One of the vexed questions for boards of not-for-profit entities is what level of reserves the entity should hold as operational insurance. For many entities this issue is one that has been getting a fair bit of airtime in audit committees and governing body meetings. So what should a prudent organisation do? Should we use our funds now or ensure we have some funds set aside for a rainy day? This issue highlights the natural tension between a board being prudent to protect their operational capability against unexpected future funding cuts, and not wishing to be perceived as “storing” funds.
The issue, or perception, of “storing” funds can have some strong impacts. Generally, these are in two main areas: dissatisfaction at use of funds and perception of wealth.