3 Best Practices for Streamlining Your Endowment Management

Endowments are the result of a successful long-term strategic plan. Through major giving and capital campaigns, your organization has created a pool of endowed funds to create a consistent funding tool in perpetuity.

That is wonderful—if you have the tools to accurately track and manage all the moving pieces.

Otherwise, you are setting yourself up for a lot of spreadsheet-induced headaches.

From maintaining donor intent to tracking distributions and appreciation across funds, endowments have a lot of details to manage. With intuitive tracking and reporting tools designed to handle the intricacies of endowments, you can streamline your endowment management and improve transparency with your stakeholders.

The Importance of Strong Endowment Management

Endowments symbolize strength for an organization. They are intended to continue in perpetuity, with the organization using only a small fraction each year. The donors contribute to the endowment with the idea that they are supporting your long-term mission. When those contributions aren’t managed correctly, you can lose the trust of your donors and put that long-term vision at risk.

Strong endowment management and documented processes help you track—and adhere to—donor intent and prohibit the organization from spending down the original corpus unintentionally. If your donor provides a significant contribution to your endowment with the goal of launching a scholarship program, for example, you have legal and ethical responsibilities to steward those funds to provide scholarships as directed.

It’s important to have strong controls in place so you can preserve the purchasing power of your endowment while aligning with your overall investment policy. Your organization relies on the endowment as a stable source of funding for specific programs, so strong management means you can balance growth and risk to support those programs even when the organization is facing other headwinds.

If your organization has an endowment or is looking to start one, here are some best practices for managing your endowment accounting.

Create a Single Source of Truth for Your Endowment Operations

It’s hard to follow donor intent if no one can find the donor agreement. Capture all the moving pieces—donor agreements, disbursement records, and investment statements—in one place for easy reference and improved communication. 

Over time, your endowment could grow to include hundreds or thousands of gifts, and you need to be able to see them individually as well as in total. With the right system, you can pool multiple gifts while also tracking them individually. Choose a system that will also enable you to attach guiding documents directly to donation records, so those files will follow the funds for the length of the endowment. This streamlined document management also helps with business continuity. The information stays in the system and doesn’t leave when a key member of your team retires.

A single source of truth makes it easy to access and communicate the important details of your endowment, breaking down silos between your development, communications, and leadership teams. Your communications team needs a holistic view of your endowment, your development team needs to easily see how a specific donor’s funds have been used, and your leadership team needs to see what is still available for future needs.

Ensure Strong Data Health and Accuracy

Your endowment creates a lot of data: contribution amounts, investment allocations, disbursement percentages. If any of those numbers gets entered incorrectly, it can have a significant impact on your balance sheet.

Minimize errors with intuitive integrations and strong internal controls so you can provide the reporting your organization needs to make important funding decisions.

No one enjoys manually entering data or exporting out of one system only to import the same data into a different system. Each extra step increases the chance of an error. Minimize manual entry with integrations between your key systems, such as your fund accounting and fundraising software.

System-enforced internal controls also help mitigate risk. Role-based access enables your finance team to securely pay invoices and review expenses. Automated accounts payable minimizes manual entry and helps you reconcile your accounts faster. You can also easily send the file to other areas of the organization for disbursement, such as applying financial aid to a student’s record.

You can also set spending controls that prevent a fund from going over budget. If an expense comes in that goes over the amount allotted, that expense can be rejected or sent for additional review.

Clear Reporting by Fund to Show Stewardship

To stakeholders unfamiliar with endowments, there can be a misunderstanding about its role in the organization’s overall budget. An endowment is not an operating reserve. Endowment funds can only be spent for the specific purpose outlined in the original donor agreement. Otherwise, the organization must contact each donor to ask their permission to deviate from the donor directive.

To manage expectations and to make sure you are abiding by all the appropriate legal requirements, it’s crucial to provide clear reporting to all stakeholders on how the endowment funds are used.

Understand what your stakeholders need so they can communicate the strength of your organization. For example, talk with your development team about what would be helpful to access so they can communicate to donors about who received the scholarship they funded, for example. Clear reporting can also help your development team show potential donors the impact they could have and encourage additional donations to the endowment.

Your reporting is also crucial to understand any growth of the original corpus and what should be allocated back to each fund. With a fund accounting system built for endowment management, you can appropriately allocate interest by fund as well as see the beginning and ending balances of the fund at each reporting benchmark so leadership can easily see the dollars that are available to be spent.

Fund Accounting for Strong Endowment Management

The right technology is at the center of your streamlined endowment operations. Fund accounting software with sub-fund capabilities allows you to track as many funds as you need while also seeing the endowment as a whole.

If you are looking for a fund accounting system with native endowment management tools, check out Blackbaud Financial Edge NXT. With built-in internal controls and nonprofit-specific reporting at the touch of a button, Financial Edge NXT simplifies endowment management at every step. See how with our infographic, Simplifying Endowment Management with Fund Accounting Software.