Restricted Funds Tracking: Ensure Compliance and Transparency
How to track restricted funds in your nonprofit for compliance and donor trust.
Restricted Funds Tracking: Ensure Compliance and Transparency
Tracking restricted funds is essential for nonprofit compliance and transparency. Donors and grantors trust you to use their gifts as intended—and the right software makes it easy to honor that trust.
What Are Restricted Funds?
Restricted funds are donations or grants that come with specific conditions on how they can be used. There are two main types:
1. Temporarily Restricted Funds
Funds restricted for a specific purpose or time period. Once the restriction is met, they become unrestricted.
Examples:
- A grant for a specific program
- A donation for a building campaign
- A gift to be used after a certain date
2. Permanently Restricted Funds
Funds that must be maintained in perpetuity, with only the income available for use.
Examples:
- Endowment principal
- Named scholarship funds
Why Restricted Funds Tracking Matters
1. Donor Trust
Donors give restricted gifts because they care about a specific cause. Honoring restrictions builds trust and encourages future giving.
2. Grant Compliance
Grantors require detailed reporting on how funds are spent. Failure to comply can result in clawbacks or loss of future funding.
3. Audit Readiness
Auditors scrutinize restricted fund accounting. Accurate tracking ensures clean audits.
4. Board Governance
Your board is responsible for ensuring funds are used appropriately. Clear tracking supports good governance.
5. Legal Requirements
Misusing restricted funds can have legal consequences. Protect your organization with proper tracking.
Key Features of Restricted Funds Tracking Software
1. Tag and Track Restricted Gifts
Assign fund codes and restrictions to every gift. Track spending against each fund.
2. Monitor Spending by Fund
See real-time balances and spending for each restricted fund. Prevent overspending or misallocation.
3. Automated Compliance Reports
Generate fund-specific reports for grantors, auditors, and your board with one click.
4. Alerts and Notifications
Get notified when a fund is running low or when a restriction deadline is approaching.
5. Inter-Fund Transfers
Move funds between accounts with proper documentation and approval workflows.
6. Audit Trails
Maintain a clear record of every transaction for compliance and audits.
Common Restricted Funds Challenges and Solutions
| Challenge | Solution |
|---|---|
| Mixing restricted and unrestricted funds | Automatic fund tagging and alerts |
| Grant compliance | Fund-specific budgets and reports |
| Audit preparation | Automated audit trails |
| Manual tracking | Centralized fund tracking software |
| Lack of visibility | Real-time dashboards |
Best Practices for Restricted Funds Tracking
- Document restrictions clearly: Keep records of donor and grantor restrictions for every fund.
- Train your team: Ensure staff understand how to code transactions correctly.
- Review fund balances monthly: Catch errors and variances early.
- Communicate with donors: Provide impact reports showing how restricted gifts were used.
- Reconcile regularly: Match fund balances to bank statements and reports.
How to Choose Restricted Funds Tracking Software
- Assess your fund structure: How many restricted funds do you manage?
- Evaluate integration needs: Does the software connect with your CRM and donation platform?
- Check compliance features: Look for FASB reporting, grant tracking, and audit readiness.
- Consider ease of use: Choose a solution your team can learn quickly.
- Request a demo: Test the software with your real-world workflows before committing.
Alignmint: Track Every Dollar
Alignmint's restricted funds tracking ensures you never miss a compliance requirement. Tag gifts, monitor spending, and generate reports—all in one platform.
Ready to track every dollar? Join our waitlist