DESIGNATED FUNDS ANALYSIS
Designated fund allows a donor to provide an ongoing, reliable and permanent stream of support for a particular nonprofit or community cause. While a designated fund must have a stated charitable focus, it is a flexible tool in that it can be used to support project costs or operational expenses as well as grants to nonprofit organization.
- Designated funds are current unrestricted funds represent balances for operational purposes that have not been restricted by outside donors or grantors.
- These balances include funds that have been designated by the governing Board for specific purposes.
- Designated funds are still unrestricted, but have been set aside by the trustees earmarked for a particular future project or commitment.
- The designation is for administrative purposes only and carries no legal authority.
- The trustees designate funds they are also able to remove that designation without needing permission from anyone else.
- One of the main advantages of designating funds is that everyone becomes aware of the reason why the funds are being held, and they are not considered to be available for general purposes.
- Although designated funds should be separately identified, this does not mean that they have to be held in a separate bank account.
- The statement of recommended practice (SORP) permits designated funds to be presented as a separate column on the face of statement of financial activities (SOFA)
- Funds should not be designated merely to reduce the apparent level of charity’s free reserves and should be established before the end of accounting reporting period
- If the designation revoked, funds shown as designated in one set of accounts may be released to general funds in the next set.
- Donors (individual and corporate) who wish to support specific agencies or causes can establish a designated fund.
- In the alternative, a donor may choose to contribute to an existing designated fund.
- If the original charity ceases to exist, becomes obsolete, or is unable to perform its charitable purposes, the Community Foundation’s Board of Trustees will redirect the funds to an organization providing similar service, without the cost of expensive legal action.