Community Foundation Investments

Posted on Wednesday, December 14, 2016

*The following discussion is specific to the recording of investments with the Community Foundation of Greater Fort Wayne.  Although most community foundations are similar, please contact your accountant for details specific to your investment.

Many nonprofit organizations partner with their local community foundation by placing endowment funds with the foundation.  A community foundation is able to combine funds from various nonprofits into professionally managed portfolios that allow greater diversification of investments than an individual nonprofit may likely be able to achieve. 

Nonprofit investments in the Community Foundation of Greater Fort Wayne are divided into two funds, Fund 1 and Fund 2.  Each of the funds and respective activity are recorded differently on the books of the nonprofit organization.

Fund 1

Fund 1 investments consist of donations to the Community Foundation from unrelated third parties for the benefit of the nonprofit organization.  Only distributions from Fund 1 to the nonprofit organization are recorded on the organization’s books, as a contribution.  The balance of Fund 1 and any activity (interest, fees, gains and losses) are not recorded on the organization’s books as the Community Foundation has retained variance power for Fund 1.

Fund 2

Fund 2 investments consist of donations to the Community Foundation made by the nonprofit organization.  The nonprofit organization has designated itself as the beneficiary of the assets.  The transaction is deemed to be reciprocal because the nonprofit organization expects to receive future distributions and the Community Foundation agrees to make the distributions to the organization.  The organization should record an asset (Beneficial Interest in Community Foundation) on its books for the dollar amount transferred at the time of the transfer.  Changes in the investment due to interest, fees and gains or losses should be recorded on the nonprofit’s books in the respective accounts similar to any other investment.  However, distributions from Fund 2 to the organization are not recorded as contributions on the organization’s books.  These are recorded as decreases in the asset value of the investment. 

Disclosures

As noted above, Fund 2 investments are shown on the organization’s books as an asset and, therefore, appear in the organization’s statement of financial position.  The balance of Fund 1 investment is only shown in the footnotes since it is not an asset of the organization.  In addition, the organization’s financial statements should include the identity of the community foundation, whether variance power was granted to the foundation, and the terms under which the foundation makes distributions to the organization. 

Since the Fund 2 investment in the Community Foundation is carried at fair value, the organization must also include the required fair value disclosures.  The value of investments held at the Community Foundation is based on the proportionate share of the Community Foundation’s pooled investment portfolio.  The usual situation with the Community Foundation is that the nonprofit transfers money to the foundation as a completed gift with variance power and the nonprofit will never be able to redeem its investments.  In this case, the investment should be categorized within Level 3 of the fair value hierarchy with the reconciliation of activities for the investment disclosed in the footnotes.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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