Your Unrestricted Funds Need Stewardship, Too
Since she signed the Giving Pledge in 2019 and began her momentous campaign of organization-changing donations, MacKenzie Scott has given away more than $26 billion. All in unrestricted funds with no reporting necessary.
While Scott is far from the first to focus on giving major gifts with no strings attached, the scale of her philanthropy is causing many funders to rethink long-held beliefs about what requirements should be paired with a donation.
While nonprofits will hopefully see an increase in unrestricted funds—and a decrease in burdensome reporting requirements—as part of this and other movements, good nonprofit accounting principles still apply.
Even though unrestricted funds don’t have mandates on how they should be spent, tracking and reporting on them is still important for both your funders and your organization’s financial decision-making.
Restricted vs Unrestricted Funds
Nonprofit organizations receive funding that typically falls into two buckets: restricted and unrestricted.
Funds with Donor or Funder Restrictions
Restricted funds are donations or grants that can only be used for the purposes specified by the funder. For example, a food bank may receive donations specifically for their program providing food for school-aged children. Or a major donor may provide funds specifically for scholarships or building a new wing for a hospital.
Many grants, especially federal and state grants, are restricted. They come with some level of reporting requirements to show the money was spent the way it was supposed to be spent. These grants typically have goals associated with them. For example, the foundation awarding a grant you applied for has a specific mission, or the agency providing the government grant wants to address a specific societal issue. So, the organizations behind the grants use the reporting requirements to make sure the funds go towards addressing those impact areas.
Restricted funds often outline what they will fund and what they won’t. Many don’t cover operating costs or have a small allotment for indirect costs such as salaries, insurance, and utilities. And not honoring donor intent can cause your donors to lose trust in you and not donate again, or in some situations, cause legal and financial consequences.
Funds without Donor or Funder Restrictions
Unrestricted funds can be used at the nonprofit’s discretion, where the organization needs it most. These types of revenue streams don’t come with any direction or reporting requirements. A lot of individual donations, like ones that come through your website’s donation form or through the Annual Fund, are often unrestricted.
These can be used to pay operating costs such as rent, utilities, and salaries. They can also be used for program-specific costs. For example, a senior care nonprofit can use unrestricted donations to purchase supplies for activities, cover an increase in transportation costs, or hire a memory care specialist to help them expand their services. The organization gets to decide what would be the best use of the funds and their area of greatest need.
The Growth of Unrestricted Donations
Restricted funds aren’t inherently bad. An organization might do a fundraising campaign specifically for new equipment or apply for a grant that aligns clearly to their goals. But when most of an organization’s funds are restricted, often unnecessarily, it can create significant cashflow problems and inhibit growth.
For years, nonprofits and funders have operated on the premise that success means keeping operating costs—like salaries and marketing—low. The more money that went to services, the better. So many donors and funding organizations put restrictions on how gifts should be used, often focusing on services at the expense of operating costs.
Squeezing operating costs so tightly can limit the organization’s effectiveness. It doesn’t have the money to pay comparable salaries, develop scalable infrastructure, or market its services to get more donations, which keeps the organization from being able to serve more people.
The increased call for unrestricted donations highlights the understanding that nonprofits are the best judge of how funds should be spent. It is also a reaction to decades of often burdensome reporting requirements.
In addition to the media attention surrounding MacKenzie Scott’s remarkable giving, there are other movements that also highlight the importance of unrestricted funds. One that is gathering significant momentum is Trust-Based Philanthropy.
Trust-Based Philanthropy puts relationships at the center of a donor’s giving and encourages the donor to do the research instead of having the nonprofit jump through hoops for funding. Multi-year, unrestricted gifts are one of the six tenets of Trust-Based Philanthropy.
But even without donor-driven restrictions, unrestricted funds aren’t just a blank check. There is still an expectation of transparency that’s good for both donors and the nonprofit.
The Importance of Transparency for Nonprofits
Knowing where your money went—and having the reporting to confirm it—helps you make better data-driven decisions and build more trust with your funders.
Studies have shown that more transparent organizations get more donations. Nonprofits that make it easy to see how funds were spent build trust with current and future donors. Those donors can see that the organization has a history of using donations to promote their mission—whether that’s direct program costs, salaries, or rent.
Transparency is as important for internal decision-making as it is for external trust-building. Changes in your community and demand show up in your numbers. If you aren’t consistently tracking and monitoring how your funds are being used, you can miss shifts in what your community needs from you.
As Kevin Starr, director of the Mulago Foundation and the Rainer Arnhold Fellows Program, wrote for the Stanford Social Innovation Review, “If you’re trying to save the world, you need numbers—metrics that are selected carefully and gathered reliably. Not too many, just enough to know accurately:
- Delivery: what you did.
- Behavior: what people did differently as a result.
- Impact: what material change came about as a result of that behavior.
If you don’t have those, you’re flying blind. You don’t know what you’ve accomplished, and you don’t have the information you need to get better at what you do.”
Creating a culture of transparency starts with clear tracking by individual program, fund, or project. Accurate and consistent accounting by fund allows for effective reporting. When you see how your money was spent—whether it has restrictions or not—you make better decisions on where you need to focus additional funds.
Fund Accounting for Unrestricted Funds
With unrestricted funds, patterns often surface first, such as rising operating costs, program demand shifts, or unexpected needs. A fund accounting system lets finance leaders immediately see these changes because each fund’s activity is tracked discretely, not blended into a single operations bucket.
Here are a few features that enable you to get the information you need to make informed decisions:
Integrations
Integration with your fundraising and CRM systems allows for automated and accurate data pass-through. You can see when a donation comes in and allocate it to the needs of your organization.
Segmented Chart of Accounts
A segmented chart of accounts makes it easy to follow a fund all the way from donation to invoice so you can clearly see how the funds are being allocated. It also simplifies your account string, making your chart of accounts more streamlined and easier to understand.
Detailed Reporting
Because you can track your funds by project, you can build intuitive reports and dashboards that show impact. You can create presentation-ready charts that visually show what funds were spent, how they were used, and how that has changed over time. Not only does this help you budget and forecast better, but this information also makes creating annual reports and donor communication easier.
View-Only Access
Transparency starts with your internal stakeholders. Provide view-only access to share reports with your leadership, your marketing and communications team, and your board of directors so they can see the impact you are making. This helps your auditor verify the work you are doing, as well.
Built-In Internal Controls
Self-balancing funds automatically create balancing entries and simplify reconciliation across unrestricted and restricted dollars. These and other in-system internal controls reduce back-and-forth during audits and monthly close cycles, and help you demonstrate strong stewardship of all funds, including your flexible, unrestricted dollars.
Multi-Year Tracking
Programs don’t stop when your fiscal year ends. You want to be able to show your impact over time, so you need a fund accounting system that can track funds across multiple years.
Don’t Settle for Commercial Accounting Software for Unrestricted Funds
Unrestricted dollars may feel simpler to manage, but they still require clear tracking and thoughtful stewardship to show how flexible giving advances your mission. Even when donor intent isn’t a factor, finance teams need reliable insight into how these funds are allocated, how needs shift over time, and where additional support may be required.
Many organizations attempt to track unrestricted funds in for‑profit accounting systems using classes, tags, or oversized account lists. Those workarounds blur the financial picture and make it harder to follow money through the organization. A true fund accounting system eliminates that guesswork: each fund is tracked natively with automated balancing, clean audit trails, and the visibility you need to make confident, data‑driven decisions.
If you want to strengthen transparency, simplify reporting, and better understand the impact of your unrestricted revenue, it’s time to move beyond workarounds. See how a purpose‑built fund accounting system can help you steward every dollar—restricted or unrestricted—with clarity and confidence.
Ready to see how fund accounting can transform the way you manage your unrestricted funds? Join our product tour of Blackbaud Financial Edge NXT.
FAQ: Understanding and Managing Unrestricted Funds with Fund Accounting
1. Why do nonprofits need to track unrestricted funds if there are no donor-imposed restrictions?
Even though unrestricted funds can be used where the organization needs them most, they still require careful stewardship. Tracking how these dollars are used supports stronger internal decision‑making and builds trust with donors and funders. Clear reporting helps nonprofit leaders see shifts in community needs, monitor spending trends, and demonstrate the impact of all revenue streams—even those without restrictions.
2. How does fund accounting support better transparency for unrestricted funds?
Fund accounting enables nonprofits to track income and expenses by fund, subfund, program, or project. This level of granularity makes it easy to build budget scenarios, reports, and presentations that show where money was spent and how it advanced the mission. Integrations with fundraising and CRM systems ensure accurate data flow, while features like segmented charts of accounts and multi‑year tracking support both internal visibility and external transparency. Providing view‑only access to key stakeholders further strengthens accountability.
3. What challenges can nonprofits face if they rely on commercial accounting software for unrestricted funds?
While unrestricted funds may seem simpler to manage, commercial accounting tools often lack the nonprofit‑specific functionality needed to steward them effectively. Without fund‑driven tracking, organizations end up with workarounds that obscure how funds are allocated and make it harder to demonstrate impact. This can affect scenario planning, donor confidence, and audit readiness. A true fund accounting system avoids these limitations and supports more consistent, transparent management of unrestricted resources.
Blackbaud Financial Edge NXT® helps nonprofits, foundations, and educational institutions manage their restricted funds to improve stewardship, reduce risk, and make better data-driven decisions.
