Capital Campaigns

Posted on Wednesday, June 26, 2019

Is your organization planning a capital campaign to purchase a new building or remodel its existing building?  Before you start, here are a few items to consider.

Pledges versus Intentions.  Organizations normally provide a form to donors during a capital campaign so that they can document their contribution and when they expect to make payments.  For example, $10,000 total gift to be paid at $2,000 per year over 5 years.  If the language on the form is for a pledge, the entire gift of $10,000 is recorded when the pledge is made as revenue and a receivable.  The annual payments will be recorded against the receivable.  But if the language on the form is an intention to give, rather than a pledge, no amount is recorded in revenue until a payment is made.   

Restricted Funds.  Contributions received through a capital campaign are restricted by donors for capital campaign expenses.  These include the purchase or construction of a capital asset (i.e. the building).  Sometimes an organization may hire a capital campaign consultant or fund raiser to assist in the campaign.  Although some of the capital campaign contributions may be used to pay for a capital campaign consultant, the donors must be made aware of this.  Some donors may want their contribution to go strictly to the purchase or construction of the building.  In this case, the organization needs to make sure that those funds are used for this restricted purpose only. 

Excess Funds.  Sometimes an organization is very successful with its campaign and raises more funds then needed for the purchase or construction of a capital asset.  In this case, the excess funds are still restricted for the purchase or construction of a capital asset.  The organization may want to go back to the original donors and ask for approval to redirect the excess funds to another purpose.  Only the original donor can change a restriction on a contribution.  An alternative is to include language on the original contribution form and communication to donors that any excess funds raised will be used for future maintenance or repairs of the building or some other stated purpose. 

Release of Funds.  Contributions received that are restricted for a specific purpose are released from restriction when that stated purpose is met.  During a capital campaign, contributions received for the capital campaign are not released from restriction until the building is placed in service.  During the construction of the building, the organization is most likely making payments for construction draws.  These payments will not reduce the amount of restricted net assets when paid.  Only when the building is placed in service will these amounts be released.  This may cause the organization’s financial statements to have a significant amount of net assets with donor restrictions compared to net assets without donor restrictions during this time. 

To make sure your campaign is successful, make sure you understand the campaign process and requirements before starting.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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