Online giving is growing considerably. Does your nonprofit offer donors the option to give electronically? If so, have you given proper consideration to the internal controls surrounding electronic contributions?
Technology and convenience are important to people, especially to younger generations that continue to have more disposable income. Many nonprofit organizations recognize the benefit of offering donors the option to contribute online. It is very convenient for someone to send money to their favorite cause in a minute using their phone, attracting a younger crowd of donors, impulse donors, and busy donors. Reoccurring donations can be set up easily which may allow for more consistent contribution revenue for nonprofits.
Electronic contributions are a great way to appeal to a new generation of donors, but what precautions should be taken to ensure proper internal controls and recording in the financial statements? Nonprofits face a unique reporting challenge with respect to contributions which is determining whether any conditions and/or restrictions dictate the timing of recording the contribution and the proper reporting of restrictions. Unconditional contribution revenue should be recognized when the contribution is received. Conditional contributions are recognized when the donor-specified condition is met. It may seem pretty straight-forward, but there can a wide variety of requests and restrictions from donors that can be subjective. The degree of subjectivity can increase with the option of electronic contributions due to limited contact between the donor and the nonprofit organization when the transaction is completed online or through a wire transaction.
The employee charged with tracking incoming electronic contributions should have a process to determine the purpose and conditions, if any, are appropriately identified at the time the contribution is made to ensure proper reporting and spending of the contribution in accordance with any donor stipulations. This may include follow-up phone calls or correspondence with donors to clarify stipulations identified and including a statement on the online receipt that indicates the donation will be used for general operations unless otherwise noted.
It is also important to keep in mind the importance of segregating the duties of maintaining custody of assets and the recording of transactions. Online donations deposited into the bank statement should be reconciled to information of donations received from the online source. It may be difficult to obtain a perfect separation of duties due to limited staff in small organizations. In these situations it is even more important for boards and management to closely monitor budgets, identify unusual giving trends timely, and to appropriately follow-up.
If you have questions about starting up your electronic giving opportunities or about processes and controls surrounding existing programs, contact one of our non-profit experts!