Usually during the church’s annual audit someone points out just how many Designated Funds they have. Most of them are current, but there are always ones that are no longer needed. The project was completed or the program has ceased. What do you do with these “expired” funds?
Some people argue that the it would be a violation of the donor’s intent to do anything with these funds. Was it really the donor’s intent to have their gift just sit in the bank doing nothing but taking up a line on a report? In the vast majority of cases, the donor gave for the money to be put to use sooner than later. If that’s the case, here’s how to clean up these expired funds.
Step 1: Bringing the Concern to the Finance Committee or Board
If you are a Treasurer, it may be tempting to do this yourself…to clean up these funds and just report to the Finance Committee or Board. I think this is a mistake. First of all, you may not have the proper authority to do so. Second, you will do a better job if the Finance Committee helps you navigate the process. Third, it’ll protect you from blame if someone disagrees with your decisions on cleaning funds up.
Step 2: Reviewing Each Fund & Making a Recommendation
A lot of times we add Designated Funds on the fly without any documentation. At the time, our main goal is to facilitate giving so that some special purpose can be accomplished. That can leave a mess later if we don’t make a decision about what to do with any leftover funds.
Your job is to review each fund and make a decision:
- Keep the Fund: These are for programs, projects, or ministries that are still active. You may want to add some documentation at this time of who has authority to spend these funds and what to do with any leftover balance it the program or project is finished.
- Repurpose the Fund: If the program has ceased, but there is a similar one still active, recommend moving the fund over. The example I often use is the Carpet Replacement Fund. Recommending that to go into something related to the Trustees or Capital Improvements would be in line with the donor’s intent.
- Release the Fund: Perhaps there is no related fund or the fund relates to something in the budget. Recommend releasing the money to be used in the General Fund.
Step 3: Bringing Recommendations before the Board for Approval
This is an important step. We likely don’t have perfect knowledge of what the donor’s intent was at the time of the gift if there is nothing in writing. If there were a lot of donor for a specific fund, it may not even be possible to identify the donor. If you can’t identify the donor, how could you identify their intent? The Board’s approval will put something in writing about how the donor’s intent was interpreted.
Step 4: Following through with the Decision
By the time the Board has approved any recommendations, it may feel like the mission has been completed. Actually, the plan for the mission has been completed. Now you need to follow through with the plan. Treat it like it is a bill to be paid. It will be tempting to put it aside until you have time. You will never have time. If you wait, you will be doing this same process next year.
Speaking of next year, I put some financial policy templates down in the Useful Links that may help craft policies to guard against the church accumulating expired designated funds in the future.
Useful Links
- Post: Are Donor Restrictions Legally Enforceable: https://jctaccounting.com/2022/02/18/is-a-donor-restriction-legally-enforceable/
- Webinar: Investigating your Balance Sheet: https://jctaccounting.com/2022/02/22/investigating-your-balance-sheet/
- Financial Policies Template 1: https://jctaccounting.com/wp-content/uploads/2024/01/finance_policies_v1.docx
- Financial Policies Template 2: https://jctaccounting.com/wp-content/uploads/2024/01/finance_policies_v2.docx
- Subscribe to Blog: https://jctaccounting.com/subscribe-and-connect/
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