Cash-strapped Nonprofits May Want to Free Up Board-designated Assets

Nonprofits can only use restricted funds for the purposes specified by the donor. However, board-designated assets (also called board-designated funds) are different. These are unrestricted funds that the nonprofit’s board has set aside for specific purposes or timeframes. The board can later decide to remove these designations, but it’s important to have a clear policy to guide these decisions.

What Are Board-Designated Assets?

Board-designated assets are funds the organization reserves for planned purposes, like future projects or emergencies. This helps ensure funds are available when needed and shows a commitment to specific goals. Funds might be set aside for one-time use or for ongoing needs, like covering potential liabilities.

Typically, the board decides how to designate funds. Sometimes this responsibility is given to the chief financial officer or another qualified executive. If delegated, these decisions should be recorded properly, and the board should regularly review them.

Why Proper Documentation Matters

Documenting board-designated assets is essential for meeting financial reporting standards. For nonprofits following U.S. Generally Accepted Accounting Principles, these designations must be clearly disclosed in statements or accompanying notes.

Policies for Managing Board-Designated Assets

If your organization uses board-designated funds, a formal policy and procedures should guide decisions. Your policy should include:

• Goals for the designated assets (e.g., to cover cash flow, future programs, liquidity reserves, or an endowment).
• Monitoring procedures to track spending and ensure compliance with reporting requirements.
• Whether funds will be kept separate.

If designations are removed, the board must approve the change through a formal vote and document it in meeting minutes. Financial statements should reflect this update.

When to Remove Designations

Sometimes removing a designation is necessary. Board-designated funds can be a better option for covering unexpected costs or filling budget gaps instead of tapping into emergency reserves or endowments.

Need Help?

If your organization is unsure how to manage or remove board-designated funds effectively, our team is here to help. Contact us for expert advice tailored to your needs.