Donor Restriction Release Policy Guide

A donor restriction release policy keeps restricted fund accounting from becoming a judgment call made at close. It gives staff a rule to follow before they move amounts from net assets with donor restrictions to net assets without donor restrictions.

The policy does not need to be long. It needs to be clear. A bookkeeper should know what evidence to collect. A grants manager should know what program facts to confirm. A finance leader should know when to approve or stop a release.

State the purpose

Open the policy with one plain purpose:

“This policy explains when donor and grantor restrictions are satisfied, how the organization records releases from restriction, and what support must be kept.”

That sentence ties the policy to ASC 958, which separates net assets with donor restrictions from net assets without donor restrictions. It also keeps the policy focused on accounting, not fundraising preference or board intent.

For a basic explanation, link staff to net asset release workflow.

Define the restrictions covered

The policy should cover at least three types of restriction.

Purpose restrictions limit the use of funds to a program, project, place, population, or cost type. A grant for after-school tutoring is a purpose restriction.

Time restrictions limit when funds can be used. A gift for the next fiscal year cannot be released before that fiscal year starts.

Combined restrictions include both purpose and time. A grant for summer meals in 2026 must meet both parts before release.

Also state what the policy does not cover. Board designations are not donor restrictions. They are internal choices. For that distinction, link to donor restricted vs board designated funds.

Set release triggers

The policy should list the events that allow a release.

For purpose-restricted funds, release amounts as qualifying costs are incurred. Do not release based on budget alone. If the budget says $20,000 should be spent by June but only $12,000 was actually spent on allowed work, the release is $12,000.

For time-restricted funds, release when the time condition passes. If a donor gives funds for fiscal year 2027, the release starts when fiscal year 2027 starts, unless the gift also has a purpose restriction.

For reimbursement grants, separate cash collection from release. A reimbursement request may bring in cash later, but the release should match qualifying costs if the award creates a donor restriction and the conditions have been met.

Require evidence

A release without support is weak. The policy should name the support file.

Keep the award letter, gift letter, grant agreement, approved budget, and any funder changes. Keep invoices, payroll records, time records, receipts, and allocation support for expenses. Keep the journal entry and the month-end restricted fund reconciliation.

For grants, the program or grants owner should confirm that the expense fits the grant scope. Finance should confirm that the expense was recorded in the right fund, program, and natural account.

This evidence also helps with audit requests. The Council of Nonprofits notes that audits examine financial records and internal controls. A release policy gives auditors a clear process to test.

Set approval levels

Do not make every small release wait for the board. That slows close and adds little control. Instead, set thresholds.

Small routine releases can be prepared by finance staff and reviewed by the controller or finance director.

Material releases should need written approval from a finance leader and confirmation from the program or grant owner.

Unusual releases should go to the finance committee. Examples include releases based on legal interpretation, donor clarification, major budget changes, or old balances with weak support.

The board should see summary releases in the financial packet. The board does not need to approve every routine entry unless the bylaws or a funder require it.

Put the journal entry in the policy

Include the standard entry so staff use the same language.

Debit net assets released from restriction with donor restrictions.

Credit net assets released from restriction without donor restrictions.

Then record the related expense in the proper program and expense account.

Some systems automate this. The policy should still explain the logic. It helps staff review reports and find errors.

For more detail, link to release from restriction journal entry guide.

Review old balances

The policy should require a periodic review of old restricted balances. A fund with no activity for many months may signal missing releases, delayed program work, or unclear donor terms.

At least quarterly, review all restricted funds with staff. Ask four questions:

• Is the restriction still active?
• Has the purpose or time condition been met?
• Is support complete?
• Does the donor or grantor need to be contacted?

Do not clear old balances just to clean up the books. If terms are unclear, get written donor or funder clarification.

Where GrantPipe fits

GrantPipe can help teams connect grant terms, expense support, approvals, and release records. That makes the policy easier to follow each month. The policy still belongs to the nonprofit. The software helps keep the proof in reach.

Use the restricted fund month-end close checklist with this policy so releases are reviewed before financials go to the board.

DEFINITION

Donor restriction

A donor or grantor limit on how or when a nonprofit may use a gift or grant.

DEFINITION

Release policy

A written rule that tells staff when a restriction is met, what proof is needed, and who approves the accounting entry.