Restricted vs unrestricted donations: keeping earmarked money where donors meant it

1. "Restricted" and "unrestricted" aren't Malaysian terms — but the problem is real

The pain is familiar: one bank account, many promises. A donor gives RM500 "for the building fund." Another gives RM200 "for flood relief." A third just gives, no strings attached. Three months later, when the electricity bill is due and general donations are thin, someone on the committee asks: can we just use the building fund for now?

Malaysia has no NPO-specific accounting standard to answer this. MASB's two approved frameworks — MPERS and MFRS — are scoped by reference to the Companies Act 2016: a "private entity" is "a private company as defined in section 2 of the Companies Act 2016" ^[1], which a society under the Societies Act 1966 isn't. MASB's other track, for "Entities Other Than Private Entities," just requires MFRS from 1 January 2012 ^[2], again with no mention of NPOs, charities or societies — and no dedicated not-for-profit standard or exposure draft on MASB's own site as of this review date.

That gap is why NPOs, auditors and donors borrow words like "restricted," "unrestricted" and "designated" fund — most visibly from the UK's Charities SORP, which defines a restricted fund as money "held on specific special trusts under charity law," the restriction "declared by the donor when making the gift or... result[ing] from the terms of an appeal for funds," and an unrestricted fund as money that "can be used for any of the charitable purposes of the charity" ^[4]. Use this vocabulary if it helps — many auditors already do — but it isn't a Malaysian legal requirement, and no Malaysian regulator polices it.

Practical tips:

• If your auditor already uses "restricted"/"unrestricted" in your notes to the accounts, that's fine — just don't describe it to your committee as "the law." It's a convention, borrowed and useful, not a statute.
• Write down, in one page, what your organisation means by each label. A shared internal definition prevents the argument happening for the first time in an AGM.

2. Where the real obligation comes from: your appeal wording and your own constitution

The pain here is the accusatory version of the same question: a donor finds out — from a WhatsApp group, an AGM minute, a nosy committee member — that "their" building fund money paid for something else, and they're angry. Are they right to be?

Money given for a stated purpose is generally understood, in trust law, to be held for that purpose — departing from it without the donor's consent or a properly authorised re-designation risks being a breach of trust. No Malaysian statute or case law is cited here for that general understanding, and none sets out how it plays out for a specific surplus; the Trustee Act 1949's relevant tool is a general one, the High Court's power "to authorize dealings with trust property" that could not otherwise be carried out under the trust ^[7], not a purpose-built surplus procedure. If you're sitting on a real, contested surplus, take legal advice on your specific facts — this article can't resolve that for you.

What Malaysian statute does give you, concretely, is your own constitution. The Societies Act 1966 requires every society's constitution or rules to state "the aims or objects for which the society is formed... or for which its funds or any of them may be used" ^{[3, First Schedule para 1(d)]}, "the authority or authorities for expenditure from the funds of the society" [para 1(i)], and provision for annual accounts to members [para 1(j)].

If your society winds up by instrument of dissolution, the Act is explicit that its funds cannot be divided or appropriated "otherwise than for the purpose of carrying into effect the objects of the society as declared in the rules thereof" ^{[3, s.37(c)]} — a strong signal that your constitution's stated purposes are what your money answers to, not whichever purpose is convenient this month. If you're a company limited by guarantee, the equivalent anchor is the objects and rules in your own constitution registered with SSM under the Companies Act 2016.

So "can we use the building fund for electricity" isn't really an accounting-standard question. It's "does our constitution, and the wording we used when asking for this money, allow it" — and if unclear, that's a documented governance decision for your board, not a private call by whoever pays the bills.

Practical tips:

• Word appeals so a reasonable surplus is covered, not accidentally locked away forever — "for the building fund, and similar capital needs" reads very differently once the roof is done and RM8,000 is left over.
• Keep the exact wording of every appeal (donation page, poster, WhatsApp broadcast) — it's the evidence of what you promised, and the first thing a donor, auditor or your own board will ask to see later.
• Run a separate campaign per purpose rather than one "General Fund" with a note in the description — see Where DonorCARE fits for why that matters beyond messaging.

3. The oversubscribed appeal: what to do with a surplus

This is the flip side of section 2: you launch a flood-relief appeal with a RM20,000 target, publicise it hard, and it closes at RM31,000. The relief work needed RM22,000. What happens to the other RM9,000?

No Malaysian statute hands you a formula for this — it's genuinely a governance decision for your committee or board. Per section 2, whatever you decide has to fit within your constitution's stated objects, and should be minuted so there's a record of who decided what and why.

Practical tips:

• Decide a surplus policy before you publicise the appeal — "any surplus will be applied to similar relief efforts" in the appeal itself is worth more than any explanation given once someone's already annoyed.
• A small surplus is usually carried forward and reported in a campaign update or AGM report; a large or contested one goes to the board as a formal, minuted agenda item, with legal advice if warranted. Never quietly fold it into general operating funds without that record.

4. Designating funds on purpose, not by accident

A related but different move: your board decides, on its own initiative, to set aside RM50,000 of general donations for a future roof repair. SORP vocabulary calls this a "designated fund" — trustees earmarking their own unrestricted funds for a future project, which is "an administrative purpose only" and "does not legally restrict" how the money could otherwise be used ^[4]. Unlike a genuine restriction (from the donor or the appeal), a designation is the board's own choice — and can be reversed by the same body that made it, provided that's minuted too.

Practical tip: minute both the designation and any later un-designation, and stay consistent about which category a given fund sits in — that paper trail is what tells a genuine restriction apart from an internal earmark, and inconsistent labelling is what makes an auditor start asking harder questions.

5. When a stricter, binding version of this exists: the Social Exchange Platform

Everything above describes your own fundraising, where segregation is a matter of your constitution and your board's discipline — not a regulator's checklist. One Malaysian route makes it a binding rule: the Securities Commission's Social Exchange Platform (SEP), under SC-GL/4-2025 (effective 19 September 2025). An NPO raising money through an SEP must keep funds "properly segregated and safeguarded from conversion or inappropriate use by any person until the completion of the social impact project" ^{[5, para 14.10]}, in a dedicated trust account with donor and amount records ^{[5, para 14.11]}, and spend no more than 20% on operating costs ^{[5, para 14.09]}. This is genuinely closer to a legally enforced "restricted fund" — but it's opt-in, and applies only to SEP-raised money. See Malaysia's Social Exchange Platform framework for who's eligible.

6. Reporting fund balances to your committee and at AGM

This is where the pressure usually surfaces: a member stands up at the AGM and asks where the building fund money actually went, or your auditor wants to see, fund by fund, what came in and went out. Every registered society owes its members an annual account of income and expenditure under its own constitution ^{[3, First Schedule para 1(j)]}, and must forward accounts and a balance sheet to the Registrar within 60 days of its AGM ^{[3, s.14(1)]}. The Act's own audit mandate (s.26(1)) applies only to mutual benefit societies, a category scoped by s.19 — most NPOs aren't one, so what "audit" means for your society comes from your own constitution or ROS practice. See What your AGM and auditor need to see for that fuller picture.

"Properly kept accounts" means tracking both sides — income against a purpose, and spend against it — and most fundraising platforms, DonorCARE included, are good at the first half and silent on the second. Knowing you raised RM31,000 for flood relief tells you nothing about whether RM22,000 or RM31,000 has gone out the door; that side lives in your general accounting records. Publishing fund-by-fund income and linking it to what was spent, even informally in an AGM slide, earns donor trust more than the restricted/unrestricted label ever will.

Practical tip: report income by campaign or appeal at every AGM, not just a single "total donations" figure — and reconcile it against actual spend in your general books before quoting anyone a "balance remaining."

What this means for your organisation

1. Stop treating "restricted/unrestricted" as Malaysian law — it's borrowed vocabulary; the actual obligation comes from your constitution and appeal wording.
2. Check your constitution states your objects and who authorises spending. Vague on either point is a rules amendment worth raising, not a gap to paper over.
3. Word every appeal so a modest surplus is covered — "and similar needs" — and keep the exact wording you published.
4. Run one campaign per purpose, not a single general fund with a note, so income for each is separable from day one.
5. Decide your surplus and designation policy before you need it, and minute every decision to earmark, re-designate or apply a surplus.
6. Report income by campaign at every AGM and board meeting, and reconcile it against actual spend before quoting a fund's "balance."
7. Considering the Social Exchange Platform? Its segregation and 20% cap are binding in a way your own channels aren't — see part 2.
8. A contested or large surplus is a legal-advice question, not a committee-vote-alone one.