Tales From Tech 2 - Issue: 31a

Today, we will be starting our two part issue (or continuing our three part issue - depending on how you look at it) on donor restrictions. We'll even walk through an example to show what the accounting entries might look like to give you an even better understanding of all this (or to confuse you so completely that you feel like flying to Asheville to give me a piece of your mind).

Refreshments will be provided, provided you have some (and trust me, you'll need them before the end of all things).

Before we begin, let me say that if your church is not tracking donor restrictions and has no desire to do so, then feel free to skip this issue (and the last one and the next one, too). You do not have to maintain donor restrictions this way if you don't want to and continuing to read beyond this point may cause you needless levels of stress if you don't plan to use this new Version 9 feature.

Originally, this was a single volume of epic proportions, but during an initial test reading of the issue, five of our subjects experienced temporary blindness and hair loss and two actually tried to throw themselves out a window. (I was one of the two.) Fortunately, everyone has now recovered, but to prevent possible lawsuits, we decided to break the issue up into more manageable pieces. Please note that even though it's now a two-parter (or three-parter, if you count the previous issue), we still recommend that you remove any sharp objects from the room before you continue, just to be safe.

In all seriousness though, handling donor restrictions is one of the most important new features in Version 9 and it is certainly worth the time to learn and use, but like many great things, some degree of effort may be involved.

So, if you think you're up to the task, be strong and read on. Since this is a fairly complex topic, you might want to print off all three volumes (I'll be sending Volume 31b in a day or two) and read them when you won't be interrupted. Just as you would with a sardine sandwich covered with garlic and Limburger cheese, take the time to breathe in their delicious aroma.

Anyway, thinking about whether pickles are sentient reminded me of that old saying: A penny saved won't buy a free lunch, because there's no such thing.

AN INTRODUCTION

One of the most important new features in Version 9 is the ability to keep track of donor restrictions.

In case the coffee hasn't made it all the way up to your brain (I usually have to stand on my head for a while to get it all the way up to my brain cell), I'm going to start with a brief introduction on restricted money (and I'm not talking about the eight dollars and change you have in the cookie jar on top of the refrigerator).

The first thing you want to keep in mind is that these monies are called "donor restricted" because it is the donor making the restriction.

One of the most important things to remember is that the church is obligated to use restricted money for whatever it is designated for. So, if John Q. Giver comes in and gives you a check and says it's to buy chickens, then the church has to use the money to buy chickens if they accept the donation. This could be a problem if you work at the First Vegetarian Church, but I guess it depends on how the chickens are going to be used. This brings about an important point, which is simply that the church does have the right to refuse a donation if it is designated for something that they would never use the money for. In fact, they are ethically obligated to refuse the money if they aren't going to use it the way the donor designates. (There may even be laws to this effect, but as we discovered in Volume 28.2, I'm not a lawyer.)

THE LACK OF COFFEE HAS RESTRICTED THE BLOOD FLOW TO MY BRAIN

Probably the most common type of contributions is unrestricted contributions. These are monies given as tithes or general offerings that have not been designated for a specific purpose.

When a contributor specifies how the money is to be spent, that's a restriction and there are two types, temporary and permanent.

There is another type of donation that I'll mention called a "pass-thru" contribution, but that's a chicken of a different color and I'll describe it at the end of this section.

A donation is temporarily restricted when a contributor intends for the money he or she is giving to be used for a specific purpose. When the church uses the money for what it has been designated for, it is "released" from the restriction. This "release" is recorded as an additional debit and credit on the transaction you enter when the money is used. Don't panic, though, because after you have defined these restrictions in PowerChurch Plus, releasing the money is as simple as clicking a button and going through a few simple steps. The program will guide you all the way.

Generally, temporarily restricted monies are used in a relatively short period of time although this is not always the case. Money designated for the purchase of new robes for the choir or for new cribs for the nursery are examples of temporarily restricted funds. Money designated for a new building would also be temporarily restricted, even though it may not be spent for several years.

A permanent restriction is longer lasting in nature. In fact, it's permanent, hence the name. An endowment would be one example, or if someone gives land or art with the stipulation that it can not be sold, those would also be permanent restrictions.

Another type of contribution is called a pass-thru. Basically, a pass-thru contribution is money that is given to the church that is going to be turned over to another non-profit organization. The church taking up a collection for a local homeless shelter would be an example. These contributions are not handled the same way as unrestricted or restricted funds. Generally, these monies are accumulated in liability accounts which are then reduced when a payment is sent to the other non-profit.

Determining what money is unrestricted, temporarily restricted, permanently restricted or a pass-thru is between you, the contributor and the church's accountant. I am not an accountant. In fact, I'm no account at all, so you might want to talk to your church's accountant if you aren't sure how to handle a particular contribution.

THE MEAT AND POTATOES

Creating a donor restriction in Version 9 is easy. There is a new menu option in Fund Accounting called Maintain List of Donor Restrictions. When you want to add a new one, an assistant will guide you through choosing all the accounts you need for tracking this money. The wonderful thing is that you can use this assistant whether you have already created the fund in Contributions and the accounts in Fund Accounting or not. You will be able to add new funds or accounts as needed or choose from ones that already exist.

Basically, when you create a new donor restriction (and remember, the program will guide you through all this), there are three accounts required. You must have an income account, an equity account and a release account. Optionally, you can also specify an expense account when you set up a donor restriction, but you don't have to have a separate expense account for every restriction.

Obviously, to record income, you have to have an income account and each donor restriction has its own income account.

Next is the equity account. This is what used to be called the fund balance account, but Version 9 doesn't limit you to just one as prior versions did. In fact, each restriction will have its own equity account.

The third unique account for each restriction is the release account. This account is in the income account number range and it is used when you release the money from its restriction. (Remember, you release money from a restriction when you spend it on what it was designated for.)

By the way, there is another account in the income account number range called the "released from restrictions" account. There is only one "released from restrictions" account in each Accounting Fund and it is used every time any restricted money is released. The "released from restrictions" account basically changes restricted money to unrestricted money so you can use it (but more on this later). This account is not created when you define your donor restrictions, but it must be added to your Chart of Accounts before you begin spending restricted funds.

Okay, I think it's a good time for a break. Go get a drink of water, stretch your legs, take some deep breaths (in through the nose and out through the mouth) and then come back tomorrow and we'll work through an example.

TO BE CONTINUED...

This discussion will be continued in Volume 31b, coming tomorrow or the next day, unless you didn't get this volume today. In that case, tomorrow may be today or possibly even yesterday or two weeks ago.