What records help a nonprofit track donor restrictions?

1. Keep the complete gift terms together

Start a folder for each significant gift or award. Save the signed agreement or award letter, referenced attachments, donor correspondence, amendments, and relevant fundraising appeal or donation-form wording. Preserve the version that applied when the gift was made.

Propel Nonprofits explains that gift documents establish donor restrictions, which can limit use by purpose or time. Keeping the actual terms available helps the accounting team understand those limits. Managing restricted funds

Create a short cover sheet identifying the donor, amount promised, relevant dates, intended purpose, document locations, and staff contact. Link to the original wording rather than replacing a detailed agreement with a summary such as “education grant.” Mark unclear terms for review.

2. Flag three different questions

Keep donor instructions separate from internal decisions about how to use funds. For example, a board's decision to set aside otherwise unrestricted funds for an operating reserve is different from a donor imposing a restriction. Retain the board resolution and reserve policy alongside the accounting team's classification. Propel's operating reserve guidance

A contribution can also have conditions. FASB's contribution guidance distinguishes a condition involving both a barrier to entitlement and a right of return or release from a donor restriction. Preserve clauses about performance, matching, repayment, and cancellation for the reviewer to assess together. FASB ASU 2018-08, summary, page 3

Your staff's task is to collect the facts and questions. Ask the accounting reviewer to determine whether an arrangement is a contribution or an exchange transaction, whether a contribution is conditional, and whether donor restrictions apply. Do not assume every grant has the same accounting treatment.

3. Connect receipts to the correct gift

Use a consistent reference in the donor record, payment report, and bookkeeping handoff. Record individual installments and payment dates without losing the connection to the original agreement. Keep fees, refunds, and unexplained differences visible for reconciliation.

The IRS requires exempt organizations to maintain records supporting receipts, expenditures, and reported activity. This suggested reference system is a practical way to organize support, not an IRS-prescribed format. IRS recordkeeping requirements

Have someone resolve receipts that lack a clear gift reference. Keep the question visible until the donor record or supporting correspondence provides an explanation.

4. Preserve support for the spending being tracked

For expenses proposed against a gift or award, retain invoices, receipts, approvals, and any supporting allocation detail requested by the accounting team. Identify the program, transaction date, bookkeeping reference, and reason the cost is being associated with that funding.

Consider a fictional gift of $12,000 designated for reading materials. Staff assemble $3,400 of invoices they believe relate to that purpose. The tracking worksheet shows $12,000 received, $3,400 of costs submitted for review, and an arithmetic difference of $8,600.

That difference is not automatically the remaining donor-restricted net asset balance or cash available to spend. The reviewer still needs to assess the gift terms, expense support, timing, and applicable accounting. Label the $3,400 “submitted for review” until a conclusion is documented.

5. Keep a record of review and changes

At month-end, ask the accounting team to connect the tracking schedule to the relevant ledger balances and explain differences. Retain the preparer's work, reviewer decisions, and references to any resulting entries, including supported releases from restriction where applicable.

Record who will obtain missing information and the next follow-up date. If a donor sends revised instructions, save the new correspondence with the earlier terms and refer the change for accounting and, where needed, legal review. Avoid silently overwriting the history.

Make the handoff repeatable

Choose one document location and an agreed naming convention. Give development staff, program staff, and the accounting team clear responsibilities for keeping the records complete. Include outstanding gift questions in your monthly close checklist.

Hezlep Bookkeeping + Advisory supports nonprofits nationwide through nonprofit bookkeeping and outsourced controller services, under an agreed scope. Explore the dashboard tour to see a demonstration using fictional nonprofit data.