Thanks mum24kids and Ty's Mom! Yes, your blogs definitely helped. mum24kids - I've emailed you for the literature. I would definitely appreciate it! Thanks again!
I am also a finance manager for a non-profit organization.
It sounds like what you are talking about is a "designated" fund not a restricted fund.
A restricted fund as mentioned before is restricted by the donor.
A designated fund is a fund that your Board votes to keep outside of general operating funds for a specific purpose. However, this only goes as far as the vote. The Board can also vote to undesignate the fund.
It's pretty much semantics. Jackson1, your "restricted funds" are the equivalent of board-designated funds, which are technically correctly classified as unrestricted funds on your balance sheet. (yeah--I know that's confusing--I keep trying to rewrite it to make it less so, but that's the best I'm coming up with at the moment....) If a Board--or a general membership body--decides to take a sum of money and designate that it go to something in particular, they can do that. Then if they decide that they don't need the money for that, then they can vote to revert it back to a general operating fund or wherever it came from. They're the ones who originally decided to designate it to go somewhere, so they can then change their mind.
And it doesn't have to me the same exact people on the Board. For example, let's say whoever the Board was 4 years ago decided to take a chunk of money from the reserves of the PTO and reserve it for a playground fund. Now the current Board decides they don't want to use the money for a playground, for whatever reason. The current Board, even if it's completely different people from 4 years ago, can vote to revert the funds back to general operations.
Back to semantics--for GAAP, the definition of restricted funds is based on donor restricted funds. In other words, if a donor specifies that his donation is for the playground, you must use it for the playground, and that is a restricted fund. So, it sounds like your Treasure is misusing the word "restricted" from a GAAP standpoint. But I'd be willing to bet that's a very common error--I know of very few PTAs/PTOs who have treasurers with the technical accounting knowledge to get that right.
Bottom line--think about it the whole situation as "whoever puts the restriction on the money gets to take it off," and I think you're ok, regardless of what you call it.
FAS 116 and 117 deal mostly with donor restrictions and how to classify them; there's not much on board designations. But, I found a page from a continuing professional education course that shows the difference between unrestricted and restricted funds that might help you. If you contact me at mum24kidsathotmaildotcom, I can scan it in and email it to you.
Could the problem come from the treasurer labeling these budgets "restricted funds"? From Pottsville's reply it sounds like there's a legal definition of restrictd funds. Is that the real intent in your PTO, or do you think someone had just heard that phrase and used it to sound official? We don't carry over money like that from year to year, so we haven't had to address it. But if the objectives of your PTO or hte needs of your school have changed since those funds were set aside, seems there must be some OK way to vote to reallocate them to something else. Especially if the money wasn't raised under the banner of a specific cause.
Pottsville, is this PTO stuck as is or is this just semantics?
Thanks mum24kids and the others who have responded. mum24kids - I understand what a restricted fund is, and I see that you are saying that if we general fundraise (let's say through a jog-a-thon) and do not say that it is for a specific purpose, then the monies can go into a restricted fund? I do not think this is correct and that is what I am trying to find out. Where did you get your information on this?
I may not have explained myself correctly. Basically, for the last couple of years, our Treasurer has had several line items on our financial statement that are called "restricted funds". These funds were created through a voting process (or motions) in our general meetings. The money was allocated into certain funds (playground equipment, technology fund, etc.), but came from general fundraising.
From the different things that I have read, it sounds like you cannot take general fundraised money and (even if it is voted on in a public meeting) create a "restricted fund". The money must remain in general funds, where the money can be reallocated as needed. Of course, it is not our intent to be moving the money all over the place, but I would like to find out what is correct and not when it comes to restricted funds. I'm going to do some research now on the AICPA FASB 116 and 117. Thanks for the helpful hints!
You won't find what you need on the IRS website, because this is a question of what's referred to as "generally accepted accounting principles" or GAAP. Pottsville's right--you need a copy of the AICPA publications known as FAS 116 and 117, or, better yet, some layman's interpretation of them. I spent a couple of minutes digging around on the web, but couldn't come up with anything quickly. If you have some time, the technical term that would probably be most helpful is to look for articles that deal with "donor-imposed restrictions" or maybe "restricted net assets." I'll try to dig around some more later tonight....
But, you really have two separate issues in your question anyway. There are restrictions imposed by donors, which result in the restricted assets that Pottsville addresses. Then there are Board restrictions, which are different. In your example, if your Board decided to designate the proceeds from your Jog-a-thon to go towards the playground, they could do that. If the Board later decided that money wasn't needed, they could easily pass another resolution to reverse the restriction. Those types of restrictions are handled differently on your financial statements than the donor-imposed restrictions.
I suspect your real question, though, might not be how to present this in your financial statements?
