Why is this topic essential?

The disbursement of donation funds is not merely an accounting matter; it is a regulatory obligation and a purpose-bound trust, noncompliance with which entails legal, accountability, and ethical responsibilities. Clarity of disbursement rules, the mechanism for dealing with surplus, and the policy on administrative costs—all these elements build trust and protect the reputation of both the donor and beneficiary entities.

First: Commitment to Purpose (Purpose Constraint Rule)

The Rule

Donations should primarily be spent for the same purpose for which they were collected and in accordance with the objectives of the non-profit entity and its bylaws and campaign license.

Mandatory Legal Foundation (Summary):

  • The Associations Law and its executive regulations restrict the practice of activities and actions to those aligned with the objectives set forth in the bylaws and licensing.
  • The donor's condition—if any—is a binding condition that must be recorded for accounting purposes and implemented practically at the time of disbursement.
  • No activity or resource may be directed to a purpose outside the licensed goal without prior approval from the National Center for Non-Profit Sector Development.

What should be done when there is a need to change the disbursement direction?

  • It is prohibited to transfer campaign funds for a different purpose without prior approval from the licensing entity.
  • If there are restricted donations (conditional), the priority should be given to honoring the donor's condition; if that is not feasible, options should be presented to the center with technical, financial, and accountability justifications.

Recommended Practical Procedures

  1. Documenting the Purpose Constraint: Clearly stating the purpose in the license application and the campaign's informational materials.
  2. Independent Accounting Record: Opening a cost center/account specifically for each conditional donation.
  3. Approval Workflow: Any request to change the purpose must pass through the legal/financial department, then the board of directors, and then be submitted to the center.

Secondly: Managing Surplus (Wisdom of Disbursement and Sustainability of Impact)

When does surplus arise?

  • When the proceeds exceed the licensed financial target.
  • When the project ends with the achievement of its goal but remains with unused funds.

The Legal Basis for Surplus

  • The entity does not act alone regarding the surplus.
  • A detailed report must be submitted to the center, including: the amount of surplus, the reason for its occurrence, proposed alternatives for disbursement (e.g., a similar project in the same field/area, or a subsequent phase of the same project), and how to consider any donor conditions—if applicable.
  • When considering the investment of the surplus to enhance sustainability, a clear governance framework (an approved investment policy) and approval from the general assembly—where applicable—are required, along with the center's requirements.

A Brief Procedure Guide for Managing Surplus

  1. Documented Operational Closure of the Project (completion reports, delivery minutes, target/achieved comparison).
  2. Accurately Determine the Surplus (detailed list, reconciliations, bank verifications).
  3. Joint Legal and Financial Memorandum proposing disposal alternatives and assessing the impact of each alternative on donor conditions and reputation.
  4. Internal Approval (Finance/Governance Committee → Board of Directors/Trustees).
  5. Submission to the Center with a request for action on the surplus accompanied by documents.
  6. Inform Stakeholders (donors/public) after receiving approval to enhance transparency.

Thirdly: Administrative and Operational Expenses (Cost of Enabling Impact)

General Principle

The system does not set a fixed percentage “cap” on administrative expenses from donation proceeds, but it requires the existence of a publicly announced and approved policy, with disclosure, consistency, and reasonableness.

Elements of Sound Policy

  • Board of Directors' Approval of the administrative and operational cost policy (definitions, limits, controls on charging campaigns, periodic review mechanism).
  • Transparency to the public: Clarifying whether the campaign bears an administrative percentage, and how that percentage is used to enable execution, oversight, and quality.
  • Financial Disclosure: Showing the total donations, administrative and general costs, and their percentages in periodic and final reports.
  • Reasonableness: The percentage should be appropriate to the nature and size of the campaign, and not infringe on the original purpose.

Model Policy Items

  1. Definition of “administrative and operational costs” and “direct project costs.”
  2. The approved criteria for loading costs (direct/indirect, fair distribution rates, documenting work hours).
  3. An internal guideline maximum ratio at both the campaign and entity levels together.
  4. Obligation for periodic disclosure of the achieved percentage and its justifications.
  5. Annual review of the policy by the audit/finance committee.

Fourthly: Final Reports and the Principle of “Closing the Loop”

After the campaign/project ends:

  • Financial and Technical Reports during the periods established by law (including a statement of the designated bank account, a statement of cash and in-kind donations, and expenses against outputs/results).
  • Publication and Disclosure through approved channels (entity website/social media platforms), clarifying any surplus and the action taken regarding it after approvals.
  • Retention of Documents according to legal retention periods and making them available for internal and external auditing.

Fifthly: Matrix of Responsibilities and Governance

  • Board of Directors/Trustees: Approving policies (disbursement/surplus/investment/disclosure), exercising high-level oversight, and approving submissions to the center.
  • Executive Management: Disciplined implementation of policies, verifying purpose constraint compliance, preparing surplus memorandums, and communicating with the center.
  • Financial Management: Detailed accounting records, tracking restricted funds, and preparing lists and reports.
  • Internal/External Audit: Testing compliance and providing corrective feedback.
  • Communication Management: Professional and balanced disclosure, and managing donor expectations.

Sixthly: Common Mistakes and How to Avoid Them

  • Mixing restricted and unrestricted donations → Address it by creating separate cost centers and periodic tracking.
  • Charging excessive amounts as administrative costs → Link charges to objective evidence (work hours, contracts, price quotes).
  • Disposing of surplus without approval → Always adhere to the approval process and retain submission and response documents.
  • Poor Disclosure → Make disclosure part of the entity's identity: reports, indicators dashboards, notes attached to lists.

Seventh: Ready Templates to Facilitate Compliance (Summary)

  • Template for “Restricted Donation” Entrustment (including purpose, duration, acceptable disbursement channels, expected outputs).
  • Template for “Request for Surplus Disposition” Memorandum (defining surplus, its cause, disposal alternatives, impact of each alternative, consideration of donor conditions, draft council resolution, draft submission letter to the center).
  • Template for “Administrative and Operational Costs” Policy (definitions, rates, controls, disclosures, annual review).

Executive Summary

  • Purpose Constraint is the starting line and the finish line.
  • Surplus is managed with the center's approval after a rigorous internal process and clear professional justification.
  • Administrative Costs are legitimate provided there is an announced policy, disclosure, and reasonableness.
  • Disclosure is not a luxury; it is a valve for reputation, trust, and sustainability.