Keep board-designated reserves distinct from donor restrictions

A nonprofit's reserve can reflect an internal board decision, a donor restriction or another limitation. Begin with the document that created it. FASB's nonprofit presentation amendments describe board-designated net assets as net assets without donor restrictions subject to self-imposed limits. Apply the current ASC 958 guidance when classifying the actual funds.

Keep the donor instrument beside the board resolution if both concern the same assets. A board decision to invest or earmark funds does not erase an existing donor restriction. Ask the accounting reviewer to identify the separate effects rather than assigning one classification from the word reserve in the bank account name.

Retain the approved minutes or written resolution establishing the designation. Record the amount or calculation, purpose, effective date and authority needed to spend or change it. If the board delegates decisions to management, preserve the scope of that delegation and the resulting approvals.

Separate a target reserve from funds actually designated. A policy seeking six months of operating costs may describe a goal while the board has designated a smaller amount. Show the policy calculation and the current approved amount separately so a management report does not imply the target has already been funded.

For an illustrative resolution designating $150,000 for facility replacement, identify the assets supporting that designation and any later board-authorized use. If management spends $20,000 without the required approval, record the issue for governance review. Changing the spreadsheet balance does not establish that the board's conditions were followed.

Net-asset classification and immediately available cash answer different questions. A board-designated reserve may be invested in assets that take time to sell or may require approval before spending. Give the reviewer the investment terms and authorization process alongside the designation schedule.

FASB's presentation amendments call for information about board designations and liquidity, including internal limits on available resources. Prepare the supporting facts for the applicable disclosure: the current amount, purpose, nature of the assets and process for making them available. Avoid describing an internal designation as a donor-imposed restriction in that explanation.

Reconcile management's cash forecast to the same facts. If a forecast assumes that the board will release part of the reserve, label that assumption and identify the decision date. The forecast can then show the consequence if approval or asset liquidation occurs later than expected.

Maintain a history of new designations, authorized spending and changes in purpose. Link each movement to the approving record and the related accounting treatment. An internal change in designation should not be presented as a new external donation or a donor-restriction release merely because the report uses similar columns.

At year-end, compare the schedule with board minutes, the ledger and investment records. Investigate designations that survive in a spreadsheet after the board has rescinded them, and decisions recorded in minutes that never reached finance. Ask the accountant to review the final presentation and disclosure wording.

Give the next treasurer the current authority, amount and spending conditions for each reserve. Preserve the earlier decisions so future reports can explain whether a change arose from investment results, an approved use or a new board policy.