Can you reclassify restricted funds if you really need to? The short answer is yes—but only in rare, specific situations, and always with the donor’s approval.
Donor restrictions are considered legally binding. Once a contribution is designated for a specific purpose or time, your organization has a fiduciary responsibility to use it accordingly. Reclassifying those funds without authorization could jeopardize your nonprofit’s credibility.
However, there are limited scenarios where reclassification may be appropriate:
- The original purpose is no longer feasible. For example, if a capital campaign for a building falls through, and the donor agrees to redirect the funds to another program.
- The restriction has expired. If a time-restricted grant period has ended and funds were used correctly, they can be released and reclassified as unrestricted.
- The donor provides written permission. If a funder is open to repurposing the donation, you must get their updated instructions in writing and keep that documentation on file.
Before attempting any reclassification, consult your accounting team or nonprofit CFO. Proper documentation, transparent communication with the donor, and alignment with GAAP standards are essential.
