Monday, August 17, 2009

Hoarding vs. Prudent Saving - Balanced Reserves standard

The following post was written by Helen Ng, Marketing and Communications Manager at the Charities Review Council.

You never know what may happen to your job, family, or health, and that is why it is important to save some money to plan for the unexpected. Just as you would have a rainy day fund to be used when absolutely necessary, charities maintain a reserve fund to safeguard against unexpected financial challenges. There's a good interview with the Urban Institute's Thomas Pollak about this and the results of a recent study about nonprofits and reserves.

While a nonprofit should maintain a reasonable level of cash to safeguard against unexpected financial challenges, maintaining excess unrestricted reserves indicates the nonprofit is not maximizing the use of its resources in pursuit of its charitable mission. In such cases, it may not be appropriate to continue soliciting from the public unless it is clear that the fundraising could be used for a reserve fund.

What do you think? How much is too much for you?


Sara Leiste said...

Would you allow a nonprofit to meet this standard with "explanation" if it agreed to not fundraise for some period of time? The philosophhy opens the door for this quesiton.

However, I can only see an organization agreeing to this if it was a very small nonprofit that has come into some kind of bequest or other really large donation.

mwera said...

This is a really interesting question. I can see your point that the philosophy opens the door for this while asking for greater transparency on the part of the nonprofit that the money raised could be used for a reserve fund. The standard, however, is pretty clear that there is a firm cap on unrestricted net assets. At least up to now, we've been seeing the application of this standard as we've been doing.

Do you have any opinion about this? Do you think there should be some more flexibility?