Whose Money Is It? Recording Contributions Held for Others
By Rebecca Schorling, Senior, Raffa – Marcum’s Nonprofit Social Sector Group
Winter is here, and many organizations are preparing for the rush of year-end grants and contributions. The appropriate recording of these grants and contributions will vary based on the terms of the agreements and the donors’ intentions. One instance an organization may encounter is a contribution in which a donor specifies a beneficiary. On these occasions, it may be unclear whose revenue the contribution belongs to, the recipient’s or the beneficiary’s. Is the contribution merely restricted or could it be a contribution held for others?
Restricted Contributions Versus Contributions Held for Others
While both restricted contributions and contributions held for others are guided by the donor’s intent, a restricted contribution is restricted for a time or purpose, while a contribution held for others is restricted to a specific unaffiliated beneficiary. A contribution held for others creates a transaction involving three parties: a resource provider (the donor), the recipient (in this case, the nonprofit organization), and the beneficiary. In a contribution held for others, the recipient organization does not have variance power, which is the power to redirect funds to a different beneficiary. In this type of transaction, the recipient nonprofit may be called an agent or an intermediary. This differs from a restricted donation, in which a recipient may have flexibility to utilize funds for different areas within the designated purpose.
Identifying a Contribution Held for Others
While differentiating a contribution held for others from similar transactions may be difficult, there are a few indicators to look for in a grant agreement. FASB ASC 958-605-55-78 says that a resource provider may designate a beneficiary by name, by stating that all entities that meet a set of donor-defined criteria are beneficiaries, or by implicit actions that indicate the contribution to be solely for a particular beneficiary.
Additionally, the agreement will not contain language that allows the recipient organization to redirect funds to other beneficiaries. This means that the variance power is not passed to the recipient organization.
Accounting for a Contribution Held for Others
FASB 958-605-25-24 states that a nonprofit organization has not received a contribution if it accepts assets from a donor and either:
- Agrees to use those assets on behalf of another organization specified by the donor, or
- Agrees to transfer the assets, the return from investing those assets, or both to another organization specified by the donor.
If the funds received are determined to be a contribution held for others, the recipient organization should not record revenue. Instead, the recipient should recognize a liability to the beneficiary, because the recipient surrendered control of the assets when it permitted the resource provider to select the beneficiary of the contribution. The liability will be reversed upon the passing of funds to the beneficiary.
If non-financial assets are received, the recipient organization is permitted but not required to recognize a liability, as long as the organization treats the transaction consistently and discloses the treatment in the accounting policy.
Under FASB 958-605-25-33, if the resource provider retains the unilateral right to redirect the assets to another beneficiary, it is not a contribution to either the recipient entity or to the beneficiary until control is relinquished. The recipient entity should still record a liability, but to the resource provider, such as in the form of a refundable advance.
There are also two exceptions in which a recipient organization may be able to record a contribution:
- FASB codification 958-605-25-27 states that the beneficiary must be unaffiliated. If the recipient organization and the specified beneficiary are financially interrelated organizations, the recipient organization should recognize the contribution. Organizations are financially interrelated if one organization has the ability to influence the operating and financial decisions of the other and one organization has an ongoing economic interest in the net assets of the other.
- The recipient organization may also recognize a contribution, if the donor explicitly grants a recipient variance power to redirect funds to other beneficiaries.
If your organization receives a grant that could possibly be a contribution held for others, the first step is to read the grant agreement for the following details:
- Is a specific beneficiary identified?
- Is the identified beneficiary unaffiliated?
- Does the resource provider retain all variance power?
If the answer is “yes” to all of the above, it may be a contribution held for others and should not be recorded as revenue by the recipient organization. If the grant is unclear, it may be beneficial to request additional language from the resource provider (donor) to clarify the provider’s intentions.
Other similar transactions related to such things as fundraising events and trusts may share some qualities with contributions held for others, but there are additional rules and guidance associated with those transactions that should be considered. If you are the grants or development manager at your organization, it is important to work with your finance and accounting team to ensure that each transaction is appropriately handled.