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  • 1.  Counting Pledges and Non-Binding language

    Posted 05-22-2024 11:00 AM

    Hello,

    A few years ago, my college updated all of our Letters of Agreement stating "The College and the donor agree to enter into this agreement in good faith. Both parties understand that this agreement is not legally binding, and both parties intend to fulfill their commitments as outlined."

    I've been told this language was added after some donors pushed back about having their pledges be enforceable and asked to have the language added to their agreements, which we then decided to add to all agreements. To me, this sounds like the intent was to not make these agreements promises to give as outlined by FASB. 

    Our finance team has continued to book all of these as pledges, essentially making no changes to their process since the language was added. Adding this language to all agreements and still counting them as promises to give seems contradictory to me, but perhaps this is just me missing some nuance of the FASB definitions, finance accounting standards, etc. However, I also recall in John's Annual IRS Update Webinar that there is a slide mentioning that the IRS does not mention "binding" in INFO 2000-0140, so maybe the language we have doesn't have a material impact on whether our finance team can/should book these pledges.

    I would rather us provide options for promise to give pledges as well as other intentions, record both in our fundraising CRM while appropriately identifying which type, then only feed the true promises to give to finance as pledges. I'm getting a lot of pushback on this, though, and I don't want to dedicate too much time or "die on this hill" if I'm misunderstanding our options.

    Thanks,

    Keith



    ------------------------------
    Keith Padgett
    Connecticut College
    kpadgett@conncoll.edu
    ------------------------------


  • 2.  RE: Counting Pledges and Non-Binding language

    Posted 05-22-2024 11:05 AM
      |   view attached
    Keith, from a FASB perspective, the only pledges you can book on the GL are binding ones - those that are enforceable. I am attaching a summary I shared several times before.

    CASE requires us to distinguish between binding and nonbinding in our fundraising totals. Essentially giving less weight to the nonbinding pledges and counting them in the same category as conditional pledges and bequest expectancies.

    John

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987




    Attachment(s)

    pdf
    2022 Who Can Make a Pledge.pdf   161 KB 1 version


  • 3.  RE: Counting Pledges and Non-Binding language

    Posted 05-23-2024 10:29 AM
    Keith, John's approach is by far the dominant position -- pledges that deny legal enforceability ought not be booked in either your accounting records, and must be separated from enforceable pledges in your fundraising reporting. 

    But... it's not the only position, and you're in a kind of gray area. FASB wants an org's books to be an accurate description of its current financial position, and therefore, future gifts (and other kinds of transactions) are recorded when the obligation to execute them is undertaken. So long as there is a "social and moral obligation" to fulfill an unconditional promise to give, the absence of a legal obligation isn't necessarily a bar to recording the pledge. However, if the gift agreement is ambiguous about whether an unconditional promise to give has been made, FASB directs us to record the gift only if the document "indicates an unconditional intention to give that is legally enforceable."

    I could imagine auditors and lawyers reaching different conclusions about whether the language your institution uses qualifies as an unambiguous and unconditional promise to give, and you must follow the guidance given to your institution to its advisers.

    As to fundraising reporting, the CASE standards (4th ed) say "Count and report at face value only legally enforceable and unconditional promises to give as defined by FASB and GASB." From CASE's perspective, these pledges are not legally enforceable, even if they may be unconditional promises to give as defined by FASB and GASB. Thus, they should not be counted and reported.

    You could be in the unusual position whereby Finance records on its books pledges that Advancement considers revocable gift intentions, but all you can really do is follow the rules for Advancement. 

    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151
    isaac@sage70.com

    Schedule a 30-minute consultation now:






  • 4.  RE: Counting Pledges and Non-Binding language

    Posted 05-23-2024 11:59 AM

    Thank you, John, for clarifying and providing the white paper. This year will be my first time completing the VSE. I've made myself familiar with CASE guidelines over the past few years despite coming from Food Banking, but I need to more fully immerse myself in the standards. Luckily, the way I advocated for and set up reporting on pledges at my previous org aligns with CASE, so that won't require a different way of thinking.

    Isaac, I appreciate you sharing the other position on this. I feel strongly in John's approach, but my finance team, counsel, and our auditors may differ. I will keep an open mind and see if they are holding the position you describe or if they have another rationale.



    ------------------------------
    Keith Padgett
    Connecticut College
    kpadgett@conncoll.edu
    ------------------------------

    Original Message


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