Last time, we considered situations in which the donee organization receives an asset currently.
Now let’s look at some situations in which the donee is sure or pretty sure of receiving assets not currently but over time.
The most common such situation is a pledge that is solid. “Solid” meaning likely to be paid.
Charities routinely “book” all pledges at “face value” for fundraising purposes. FASB rules, which are neither rules of law nor rules of fundraising, requires unconditional pledges to be “booked” as income for accounting purposes.
I’m not concerned with the accountants’ books, but I am concerned with the development office’s books.
If it were up to me, these would be my prescriptions for counting pledges for fundraising purposes:
- I’d have two sets of fundraising books.One for public consumption, the other just for certain individuals high up in the charity’s food chain. The first set of books would be for “rally round the flag” purposes. The second set of books would be aimed at hard, cold reality.
- The first set of books wouldn’t include “junk” but would aim to lift spirits.
- The second set of books, the closely held set of books, would mainly focus on big pledges and the likelihood of their being paid.
- This set of books, for example, might contain detail about George, who has made a $5 million pledge, and his family members, not all of whom share George’s charitable intent.
This second set of books might lead to a board member’s approaching George with a request to “tighten up” the pledge. I’m assuming here that the board member knows George well and knows how to approach George discretely.
Big pledges, in my experience, are typically papered up so that they’re enforceable. Such a pledge is “tightened up” from a legal standpoint but still might not be paid. The second set of books can lead to high-level, informed discussions not about counting this sort of pledge, but about how both to ensure payment and to avoid conflict with family members.
Click here to read Part III.
by Jon Tidd, Esq