Endowments and capital campaigns can provide long-term support for a religious organization’s mission. They can also create accounting and reporting questions that are more complex than those associated with general contributions.
Clear donor communication, consistent tracking, and well-documented policies can help the organization honor donor intent and accurately report how the funds are used.
Understand the Type of Endowment
An endowment fund is an established fund of cash or investments that provides income for a nonprofit organization. However, not every fund referred to as an endowment is classified the same way.
Three common types of Endowments
Funds contributed by a donor to create a perpetual source of support for the organization.
The donor allows the principal to be spent after a stated period or when a certain event occurs.
Funds set aside by the governing body to function like an endowment. The board may authorize the funds to be spent at any time. This is also known as a quasi-endowment.
The distinction matters because a donor-restricted endowment cannot be treated the same way as funds designated by the board. A board-designated endowment may function like a permanent fund, but the governing body retains the authority to change or remove the designation.
Establish an Endowment Spending Policy
A spending policy helps define how much of an endowment may be used and how spending decisions will be made.
For a donor-restricted endowment, the original gift, additional gifts, and related investment returns remain donor-restricted until the governing body appropriates amounts for expenditure. The organization should document the percentage or methodology used to determine those amounts.
The organization should also be able to identify and track each endowment. This may involve pooled investments, separate financial statement accounts, or separate accounts at a bank or investment institution.
Financial statement disclosures may need to address:
- The composition of endowment funds
- Changes in endowment balances
- Spending policies
- The organization's interpretation of laws affecting classification
- Underwater endowment funds
Clear policies and records make it easier for the governing body to understand what funds are available and what amounts remain restricted.
Define the Purpose of a Capital Campaign
Capital campaigns often involve contributions collected over an extended period for a major project. Before soliciting gifts, the organization should clearly define the campaign’s purpose both internally and externally.
For example, is the campaign limited to constructing or purchasing a building? Does it also include furniture, technology, campaign costs, or other related needs?
The way the purpose is communicated can affect how contributions are classified and when restrictions may be released. Broad or inconsistent campaign language can make it difficult to determine whether a particular expense is consistent with donor intent.
Distinguish Promises from Intentions
Capital campaigns may include both promises to give and intentions to give. These should not automatically be treated the same way.
The organization should retain supporting documentation and clearly understand what the donor committed to provide. This is especially important when campaign projections or spending decisions rely on contributions that will be received over several years.
Consistent documentation also helps the accounting team determine how campaign activity should be recorded and reported.
Read Related Resource: Capital Campaigns: Making Sense of Pledges
Plan for More Than the Original Goal
Religious organizations should consider in advance what will happen if a capital campaign raises more funds than needed.
That question is easier to address before gifts are solicited than after the campaign is complete. Campaign materials should clearly communicate how funds may be used and avoid creating restrictions that are narrower than the organization intends.
The organization should also distinguish between true expenses and capital expenditures and determine when the donor’s restriction has been satisfied. Restrictions should be released only when the related time or purpose requirement has been met.
Read Related Resource: Capital Campaigns: Keep Finances Organized from Day One
Keep Donor Intent at the Center
Whether the organization is managing an endowment or conducting a capital campaign, the central questions remain the same:
“What did the donor intend, how is that intent documented, and when may the funds be used?”
Clear agreements, appropriate policies, and consistent accounting practices help religious organizations answer those questions while strengthening financial reporting and accountability.
