NGP Invited to Sponsor Effort to Complete Nonprofit Reserve Policy Tool Kit

THE URBAN INSTITUTE 2100 M STREET, N.W. /

WASHINGTON

D.C.

20037

 

Elizabeth T. Boris, Ph.D.                                                                                                                         Phone: 202-261-5770

Director                                                                                                                                                              Fax: 202-833-6231

Center on Nonprofits and Philanthropy                                                                                   Email:  EBoris@urban.org

 

January 16, 2009

 

Cornelia Chebinou, Co-Chair, National Grants Partnership

 

 

Re: Sponsorship of Nonprofit Reserve Policy Tool Kit

 

Dear Ms. Chebinou,

 

We are pleased to invite the National Grants Partnership to become a “supporting sponsor” of a downloadable, open-source Nonprofit Reserve Policy Tool Kit that will help nonprofit organizations establish board-approved policies for maintaining operating reserves at levels adequate for achieving financial stability.

 

Background

In the spring of 2008, a Nonprofit Operating Reserves Initiative Workgroup comprising experienced individuals representing multiple facets of the nonprofit sector was convened to address the need for maintaining operating reserves at levels adequate for achieving financial stability.  The Workgroup established two objectives: defining an “Operating Reserves Ratio” and using the ratio to establish benchmarks for financial stability to help nonprofit leaders. 

 

By September, 2008, the Workgroup had reached consensus on definitions for operating reserves and the “Operating Reserves Ratio” and a recommendation that nonprofit boards establish a Reserve Policy that includes a minimum Operating Reserve Ratio appropriate for their organization.   A board approved Reserve Policy could also include board-designated funds that are set aside for non-operating strategic purposes and/ or quasi endowment. 

 

Representatives of the Workgroup made a presentation at the NGP Webcast on November 17, 2008 on the “Nonprofit Operating Reserves Initiative.

 

The whitepaper: “Maintaining Nonprofit Operating Reserves, An Organizational Imperative for Nonprofit Financial Stability,” December 2008, by the Nonprofit Operating Reserves Initiative Workgroup is available at: http://www.nccs2.org/wiki/index.php?title=Nonprofit_Reserves_Workgroup.   A list of Workgroup members is included.

 

Briefly, “operating reserves” means the portion of unrestricted net assets that are available for use in emergencies to sustain financial operations in the unanticipated event of significant unbudgeted increases in operating expenses and/or losses in operating revenues.

 

As discussed in detail in the whitepaper, an organization’s Operating Reserve Ratio can be calculated in terms of a percentage (operating reserves divided by the annual expense budget) or number of months (operating reserves divided by the average monthly expense budget).  While adequate levels of reserves can vary significantly depending on a variety of circumstances, as a general rule, the minimum operating reserve ratio at the lowest point during the year suggested by the Workgroup, is 25 percent or 3 months of the annual expense budget.  

 

Preliminary research indicates that a large portion of nonprofits may not have sufficient reserves to weather unexpected setbacks.  For example, according to analysis of IRS Form 990 data (2003), 1,516 or nearly fifty percent of 3,154 nonprofits located in

Washington

,

D.C.

had year-end operating reserve ratios below the suggested minimum of 25 percent or less than 3 months of their annual expense budget.   In fact, 996 nonprofits (32%) had reserve ratios of zero to 25 percent while 620 nonprofits (16%) actually had negative reserve ratios.  

 

At its October 29, 2008 meeting, the Nonprofit Operating Reserves Initiative Workgroup agreed that “an important next step will be to develop a Nonprofit Reserve Policy Tool Kit and make it publicly available as an open source on NCCS/Urban Institute and United Way of

America

websites.  Stakeholders interested in nonprofit financial stability will be invited to endorse the initiative and encouraged to either refer their members, affiliates and constituents to the tool kit URL -- or use the NCCS/UWA generic tool kit as the starting point for tailoring a reserve policy tool kit for their members.” 

 

Lead Sponsors of the Reserve Policy Tool Kit

NCCS, a program of the Center on Nonprofits and Philanthropy at The Urban Institute, and the Membership & Financial Accountability Department at the United Way of

America

are the lead sponsors, providing staff support, IT web services and other resources for the development of the tool kit.  They are also teaming up on recruitment of other stakeholders.

 

While NCCS will not advocate for specific levels of reserves, NCCS will support the development and maintenance of a glossary of uniform terms, data elements and definitions related to nonprofit financial stability and operating reserves for the Tool Kit.  NCCS’ other data standards tools include National Taxonomy of Exempt Entities (NTEE) used by IRS and others, Unified Chart of Accounts (UCOA), and Nonprofit Program Classification.

 

The UWA Membership & Financial Accountability Department will develop the Nonprofit Reserve Policy Tool Kit in collaboration with NCCS and set it up on UWA and NCCS/Urban Institute web pages.  They have extensive experience in this area in recent years, having developed “Reserves and Reserve Policies Guidelines for United Ways,” which has been a useful illustrative reserve policy for the Nonprofit Operating Reserves Initiative Workgroup.  A downloadable copy of the UWA reserve policy guide can be found at http://www.nccs2.org/wiki/images/a/ad/UWA-ReservesandReservePolicies%284-17-07%29.pdf.

 

In addition, after successfully implementing a model reserve policy guide for United Way Organizations, they have been planning to invest time and resources into development of a web-based, general-purpose reserve policy guideline for local United Ways to use with the local nonprofits they support.  Developing such a guideline in collaboration with other interested nonprofit groups will result in a better product for every one. 

 

Supporting sponsors

We are sending supporting-sponsor invitations to the following groups that have met with the Workgroup coordinators and have expressed interest in receiving an invitation:

 

·         Board Source

·         Greater

Washington

Society of CPAs

·         National Council of Nonprofits

·         National Grants Partnership

·         National Human Services Assembly

 

Supporting sponsors are not being asked to provide material resources but are asked:

 

1. To formally endorse the reserve policy initiative and its mission “to help nonprofit organizations establish board-approved policies for maintaining operating reserves at levels adequate for achieving financial stability.”

 

2. To agree to be listed as a “supporting sponsor” on the cover page of the Nonprofit Reserve Policy Tool Kit website. 

 

3. If able, to recruit someone from among their constituents to represent them on a Reserve Policy Technical Group that will vet the Tool Kit.

 

4. To refer their members, affiliates and constituents to the tool kit URL and/or to use the NCCS/UWA generic tool kit as the starting point for tailoring a reserve policy tool kit for their members.

 

5. To keep their constituents informed about the emerging reserve policy initiative.

 

We thank you for seriously considering co-sponsorship of this important initiative to strengthen the financial capacity of nonprofit sector organizations across the country.

 

If you have any questions or would like to discuss this initiative, please contact initiative coordinators Jim Schmutz (James_Schmutz@ml.com) or Bill Levis (qrlevis@aol.com).

 

Sincerely,

 

Elizabeth T. Boris, Director                

Center on Nonprofits and Philanthropy, The Urban Institute

 

Kenneth C. Euwema                           

Vice President of Membership

  & Financial Accountability, United Way of

America

 

James C. Schmutz, Chair

Nonprofit Operating Reserves Initiative

Financial Advisor, Merrill Lynch & Co, Global Wealth Management

Comments

[supra skate shoes]

So cute! I already like you on FB and also get your posts on Google Reader. :)

[Engagement Invitations]

Thumbs up! I appreciate your article and seems have a lot of ideas, thanks for sharing!

[Engagement Party Invitations]

Like! Thank you with such information. Thanks for sharing especially about NGP Invited to Sponsor Effort to Complete Nonprofit Reserve Policy Tool Kit.