Earlier this year, CBS News reported that Garth Brooks filed a lawsuit against a hospital in Oklahoma.
Both sides had a different story to tell:
The hospital claimed the donation was anonymous and unrestricted. Brooks claimed the donation was solicited by the hospital so they could build a women’s center named after his late mother. When Brooks found out the hospital was planning to use the $500,000 he donated for other construction projects, things got ugly.
The jury awarded Brooks $500,000 of damages in addition to the original donation for a grand total of $1 million. That is one very costly misunderstanding.
So what does this have to do with Fund Accounting?
Regardless of whether or not you think the lawsuit was justified in the first place, there is a lesson in this story that churches and other not-for-profit organizations can learn:
It is important for organizations to remember that restrictions placed on donations are legally binding and can be verbal. This was a very expensive example of needing to get it in writing that it either was or was not restricted. You know what they say about assumptions…
The Aronson Nonprofit Report
When you accept a donation, make sure you know if there are any donor-imposed restrictions. If there are, you need to be able to show the donor the receipt of the donation and how the funds were spent in accordance with his wishes. This can be accomplished by the use of Fund Accounting which keeps track of which contributions and expenditures are unrestricted, temporarily restricted, and permanently restricted.
For complete definitions of these different fund classifications, please read the introduction post for our “You don’t have to be a CPA to learn Fund Accounting” Series. Another great resource is the Financial Accounting Standards Board’s Summary of Statement No. 117.
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