Terms of Gift. The Shelter Association of Jefferson County receives the majority of its funding from the local chapter of the United Way. That federated fund-raising organization has a policy that if a member agency reports unrestricted net assets in excess of one year’s budgeted revenues and support, the excess will be deducted from its allocation for next year. The association’s reporting year ends December 31, and unrestricted net assets are just about equal to last year’s revenues and support. On December 30, a potential donor contacts the Shelter Association about making a large contribution. It is important to him to make the gift in the current calendar year so that he can deduct the charitable contribution on his personal federal income tax return. However, he has heard that the treasurer of the association and several board members recently resigned after allegations of financial mismanagement were made. He is considering restricting his gift for the direct purposes of acquiring food, clothing, and supplies for the homeless over the next several years so that management could USC none of the money for overhead expenses.
Required
Take the position of the association’s certified public accountant.
a. Do you recommend that the association advise the potential donor to make the gift unrestricted or restricted? Give your reasons.
b. The potential donor asks you how he can be sure that the association will spend his contribution as he intends, assuming that he restricts the purpose of his gill. Explain to him what kind of public information is available. Do you consider that information adequate to assess whether the not-for-profit agency is efficient and effective in its use of public donations?