How Fundraising Managers Can Protect Reserves as Assets

What factors should be considered when determining reserve levels?
While some watchdog agencies have developed their own standards for determining appropriate reserve amounts — and many of these standards are very good — there has not been a national standard established that takes into account the full range of factors that can affect reserves. These factors include, but are not limited to, the following:

• Mission and long-term plans or strategies
• Type of organization — higher education, religious, social services, museum, cultural, association, foundation or other
• Corporate structure — sole entity, parent/subsidiary entities, brother/sister entities, loosely affiliated groups, etc.
• Investment in the physical plant — the facilities owned and/or leased
• Complexities of the debt structure
• Current and future commitments
• Funding sources, including fundraising activities
• Types of programs provided
• Self-insurance
• Workforce compensation and benefits issues

A “prudent-person” measurement should be considered in assessing the appropriateness of reserves: Would a prudent person, exercising due care and proper stewardship over the organization’s resources, set aside such a level of reserves? The organization also should use an independent and competent board of directors or advisory committee as a safe harbor in determining whether the prudent-person rule has been followed.

The ultimate objective of maintaining appropriate reserves, of course, is to ensure the long-term viability of the organization and the sustainability of the programs it provides.

Frank Kurre is manager partner, not-for-profit and higher education practices, at Grant Thornton LLP.