A donor calls three weeks after giving. Her tax receipt has just landed in her inbox. She is now requesting a refund. Could she have intended a different (or no) donation? Was the donation meant to fund something else that has now been canceled? Could she have meant to write $500 instead of $5,000? Whatever the reasoning, the donation is no longer the warm and fuzzy gift to help people that it once was. It is now a recorded transaction.

The several wrong ways to reverse it will all create a discrepancy between your ledger and reality. This is exactly the kind of discrepancy an auditor is trained to find and mark with a red pen. This guide shows you the correct method for refunding a donation, fixing the documentation, and preserving a permanent trail for the transaction.

The Four Reasons of Refunding a Donation After Acknowledgment

Refund requests are not usually unexpected. Nonprofit accountants see the same repeat problems, and knowing these helps everyone to better understand how to manage the refund request. The most common reason for refunds involves mistakes made by the donor. Donor errors come in many different forms. An example would be a donor submitting a payment multiple times because of a bug in their browser, or a payment could be submitted with a misplaced decimal.

The second most common reason for a refund request is the donor’s dissatisfaction with the way the funds are being utilized. Many donors are displeased when the money is used in a way that does not match the mission that the donors intended to support.

The third reason is an organizational conflict: the donor gave for a stated purpose, and the organization cannot fulfill that purpose. Lastly, a donor may simply change their mind. Most organizations clearly address the second, third, and fourth reasons in a written refund policy. The funds are most frequently returned in the first and third cases.

Void vs Refund: Which One Applies and When

“Void” and “refund” mean the same thing to most donors, but payment processors, and consequently accounting systems, treat them very differently. A “void” cancels a card transaction that hasn’t been processed yet. Since the transaction hasn’t left the donor’s bank, and the organization hasn’t yet received the funds, a void erases the transaction for the organization. Since no funds were moved, there is no accounting entry for a refund, and in many instances, the pending charge simply drops off the donor’s bank statement. A refund is required for cleared transactions.

Since the funds have been received by the organization, a refund means the organization must complete a separate transaction to send the funds, and this appears as a separate line on the donor’s bank statement.

Typically for most card processors, the effective cutoff for a void is at the end of the business day that the transaction has been processed. If a charge is voided on the same day that the charge is processed, there is no cost to the organization. If a charge is not voided on the same day, the only option is to refund the charge, which is a lengthier process for the donor, and in most cases, the original processing fee is not returned.

Payment Processors: Why the Window Is So Short

Most card processors define authorization and capture in the same way. Once a charge runs, it is authorized. By the end of the day, the charge is swept into a batch to be settled. The charge can be voided to prevent batch inclusion. Once settled, the charge is final and the processor requires a refund transaction.

ACH gifts run on a different schedule. According to Nacha’s rules, an organization has five banking days from the settlement date of an ACH transaction to reverse the transaction. Once the window has closed, a refund transaction must be done or the organization must negotiate with the donor’s bank. Regulation E gives consumer protection to a donor who can dispute an ACH transaction with their bank for an unauthorized transaction within 60 days of the transaction posting to the bank statement.

Figure 1: Refund windows for each payment method are represented here. Generally, the windows for card refunds are 60-180 days and are dependent on the merchant agreement for each processor.

Check the exact cutoffs in your merchant agreements with your payment processors. Don’t rely on the figure above for live cases, since cutoff windows can vary based on the provider and card network.

Correcting a Tax Receipt That Already Went to the Donor

A written acknowledgment sent to the donor does not, by itself, make the gift final in the eyes of the IRS. The IRS considers substantiation of the gift to be critical. As per IRS Publication 1771, a donor who claimed $250 deduction or more must have a written acknowledgment stating the name of the organization, the date, and the amount. The refund of the gift, in full or in part, would make the letter no longer valid for the donor, and should not be relied on for a deduction.

The simplest solution is the rewritten acknowledgment letter, not the removal of the letter. The prior acknowledgment should be stated to be null and void. If the refund was partial, then the new amount should be stated. Both the old and the new acknowledgment should be kept on record. If the refund of the gift was complete, then it should be stated as such in the letter, so the donor has proof that a tax deduction should not be taken.

Whether the donation refund should be reported on Form 1099 is an issue that the organization should route to their accountant for resolution, as it would require facts that the organization would not have, such as if the donor, in fact, received the deduction.

Adjusting the Campaign Total Without Double-Counting

A silent overstatement occurs when a refund processed at the payment processor is still counted on the campaign dashboard. The total remains on the dashboard, but the organization can no longer count it as cash. The reversal should be recorded as its own transaction type in the development database while maintaining the connection to the gift record. Deleting a record removes the gift from the campaign, and subsequently, the auditor will not be able to verify the gift. The record can be modified to preserve the gift and the correction along with the linked reversal transaction.

The same logic applies to restricted funds and the totals of related events. The same is true for gifts that have satisfied the requirement of a matching gift challenge; these gifts will still need corrections beyond the main ledger. This method of reconciliation proves to be useful when the campaign management system reports are compared against the payment processor settlement reports. In the course of this comparison, any refund that is not accounted for will be easily found before the year-end reports are prepared.

The Donor-Record Note That Protects You at Audit

Every reversal must include a concise and objective description in the donor record and on the transaction itself. The note must also include the rationale for the reversal, the approver, the approval date, and the final disposition of the receipt after the reversal. The note itself is the defense. The note communicates the information and the reason for the reversal to the auditors and eliminates the need to contact staff.

Revenue auditors sample contributions and contribution reversals. A refund transaction that does not have a note, even if justified, is a control deficiency. A note must be signed and dated and must also include approval of the refund and a corrected receipt. It must also provide the explanation and justification for the reversal.

Communicating the Reversal to the Donor

The external message to donors is as important as the internal processing. It should identify the amount to be refunded, the method of payment used, and the anticipated date by which the donor will receive the refund. Refunds are processed to the original payment method to satisfy card network rules and to avoid creating an unverified payment relationship with the donor.

The message should indicate whether a corrected tax receipt is included with the refund or will be sent separately. Providing this information will assist the donor in the completion of his or her tax filing. The refund gives the last opportunity to the nonprofit to express appreciation to the donor and to provide the reason for the refund in a non-transactional message. Most refunds are the last interaction the donor will have with the nonprofit and the message will shape the donor’s decision about future donations.

Restricted and Mistaken Gifts: The Special Cases

Two categories require more attention because applying the standard refund path is not as clear. The first category is restricted donations that organizations are unable to utilize as intended. An example is a donation to a restricted fund that is set for a program that is yet to be created. Nonprofit advisory accounting groups suggest that this causes a legal issue.

If the organization cannot substantially fulfill the terms of the donation, the organization is obligated to return the donation, redirect it with the donor’s permission, or petition to release or modify the restrictions of the donation with the attorney general’s consent per the state’s adaptation of the Uniform Prudent Management of Institutional Funds Act. This act pertains to the situation where the funds’ restrictions cannot be fulfilled, and the organization cannot remove the restrictions without notifying the state’s attorney general.

The second category is donations given in error. This is most often a gift that is a repeated donation or a donation from a donor who intended to gift to another organization. This category raises fewer ethical questions, as the gift stems from a procedural error rather than any dispute over the gift’s intended use or mission. Similar to the other categories, a corrective action must be documented, including a note that describes the error, a replacement receipt, and a ledger entry that indicates a correction rather than a deletion of the ledger entry.

Building a Repeatable Refund Checklist

Any refund process that’s dependent on a single employee will come to a halt whenever that employee is absent. To address that issue, establish a process that ensures consistency and reduces reliance on any single employee. Each request is logged by the organization, including the request date, request reason, and details of the employee and donor related to the request. Staff review the original transaction and the receipt.

They also check if the gift was restricted or if it was earmarked for a particular campaign. This will also influence the approval process. They also confirm if the charge is settled, as this will determine if the charge is to be refunded or is to be voided. Once the payment transaction is completed, the donor receives the revised gift acknowledgment, the campaign ledger and donor record are updated and a note is added to the record to complete the process.

Figure 2: This refund process has steps that are documented the same way on all refund cases, no matter who processes that case.

Conclusion

Thinking of a donation refund as a small accounting issue is a mistake. There are many effects that a donation refund can have including tax substantiation, campaign finance, donor trust, and audit documentation.  The mechanics demand precision. Ideally, a donation should be voided before it has been settled. In the absence of this possibility, the donation should be correctly refunded, the receipt corrected, and a clear notation left. Most organizations spend too much time explaining donation refunds, whether the question comes from a donor, a board member, or an auditor.

A standard checklist for donation refund requests changes that. With one, the organization handles refunds efficiently and consistently. Without one, the money still gets refunded, but the organization spends far too much time explaining the refund to the board or to an auditor.

Frequently Asked Questions

Related reading on refunding a donation: Nonprofit Payment Resources.

There is a record of $50,000 being raised on your dashboard. Your bank account shows a balance of $47,750. There were no fraudulent transactions that could account for the discrepancy. There were no duplicate transactions. The gap is typical of the donation processing methods that are standard today.

Each nonprofit finance team inevitably experiences this situation. A fundraising campaign closure brings with it a question from a board member for the final amount. The amount logged in the fundraising software is at odds with the amount in the bank. The ability to explain this discrepancy and formulate a standard operating procedure to address it is what differentiates a clean audit from a stressful one.

This guide explains a standard operating procedure (SOP) for donation reconciliation workflow. Included is an explanation of the gap between gross and net amounts, of the multiplication of deposits due to settlement batching, and a workflow that explains campaign dashboard and bank statement discrepancies in a manner that is easy for any auditor to follow.

Gross Gifts vs Net Deposits: Why They Are Never the Same Number

When a donor makes a $100 contribution to a nonprofit, the dashboard records a $100 donation. The only money that the bank records is what is left after the payment processor takes its fee. That is the only reason there is a difference, and it is not a mistake but by design. There are no contradictions in the accounting sense. The contribution revenue is governed by FASB ASC 958-605. For the nonprofit, the contribution processing fee does not reduce the contribution revenue, and the fee is recorded as an expense. In addition, the gross receipts reported on the Form 990 must be reported in their entirety, and a deduction of the fee, cost, or expense is not permitted. The donor in this example receives a tax receipt for $100, and the nonprofit incurred a processing expense.

The campaign dashboard reflects a gross value for each contribution; therefore, it will not match the bank deposit, which shows the net contribution value after the payment processing fees. The two values are not meant to answer the same questions. One value reflects what was contributed, and the other reflects what was received by the organization. A reconciliation process is meant to connect the two values.

Illustrative example only. Figures are for demonstration and do not represent sourced benchmarks.

The Usual Suspects Behind the Donation Reconciliation Gap: Fees, Refunds, Disputes, and Timing

There are four forces that account for the total difference between the campaign total and the deposit total. The majority of the issues pertaining to reconciliation can be attributed to one of the four. Processing fees are the most significant and most certain of these forces. For every card and bank transfer donation, there is a cost that is retained during the processing of the transaction before the funds are transferred to the bank.

The next largest are refunds. If a donor mistakenly donates two times, or asks for their donation back, a refund is accomplished by reducing a subsequent payout instead of reversing the original donation, which results in the refund being recorded in a different reporting period than the original donation. The third is disputes and chargebacks, which can be the most disruptive because they can occur weeks or months after a campaign has been closed and reported to the board. Lastly, timing is the quietest of the four forces. A donation made on the last day of a campaign may not settle into the bank until the next reporting period, so it is possible for a donation to appear in the dashboard and bank statement in different reporting periods.

Published Processor Rates as a Reference Point

Published rates from the major processors illustrate how much of a donation goes to fees and how long funds are delayed. A typical card processing fee in the U.S. is 2.9 percent plus 30 cents per transaction. Nonprofits can often apply for discounted nonprofit pricing, usually granted to organizations where at least 80 percent of payment volume is charitable donations.  The discount brings the processing fee to about 2.2 percent plus 30 cents per transaction, with American Express fees typically at 3.5 percent. Donation processing fees via bank transfer through ACH (Automated Clearing House) are much lower. This fee is typically around 0.8 percent of the transaction, capped at around 5 dollars, or a flat fee in the range of 0.25 to 1 dollar, depending on the processor. ACH transactions are preferred over card processing transactions, especially for high-value donations such as a 1,000-dollar donation, since the ACH fee is a few dollars at most compared to the card processing fee of 22 dollars to 35 dollars.

Ranges reflect commonly published processor rates as of 2026 and vary by provider and account type.

Settlement Batches and Why One Campaign Becomes Several Deposits

Many first-time reconcilers are understandably puzzled by the missing transactions from a fundraising campaign. This is caused by the way payment processors batch and group transactions, leading to a delay in settlement to the bank account. A fundraising campaign that lasts a week can produce several (five or more) separate deposits to the bank account due to bank holidays or weekend closures. A Friday batch can settle to the bank as early as Tuesday or Wednesday of the following week. This can be further complicated by a campaign that has multiple payment methods. Multiple payment methods can include a card processor, a separate ACH rail, and an in-person payment terminal, which can significantly multiply the number of payouts and therefore the number of deposits to account for. All of this is part of the normal payment and settlement process, and the reconciler may expect a single deposit for the campaign total, but will more likely face a many-to-one reconciliation.

Building the Bridge with Donation Reconciliation Workflow: From Campaign Dashboard to Bank Statement

Using a bridge schedule provides a dependable method for closing the gap. Stepwise, it takes you from the total gross amount raised during the campaign to the amount deposited in the bank. The total gross amount raised in the campaign, which is the starting point of the bridge schedule, is obtained from the campaign fundraising platform dashboard. After the gross total, the only source of truth for fees is the processor payout report, since bank statements only reflect the net deposit.

The bridge schedule, starting from the total gross amount, will deduct total processing fees, refunds, voids, returns, and donations that are pending settlement. The bank deposit amount for that time period is the amount that is reached on the bridge. If the amount reached on the bridge schedule is not the bank deposit amount, this is usually due to a timing gap: a donation received near the reporting cut-off is recorded in one period but does not settle until the next.

Where Processing Fees Should Land in Your Chart of Accounts

Just like every other fee, processing fees should have their own line in the chart of accounts, apart from contribution revenue. While the donation is accounted for as full revenue, the processing fee is charged to expense, usually under Bank and Merchant Processing Fees and/or Fundraising Expenses. If the processing fee is netted against revenue, it will understate gross receipts and will misstate the fundraising ratio.

This will create complications for the yearly audit because auditors expect gross revenue and gross expenses. For Form 990 Statement of Functional Expense, the processing fee expense is assigned to the fundraising and/or administration expense category. Because of this, the processing fee expense line has a direct effect on the organization’s fundraising efficiency. A nonprofit that nets processing fees against revenue will grossly underreport the total contributions and total fundraising expense, and this will be evident when comparing the organization’s annual financial statements, even though the organization’s cash position is unchanged.

Handling Disputes and Refunds Mid-Reconciliation

Of the various reconciliation items, disputes are the most likely to reopen a closed period. This is because the different payment rails have different rules with incredibly long time limits on how long a donor is able to contest a transaction. These time limits often exceed the length of typical fundraising cycles.

ACH Returns Follow Nacha Rules, Not Card Rules

When compared to card donations, bank transfer donations have different rules and behaviors. A bank can reverse an unauthorized ACH debit within 60 days of the original settlement. There is no formal procedure or special circumstance that allows a nonprofit to challenge a return. In this case, the money will be deducted from the nonprofit’s future payouts. ACH donations provide a unique challenge because a donor can reverse the donation up to 60 days after settlement. For this reason, the reconciliation of bank transfers should treat ACH donations as not final until the return window has passed. A prior period ACH donation return should be recorded as its own line in the reconciliation.

Card Disputes Follow Visa and Mastercard Timelines

A card donation takes longer to become final because the donor is given more time to contest the transaction. The major card networks allow contesting transactions for up to 120 days, although the timeframe can be extended for certain fraud issues. Compared to the time allowed to the donor, the processor has a much shorter time to prepare a response to the contest. Visa gives about 30 days, while Mastercard allows about 45 days. In the case a donation is contested, the processor will withdraw the amount and a dispute fee will be charged to the nonprofit. Even though the donation is reversed, the fee and the withdrawn amount have to be entered as negative items in the reconciliation to account for the net deposit.

The Month-End and Post-Event Close Routine

Implementing a consistent methodology to deal with month-end closings and the subsequent activities resulting from the month-end process helps mitigate the wide variances and large year-end gaps that can create confusion and disputes. This methodology involves obtaining the payout or settlement report from the processor for the period. The report lists various payouts and associated fees, refunds, and disputes. Each payout is matched to the bank statement. This verifies that the payout was the amount deposited to the bank. The posted fee expense and posted contribution revenue should match the processor report, so the total fees for the period are verified against it.

To prevent confusion, donations that have been reported on the dashboard but are not reflected in the bank by the end of the period are flagged. Reports for disputes and returns are analyzed and journal entries are created to the corresponding accounts. Fees and disputes are reconciled, and the bridge schedule, bank statement, and processor reports are filed in the audit file. This routine is done on a monthly basis to keep gaps small and easily explainable instead of doing this at the end of the year.

Reporting the Reconciled Number to Leadership and the Board

Ultimately, there are really only two numbers for a campaign, and both need to be reported. For most situations, the number that appears on the fundraising dashboard needs to be communicated. This number needs to be on tax receipts, and it is the number that the public should use to reference the total amount raised. Both the number that reflects the amount raised (the gross number) and the number that reflects the amount available to spend (the net number) should also be communicated to the finance team for use during cash flow and fundraising budget planning.

Both numbers and the bridge should be reported to the board to avoid the situation where board members’ questions cannot be answered, and to eliminate the annoying discrepancy between the amount that was announced and the amount that appears in the bank account. It should also satisfy the auditors, who will expect to see gross revenue, fee expenses, and cash flow reconciled to the gross amount with no blended figure.

Conclusion

Variances between the campaign total and the bank deposit are not inherently problematic. This is merely a consequence of timing differences between settlements, payment processing fees, refunds, and disputes. These things happen at different times and have different rules. A nonprofit won’t be shocked to see a difference between the campaign total and bank deposit when they account for donations at the gross amount, record payment processing fees in a separate account, and perform dashboard reconciliations every month. The difference between the campaign total and bank deposit would be the least concern to an organization that performs regular monthly reconciliations when compared to those organizations that attempt to reconcile several months of bank statements in one accounting period. The greatest benefit of reconciliations would be experienced by an organization that establishes the practice for the long term.

For more on donation reconciliation and other nonprofit payment questions, see Nonprofit Payment Resources.

Frequently Asked Questions