Accountability Tips for Endowments

Donors, charity staff members, and others often see endowments as an endless resource for nonprofit organizations, but they have been nearly the opposite of that lately due to the bad economy, mismanagement, and other concerns, Kathryn Miree, a planned-giving consultant told a meeting of the National Conference on Philanthropic Planning in Orlando, Fla., on Wednesday.

Endowment managers have been plagued by problems that in many cases have been out of their control in the bad economy. But their own practices have attracted criticism, too. For example, members of Congress have raised questions about the compensation paid to endowment managers. And news reports have suggested conflicts of interest involving endowments to honor lawmakers who receive donations from businesses seeking to influence legislation.

Ms. Miree says other problems also hobble nonprofit endowments. Large endowments, which often are umbrellas for hundreds or thousands of small funds, may not be able to suitably process and oversee each fund and handle the mountains of paperwork that proper oversight requires, she notes. Harvard has more than 11,600 separate endowments, she said.

In addition, she noted, some organizations that have fallen on bad times have asked donors if they could move money from an endowment into their operating budgets. Plus, donors and their descendants are increasingly suing charities for inappropriate use of endowed funds.

To deal with some of those issues, she offered several tips for endowment managers:

• Group funds into four or five causes so donors will know how their gifts will be used but nonprofit organizations will be able to spend as they see fit.
• Open endowments to all donors by creating a pooled fund that can accept small gifts for specific causes, so endowment gifts won’t be out of reach for all but the biggest donors.
• Set restrictions for funds at a minimum of $250,000 (or perhaps $1-million) to justify the costs of managing and investing the funds to carry out the donors’ wishes to the fullest.

“The more accountable we are, the better job we are going to do,” Ms. Miree says.

*Photo provided by Tony Martignetti