A Fund Usage Policy: Developing Board Clarity for Restricted Funds

Posted by Matthew Thomas

A few weeks ago, I wrote about gaining clarity in non-profit restricted funds. Reader feedback has inspired me to write a little more on the subject to help bring clarity to funds whose restrictions are often vague.

Many nonprofits (particularly churches) have funds that are collected for a designated purpose that is so broad that it is hard to allocate the funds. Often, this is because the collection of these funds is laden with assumptions about their use. In addition, when the funds are received, the only controlling document is a event program / bulletin or the verbal expression of purpose of the fund. In most cases, this is the most clarity the fund holds.

implement clarityConflict then erupts when the use of the funds is applied. Organizations with funds like these operate on precedent – since there is no resolution or solid designation from the donors, they can do little else without effort. Nevertheless, precedent is squishy and memories differ in the first place.

In this case, the best option for organizations with such funds is to create a solid fund usage policy and a process for reviewing requests for disbursements and distributing funds. The process needs to be financially accountable, using normal levels of internal controls common to healthy organizations: no one person controls the transaction from start to finish, decision-makers are confined to those without conflict of interest, standards of review and approval exist and are followed, no one writes checks to cash (or themselves), and so on. Most importantly for the process, the Fund Usage Policy creates the framework in which the process operates.

The Fund Usage Policy basically answers the questions known to beginning essay-writers everywhere: who, what, where, when, why, how (and in this case, how much). For example:

  • Why does the fund exist? Why does the fund need a policy to govern it? Why is there a need for the fund / what need inspired a person or persons to set the fund up in the first place?
  • What are the organization’s goals for the use of the fund? What does the organization intend to accomplish with the fund? What written donor-based restrictions exist? What verbal donor-based restrictions exist? What review process exists (or can be created) to measure whether the goals are being met in practice?
  • Who is eligible to request funds? Who is eligible to receive funds? Who reviews the requests? To whom is the requester / recipient / reviewer accountable? Who sets the policy or may change the policy for the use of the fund? Who are the fund’s donors? Who are the fund’s recipients / beneficiaries?
  • Where are the funds held? Where will future contributions be collected or received? From where will disbursements be issued? Where is the fund’s information kept? Where do those requesting funds go to make their request?
  • When did the fund originate? Is there any passage of time that could cause the fund’s restrictions to expire? When does the fund make disbursements? When does the fund accept requests? In what time frame does the fund respond to requests? In what time frame is the fund’s activity reviewed?
  • How much may be requested in any one request from the fund? How much is the average request? How will requests be made? How will review take place? How will accountability be maintained? How will disbursements be made? How will contributions be received? How will the fund’s assets be managed?

If your organization can build consensus around those questions, you will be able to use your restricted funds with clarity and integrity. This will break through the unspoken and unwritten assumptions and help your organization speak clearly to how it uses its funds.

Design Group International Consultants are available to assist your organization in finding clarity on fund usage and implementing accountable solutions so that your organization can accomplish its purpose. Contact Senior Consultant Matthew M. Thomas at 1.877.771.3330 x20 or at matthewt@designgroupintl.com for assistance on fund clarity. You can also follow him on twitter @mattthomasdgi for updates on Sustainable Vision.

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Topics: board governance, nonprofit leadership, restricted funds, board development, board policy, internal controls, Matthew Thomas, Design Group International