want to measure resultant attainment from efforts put forth, one can argue the entire pledge should be included.
This is not the “hill to die on,” as a dear friend and client once told me. If leadership wants to account for the amortization of the expected receivable, then that is the approach we take universally in the broader portfolio of reports unless expressly directed and disclosed. We must do so knowing the accuracy of the report is in direct correlation with the quality of our installment management.
Planned Gifts and Planned Gift Commitments
Planned Gift Commitments and Planned Gifts should be managed in many ways like pledges and pledge payments. This particular class of support can be a bit more of an organizational conversation to decide what works best.
As a starting point, I include the Planned Gift Commitment at the time it is made. This presumes an organizational discipline in obtaining, capturing and valuing the commitment. Often this cannot be done and organizations resort to a placeholder transaction of little or no stated value. Some organizations may prefer to report on realized planned gifts where the bequest has already been received, for example. This approach has the benefit of a solid value to report but, perhaps, misses the essence of the Attainment report to inform the audience how much support was obtained during the reporting period. It is worth noting that nearly ALL planned gifts have a longer runway from cultivation to solicitation to commitment to realization. The work done takes place over a long period of time; as such, some organizations report planned gifts as essentially a footnote to the body of the Attainment Report.
Either way, organizations can take a strong position on one side or the other. The most important issue at hand is to be consistent and to avoid including both the original commitment and the tangible support received in the same report. It is equally important – whenever it is possible – to not “game the report” by shifting positions throughout time. In other words, in 2019 we count commitments and 2020 we count planned gift cash. Making this change certainly can be done with good reason as the result of a more systemic change in an organization’s approach to reporting, but these types of fundamental changes should not be embraced with the singular intent of making the organization’s financial position look better. One can easily imagine how a planned gift commitment made in 2019 and realized in 2020 can skew financial reporting be substantially increase EACH year’s value thereby making the overall financial health of the organization appear better outside the constraints of GAAP reporting.
Gifts-in-Kind offer another interesting consideration. Many nonprofits have embraced the practice is valuing all gifts-in-kind as $0. The reasoning is IRS rules do not allow us to substantiate the value of an in-kind gift to donors, because the donor might have inflated the value of the gift at the time it is given. If $0 gift-in-kind valuation is your practice, then the inclusion or exclusion of gifts-in-kind will not impact the bottom-line financial value, but it will impact the number of donors and the number of gifts.
The method of valuation we prefer is to assign a reasonable gift amount in the database. We still cannot receipt the gift with a value (with some exceptions as in the case of a car donation liquated with a verifiable amount, for example), but we can record estimations designed to signal magnitude and true impact.
A client of ours embraces the $0 rule. Many do. One stark example might demonstrate why internal valuation is important. The client referenced here collects many gifts-in-kind. That is really their lifeline. In many ways they struggle to identify meaningful and actionable tiers of commitment. A donor who contributed a bag of stuffed animals is not discernable from a donor who gave an entire hardware store of new inventory. The estimated value of the hardware store merchandise was in excess of $250,000. The stuffed animals brought in $10. As a former fundraiser, I want to be able distinguish between these two individuals. In the database, these two donors look like one-time $0 donors. Internal valuation for the benefit of internal operations does not violate IRS regulations. It provides much needed insight and guidance.
But I digress.
The dreaded “Other” class of donations. It seems everything is tracked in these types of transactions. The inclusion or exclusion of these gifts depends on how your organization employs this nebulous group.
The decision on how to handle these donations should continue to follow the guidance that 1) they do not double count a donation already considered, and 2) they represent “attained” support to the organization during the reporting period.
Recurring Gifts and Recurring Gift Payments
As a general rule, recurring gift commitments are excluded altogether. The payment of a recurring gift can stop at any time. Individual installments can fail due to card expirations. Often – much to the chagrin of both the donor and the organization – the manual nature of processing payments through select systems (push v. pull merchant processing) causes staff to miss months entirely.
I once worked with an organization who didn’t understand why their Board Member donor was upset their card had not been charged for six (6) months. They had no idea they had to push the request for a debit out to the bank. The presumption was it was happening automatically. Furthermore, financial reconciliations continued to be off by increasing amounts for an unknown reason.
We found the reason – recurring gift management. The follow-up conversation with the Board member was not pleasant, the revenue was in danger of being lost and more importantly – the relationship was endangered. Fortunately, the good nature of the donor allowed them to process a large “catch up” charge, and the relationship remains healthy. It was not a good look for the organization. There was grace in their humility which may serve to strengthen the relationship for the long-term.
With that in mind, treat the recurring gift payment as an outright cash donation and ignore the commitment. If you want to know how much those recurring gifts will garner in the future, report on expected future cash flows.
Do not include.
Transaction Grouping in Reports
Many systems will allow you to group similar transaction types together in columns. Raiser’s Edge is one of those. For those with this capability, I offer the following.
- Recurring Gift Payments
- Stock Donations
Column 2-New Pledges
- New Gross Pledges
- Include Matching Gift Pledges
Column 3-Planned Gifts
- New Planned Gifts
Your organization may want to adjust this layout. Doing so is perfectly acceptable provided it is done with purpose, is consistently applied and is representative of fundraising efforts.
Dan Barney, Principal
Red Barn Advisors