Community Foundation Glossary of Terms

This is the section of IRS Code that designates an organization as charitable and tax exempt. Organizations qualifying under this section include religious, educational, charitable, amateur athletic, scientific or literary groups, organizations testing for public safety or organizations involved in prevention of cruelty to children or animals.  501(c)(4-6) sections identify other nonprofit organizations whose function is not solely charitable (e.g., professional or veterans organizations, chambers of commerce, fraternal societies).

Recording of revenue in the period earned and recording expenses in the period incurred.  The effect of events on the organization is when the services are rendered or consumed rather than when cash is received or paid.

Monies that are be spent for the operation of the foundation.  Fund may be an endowed fund with only the earnings spent for operations.

A fund established by a qualified charitable nonprofit organization.  Funds belong to the establishing organization and are shown as a liability on the books of the community foundation.

The report to the community is provided annually and describes the mission, programs, services, activities and accomplishments.  The report also includes grants, financial statements and may include listing of donors and selected policies and guidelines.

The compounded average annual return for periods greater than one year is generally provided on investment reports.

Assets that have increased in value since they were acquired are termed “appreciated”.  These assets are usually subject to capital gains tax if and when sold..

Gifts of securities include publicly traded stocks, mutual funds, treasury bills, notes and closely held stock.  The gift of appreciated securities (held for the period determined by Congress – at least one year at present) allows the donor a charitable deduction for the market value of the gift and avoids the payment of capital gains tax.

A document filed with the secretary of state establishes the corporation.  This is the first legal step in forming a nonprofit corporation

Cash, stock, bonds, real estate or other holdings are assets of a foundation.  Assets are generally invested and the income used to make grants.

The distribution of a pool of assets among various asset classes including, but not limited to, domestic and foreign securities, bonds, cash, real estate or other forms of assets approved by the foundation..

An independent examination of the accounting records and other evidence related to a business to support the expression of an impartial expert opinion about the reliability of the financial statements.

A financial statement that shows the financial position of the organization at a particular date is prepared generally monthly and annually.  It includes the listing of assets, liabilities and fund balances.

One hundredth of a percentage point (0.01%) is generally used to measure changes in yields or fixed income securities, since they often change by a very small amount.

A portfolio is benchmarked against the investment performance of an asset pool can be compared for the purpose of determining investment skill.

A gift by will to a specific recipient, a charitable bequest is the transfer at death to a nonprofit organization for charitable purposes.

Rules governing the operation of a nonprofit organization are developed according to state law requirements.  Bylaws include the methods for selecting directors, creating committees, conducting meetings and other business of the organization.

This is the most common type of gift and includes cash, checks and credit cards.

Revenue is recorded when received and expenses are recorded when paid under this method of accounting.

A group of individuals that may properly receive assistance from a charitable organization is called a charitable class.  A charitable class must be large or indefinite enough that providing aid to members of the class benefits the community as a whole.  Because of this requirement, a tax-exempt charitable organization cannot target and limit its assistance to specific individuals, such as a few persons injured in a particular situation.  Similarly, donors cannot earmark contributions to a charitable organization for a particular individual or family..

A gift of cash or securities in exchange for the promise of lifetime income, immediate (CGA) or deferred (DCGA) is a contract between the donor and charity that is part charitable and part purchase of an annuity.  The total assets of the charity back the payments..

The benefits or purposed assigned by the donor when making the gift provides the charitable intent.  Charitable purposes include the relief of poverty, the advancement of education or religion, promotion of health, governmental or municipal purposes, and other purposes the achievement of which is beneficial to the community.  Organizations set up and operated exclusively for charitable purposes, which serves a public rather than a private interest, are exempt from federal income taxes under the 501(c)(3) sections of the Internal Revenue Code and are eligible recipients of tax-deductible charitable contributions.

A gift plan that provides income to one or more individuals for their lifetime, a fixed term or not more than 20 years or a combination of the two results in the remainder of the gift in the trust passing to the named charity.  The trust can be established during the donor’s lifetime or by will.

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The listing of the account numbers and account titles used by an organization is expanded for a community foundation to include those for each fund.

A tax-exempt, nonprofit, autonomous, publicly supported, nonsectarian philanthropic institution with a long-term goal of building permanent, named component funds established by many separate donors for the broad-based charitable benefit of the residents of a defined geographic area.

YVCF is a member of this international membership association that serves the public good by promoting knowledge and growth and enhancing responsible and effective philanthropy.  Members include community foundations, corporate foundations, family and private foundations, and public foundations.

A bank or other financial institution has custody of stock certificates and other assets of a mutual fund, individual, corporation or institution.  Custodians hold assets in safekeeping, collect income, settle transactions, invest and provide accounting reports.

A type of restricted fund held by a community foundation where the donor specifies the fund beneficiaries is designated.  Examples are funds set up for the perpetual benefit of a particular nonprofit organization..

Distribution of assets among various asset classes or managers within asset classes is made as an attempt to minimize risk.

A distribution of cash by a corporation to its stockholders is called a dividend.  When the stock is held in a mutual fund, the dividend is distributed to the mutual fund.  Reinvestment of dividends is a common practice.

The individual or organization that makes a grant or contribution is the donor.

A fund held at a community foundation where the donor, or a person or committee appointed by the donor may recommend eligible charitable recipients for grants from the fund.  The community foundation board must be free to accept or reject the recommendations.

While the donor has designated the beneficiaries of the fund, the community foundation board must have the power to redirect resources if it determines that the donor’s restriction is unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served.

In grantmaking, the practice of reviewing grants prior to approval includes establishing the charitable status of the grantee, the charitable purpose of the grant and the financial and organizational capacity of the organization to undertake the purpose of the proposed activities.

When the principle of a fund is expected to be kept intact and only a certain amount of earnings are available for current grantmaking it is expected to be in perpetuity.  Some donors may require the principle to remain intact for a specific period and, at times, some earnings may be invested to retain the fund’s historic value.

Securities or corporate stocks are called equities.  Any financial instrument that signifies an ownership position, or equity, in a corporation and represents a claim that is proportionate in the assets and profits of a corporation is an equity holder’s claim.  Generally, equity holder claims are subordinate to creditor claims.

Foundation boards have the responsibility to see that financial management and investments are handled on behalf of the beneficiary, which means on behalf of the donors and the governing documents of the foundation.

A fund held by a community foundation that is used for a specific charitable purpose such as education or health research.  At the YVCF, our Field of Interest funds are:  Art & Culture, Education, Recreation, Environment and Health & Human Services..

Accounting statements in a financial report generally include the Balance Sheet, Statement of Income, Budget Reports and may also include detailed listings of gifts, grants and other expenditures.  Foundations usually require financial reports that itemize how grant funds were used by organizations.

Financial reports released to those persons outside the organization are the responsibility of management.  These include the audit, tax return and any other required reports.

A fixed rate of interest paid defines a fixed income security.  This usually includes government, corporate, mortgage and municipal bonds.

IRS forms are filed annually by public charities and private foundations.  The IRS analyzes these forms to determine compliance with the Internal Revenue Code.  These reports are public information and many are available on www.guidestar.org.

An entity is established for accounting purposes to attribute income and expenses to achieve the objectives of the fund in accordance with special regulations, restrictions or limitations.  Funds are established by the community foundation and donors for specific or unrestricted purposes..

Each fund has its own chart of accounts and every transaction is accounted for at the fund level and reported at the fund level as well as consolidated in financial statements.

The resources invested by the community and available for the future uses of the community are called the Fund Balance for community foundations

The pattern of grantmaking including the proposals, review, decision-making and notification of recipients funded is the funding cycle.  YVCF went from four cycles to two cycles per year in 2006..

The accounting standards and concepts used in the measurement of financial activities and the preparation of financial statements

A gift of money or other property to a qualified organization for charitable purpose for which the donor does not reasonably anticipate benefit in return is charitable.  IRS Code Section 170 and subsequent court cases have further defined “charitable gift”.

The award of funds to an organization or individual to undertake charitable activities is a grant.  Most come with specific guidelines and requirements.

Review of the results of a grant and whether it achieved the desired and expected objective is part of the grantmaking process.  Evaluations are generally required at YVCF within one year of the actual grant.

The individual or organization receiving the grant is the grantee.

The foundations goals, priorities, criteria and procedures for applying for a grant are the guidelines.

This statement shows the results of an organization matching income and expenses for a particular accounting period stated on the report.

Donations of goods and services instead of cash or other appreciated property are called in-kind.  For YVCF these include ski passes or medallions, common area charges for our office space, discounted internet services, etc.

An advisor who manages the investment of others for a fee is called the investment manager.  YVCF uses the Investment Committee and Vanguard (who has their own managers for each fund) until such time that the managed assets are of such size to be prudent and cost-effective to hire an investment manager.

The analysis and reporting of the returns of pools of assets are computed and reported to donor-advisors and the public.  Accounting information is used in computing rates of return.

In grantmaking, organizations are able to secure larger grants with local matching funds.  At times, grantors give challenge grants to attract additional funds.  These processes are called the “multiplier effect”.

The donor must make the organization both the owner and beneficiary of life insurance to qualify as a charitable gift.  Many times, the donor continues to gift the premium for the insurance.

The ease and quickness of converting assets to cash is called liquidity or marketability.  It is the policy of YVCF to sell marketable securities upon receipt.  Proceeds go to the applicable fund and investment pool.

An investment in a mutual fund is represented by shares or units.  The value depends on the value of assets owned by the mutual fund less expenses.

The National Standards are the minimum requirements for governance, structure and activities of community foundations.  Adoption of these standards will give recognition to both the individual community foundation and provide a level of consistency and accountability.  YVCF will be applying with its documentation for National Standards recognition in June of 2006.

The classification system  of the IRS code for nonprofit organizations is in the process of being adopted for collecting and analyzing data of organizations and tracking grants and grantees.  Currently, YVCF uses the fields of interest.

Funds with gifts coming in and going out with little or no dollars remaining with the foundation are non-endowed.  Another term for these is spend-down funds.  Examples of these at YVCF are:  Yampa Valley Recycles, Skateboard Park Fund, and Lift-Up Capital Campaign Fund.

The original Greek word means “love of mankind”.  It includes voluntary giving by individuals or groups to promote the common good.  Philanthropy also now includes grants to nonprofit organizations by foundations.  Philanthropy includes giving to support relief of poverty, address social problems, improve the quality of life for all citizens including research, health, education, arts and culture and environmental issues.

Any gift considered by a donor related to estate or financial planning can be considered a planned gift.  In addition, any gift requiring the assistance of professional advisors, professional staff or others to assist the donor in completing the gift is also a planned gift.

Some donors make pledges, current or multi-year to give a specific amount of money to an organization. Any promise to make future gifts is a pledge.

The flow of funds from a nonprofit organization’s public purpose to the private benefit of persons with a significant relationship with an organization can result in penalty taxes including knowingly approving an excess benefit transaction.

Public support tests are designed to ensure a charitable organization is responsive to the general public rather than a limited number of individuals.  The automatic public support test requires that at least one-third of support is from  the general public.  Organizations may qualify under the one-third test..

Some funds may restrict the type of organizations that may receive grants and restrict the process of grantmaking.  Community foundations continue to have variance power over these funds.

A policy that determines what percentage of a group of assets, such as an endowment, should be spent to cover grants and expensed.  Typically, the spending policy is determined after an analysis of previous year spending, investment returns,  and foundation policy.  YVCF uses a 12 quarter rolling average of the balance of endowed funds with a spending policy times 4.5%.  This amount is allocated over the funds based on end of year balance.  The spending policy is “recommended”, not enforced.

Movement of funds from one foundation fund to another is called a transfer.  YVCF calls this an inter-fund grant.  These are excluded from reported grants in external financial statements.

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Changes in market value from one time period to another are called unrealized. YVCF reconciles investments at month end to current market values of the investment pool.  These values are used to compute returns..

An unrestricted fund is one that is not designated to a particular use by a donor.  The Passport Endowment Fund, Passport Grant Funds and Field of Interest Funds are unrestricted.

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A legally executed document by which a person makes disposition of his or her estate to take effect after death is recognized as the intent of the person.