FundSvcs Community

As we are in a CRM migration project, I am thinking through several of our pain points.  Of course processing gifts from DAFs where the intention is to pay on a pledge.

I've reviewed the 2017 IRS notice and the terms of the "big three" (Fidelity, Schwab, and Vangard) DAFs. All three still have language stating that a DAF grant cannot fulfill an "enforceable" "legal obligation" or "legally binding" pledge. SO, the 2017 Notice really doesn't change anything.

I am exploring creating a new pledge type for our system "non-binding pledge" or equivalent to record pledges where the donor indicates that they intend to use a DAF to fulfill. The pledge/intent form would be altered to indicate non-binding. And, since they are non-binding we would not record these pledges in financials/balance sheet. We would just record the received funds as they come in.

The hope is this eliminates the need to do the reduce pledge process when a DAF payment comes in and all the reporting that comes with that to ensure a DAF today isn't counted becaus a pledge recorded two years ago was.

I know this doesn't solve the issue of a DAF grant coming where the donor doesn't tell us ahead of time they are paying with a DAF. That is unavoidable.  

I would appreciate any feedback on this proposed process. 

I have already assessed the impact on the balance sheet and had a conversation with our finance team. They are on board. They don't like having to restate pledges every time we reduce them, creating audit flags. 

The pledge reduction is the pain point I want to solve. 

Hi Jeff,

That's exactly what we're doing. Our non-binding pledges are excluded from most (but not all) counting and from the feed to finance. We've found it to be a good solution, especially in the reduction of the number of pledges that have to be reduced. Additionally, knowing that there is a specific way to track these may help the development officers turn in the correct information instead of us being surprised by it every time.

Lianna

Thanks, Lianna.  For pledges recorded where it was not known that a DAF would be used for payment, are you still using the existing practice of reducing the pledge? 

Yes, we are reducing the pledge in those cases. I'll certainly be forwarding Isaac's analysis below to the appropriate people on staff to see if they think we could stop doing that, though. It's a pain and an opportunity for errors.

Jeff,

Your proposed way of doing things is pretty much exactly how we do it at Lehigh. We have a pledge type of "Statement of Intent" and a corresponding "pledge" template for those types of agreements.

This has helped to significantly mitigate our admin work with writing down pledges, which, at least in the way our system is currently set up, is more work than having the separate pledge type and dealing with any reporting the two types of pledges. Of course, as you already pointed out, this only helps when donors actually tell us they're paying with a DAF, etc... We still get a non-trivial amount of DAF "surprises," but we've been doing this for long enough now that most donors and DOs are pretty good about establishing the payment method up front.

John,

Curious as to what you're referencing when you say, "Nonbinding pledges are also not recognized in the same way as standard pledges for CASE purposes." I was under the impression that the newest version of the CASE Global Reporting Standards cleared this up, at least for the types of nonbininding pledges Jeff and I are talking about. On page 58 it says:

In some cases, a "Letter of Intent" or "Intent to Give Agreement" may be used in lieu of a formal pledge agreement. This is similar to receiving a letter from a donor to memorialize a pledge, but is often used when the commitment may be made or fulfilled using multiple donor funding sources such as a combination of personal individual gifts, foundations gifts, or donor-advised fund distributions. The donor or donor advisor avoids any potential issues regarding substantive benefit (also known as self-dealing or inurement in some countries/regions) by not having a legally binding pledge, but the institution is able to document, memorialize, recognize and count gift intentions.
When reporting Funds Received in CASE AMAtlasSM surveys, only the corresponding payments / gifts resulting from Intents to Give should be included in the years they are received.
When reporting New Funds Committed in CASE AMAtlasSM surveys, Intents to Give may be counted and reported with Pledges. CASE recommends that institutions consider reporting Intents to Give separately from Pledges and Conditional Pledges in their own internal / external reports.
When reporting Campaign totals, Intents to Give may be counted and reported with Pledges.

Is there something else you're referring to that I'm missing?

Thanks.

Sean

Hi Jeff....

I've seen "development only" pledges booked for DAF's.  This allows tracking of the pledge for fundraising purposes and reporting, while also permitting them to be excluded from the financials and the feed to the GL.  This will underestimate your receivables slightly, if anything you are being conservative on collectibles, not overestimating.  

Hope this helps, 

Terry Callaghan 

Zuri Group

aasp Board Member

Isaac, I appreciate your response and I would love to take your advice as it would make life much easier.  However, I struggle with following the Notice for a couple of reasons:

1) It was a request for comments and not a change in IRS policy. They are approaches the IRS "are considering."  Maybe I missed something, but nothing was ever solidified by the IRS following the collection of comments. 

2) Even if we were to follow the Notice, even today (despite the DAF organizations' support of the considered changes), they all provide language in their grants stating it cannot fulfill a legally binding/enforceable pledge.  So you're suggesting we accept the grants but apply them against the terms provided with the grant.

Curious how you reconcile these. 

Hi, Jeff.

We use a non-binding pledge subtype (labeled "Intention" in our system) just as you describe. The intentions do not feed to the GL and are handled appropriately in other external reporting instances as well. 

When unexpected DAF payments arrive, I review the original documentation and update the coding if needed (some of our older pledges were not always given a pledge subtype) and alert Finance of the change.  If the pledge subtype is accurately an agreement or binding pledge, we follow the voluntary pledge reduction process and note accordingly. 

Wouldn't it be lovely if the IRS formalized the 2017 notice before we all retire?  Ha!