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Why You Need a Fund Audit

By Lynne Wester

If you don’t already, you really should have a fund audit on your FY20 business plan. A robust fund audit is CRITICAL to your success in the current era of organizational transparency and heightened public scrutiny of fund utilization. We’ve all seen the headlines in the last few years and thought, “oh thank goodness that wasn’t us”. But one of these days, it will be us. In fact, if you work at a college or university, take a careful look at this list. Any organization listed as RED (a whopping 57%) "facially violate" Title IX with sex-specific scholarships.

Don't panic! With some foresight, planning, and proactive measures on behalf of our donor relations teams, we can lessen the negative impact.

While the act of fund auditing and compliance may not be a direct donor relations responsibility in your organization, the DR team should have at least a partnership role in this space. This image pretty aptly sums it up:

Donor relations teams need to be advocating for a role, preferably a leadership role, in what is quickly becoming the fastest growing area of donor relations – fund stewardship and compliance. Analyzing spending trends, utilization rates, fund purpose complexity from a donor-centric perspective is rare in the industry. While it is actuarial work in nature, there are real donors behind these massive endowments and very real donor expectations to fulfill. It’s our job as donor relations professionals to represent the donor’s perspective and giving experience front and center when it comes to fund administration.

So what do you need to know? There are three main components to help get your started down this road:

KNOWLEDGE: Donor relations professionals need to have solid working knowledge of the funds your organization oversees including how they work, are administered, investment and distribution policies, etc. You can’t be a strategic partner in this space unless you know the landscape and can hold your own in terms of knowledge and understanding the technicalities.

PROACTIVE REVIEW: Donor relations should be reviewing, or partnering with internal peers, endowed and non-endowed funds every year to proactively identify red flags, spending and utilization trends, accrual of unspent income, etc. By getting ahead of these issues, and working to address the root cause, you can impart change in a more timely and effective manner.

METRICS & TRENDS: As a result of your proactive oversight, developing key metrics and understanding your organization’s spending trends will assist in making the case for change. These keys stats run from basic info, to more complex figures that your financial partners should help you determine. These include:

  • Overall number of funds (endowed and non-endowed)

  • Annual growth rates in funds

  • Number of funds with “low utilization” – little to no spending of available balance

  • Accrued amount of unspent income in all funds, then broken down by fund type (scholarships, faculty, programs)

  • Annual utilization rates (are you spending more every year? less? is this in line with your organizational priorities?)

Fund stewardship is a complex topic and it can seem overwhelming when deciding where to start. It’s all about eating the elephant – one bite at a time. Start with gathering the information and insight I have shared above – this will help you strategize an audit and get you started down the right path.

If you need assistance with completing a fund audit or fund stewardship review at your organization, we are here to help. One of the many services the DRG Group provides is holistic fund audits and donor-centric financial practice review. We have helped many organizations with their struggles around fund stewardship and assisted them in utilizing more than $15M of available funds given by donors.

Let’s talk further!


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