Summary
This article will help CFOs, Accounting, and Donor Relations teams:
- Understand scenarios when closing a fund for full liquidation may apply.
- Make decisions about closing a fund and fully liquidating its assets.
- Develop an organizational fund close liquidation plan.
- Get step-by-step instructions.
- Learn about common causes preventing a fund from closing.
This article is intended to be a guide for organizations to develop their own internal processes and guidelines. A downloadable checklist for closing a fund for full liquidation is available at the end of this article.
Situations Where Liquidating a Fund may Apply
A notification is received to close a fund at your organization. Because of the fund’s purpose or the donor’s preference, transferring the fund’s assets to another fund within the organization is not an option. It will be necessary to close the fund and produce a final liquidating grant to pay out the remaining balance. Below are a few example scenarios where this situation may occur.
Changing financial management - A donor chooses to close the fund because they wish to switch to a different financial management entity.
A fund advisor has passed away - The remaining balance of their fund is to be paid out to a beneficiary charity.
Family no longer wishes to administer the fund - The originating fund advisor has passed, and the successor advisor or family no longer wishes to administer the fund.
Divorce or dissolution - Where fund liquidation is necessary as part of splitting up of assets.
Temporary fund - The fund was not intended to be a permanent endowment, it has paid out its balance over time, and this is the final year of its activity.
Considerations for Closing a Fund and Fully Liquidating its Assets
It is recommended to review the considerations covered in this section first before proceeding to the step-by-step instructions.
Set Up Internal Tracking
Add a Task in CommunitySuite
When a notification comes in consider immediate communication needs to make your internal team aware. An easy way to track this is by creating a task for closing the fund and set the task due date as the planned fund closing date.
Add a Note with Alerts
Adding a note on the fund record and setting note alerts for all of the available alert areas will make anyone interacting with the fund aware of its pending closure. This is a highly visible way to provide full visibility into the status of the fund across your organizational operations.
Circulate an Internal Memo
Consider making the team aware with an additional communication outside of CommunitySuite.
Make Revenue Share Decisions
It will be important to assess the current status of the fund, its assets and liabilities, and make a plan for how and when the fund can be closed. An early decision to consider is whether or not the fund will participate in revenue share.
While ultimately this decision may be at the discretion of finance or the CFO for the organization, it is recommended to establish internal guidelines that can make this decision more efficient.
Consider the Fund Balance Threshold
Funds with balances over a certain size could have earnings of significance to include before it is closed. The actual fund balance threshold amount is determined internally by the organization.
Example: A fund with a balance of $500,000 or above participates in revenue share. A fund with a balance below $500,000 would not participate in revenue share.
Closing a fund of this size may require communicating with all fund advisors that gains and losses may change.
Consider Timing of When Notification to Close the Fund is Received
If the fund will participate in revenue share, this will impact the order of fund close steps in the checklist.
Monthly Revenue Share
Consider when the next monthly revenue share will be run.
Example: A notification to close and liquidate the fund is received within the first 15 days of the month. The decision is to have the fund participate in revenue share. The timing involved will mean waiting to close the fund until the month is over, revenue share is run, and the books are closed. Depending on your organization’s monthly close processes, it could be six weeks before everything can be closed out in this situation.
Quarterly or Yearly Revenue Share
While this is a less common option, organizations should consider the timing of the next planned revenue share from the date of notification.
Example: If the organization runs revenue share quarterly and the notification to close the fund comes within the first month of the quarter, that may push the payout timeline into several months. In this situation and considering the fund balance, the organization will need to decide if that warrants excluding the fund from revenue share.
Create a Fund Liquidation Plan
Considerations listed in this section can be used as a guide for developing your organization’s fund liquidation plan. This plan can then be in place for whenever the situation arises in the future.
- Planned timeline
- Fund payout
- Minimum fund balance setting
- Fund balance and investment strategy
- Fund advisor expectation and communication
Consider the Planned Timeline to Close a Fund for Full Liquidation
How many weeks are needed before the final check is cut and the fund is closed? Actual length of time is determined by the organization’s own processes and factors listed below.
Consider How Much the Fund Will Pay Out and When
Example: The organization pays out 90% of fund balance within a week, but keeps a 10% residual amount to cover any fees, outstanding checks, or other liabilities.
The actual residual percentage and turnaround timing is determined by the organization’s preference and the particular situation of the fund. The residual balance can be cut as a final liquidation check during the final close out steps.
This example gives the fund advisor the ability to direct the bulk of the fund balance to a selected charity sooner than later, and gives the organization team time to make a decision on revenue share and to go through the rest of the fund closure steps.
The decision for the fund to participate in revenue share and the frequency of when revenue share is run may affect the specific fund close and liquidation payout timeline.
Consider Setting a Minimum Fund Balance
A minimum fund balance prevents spending from the fund if the overall fund balance reaches the amount set. A minimum fund balance can provide a level of due diligence and prevent a fund advisor from initiating a liquidating grant from the Portal, even if they do not have a minimum set in fund agreements.
- A minimum fund balance pauses the fund advisor in the process so that they can reach out to the organization and then have the conversation about closing the fund.
- If there is no minimum fund balance, a fund advisor could submit a liquidating grant request via the Portal and there will not be a pre-notification to the organization.
- The organization’s internal team could inadvertently process out that grant without knowing about its pending closure and the fund could go negative.
- Setting a minimum fund balance provides a buffer but does not prevent revenue share or admin fees from taking a fund negative. Admin fees can still take a fund negative unless the Limit Fees To Fund Balance setting is configured in Admin Fee Settings. Revenue share can also take a fund negative, and no system setting prevents this.
The Min Fund Balance setting can be found in the Cash Management section of a fund, which is accessible when the fund is edited. The actual minimum amount set is determined by the organization, the example below includes an amount for demonstration only.
Consider the Fund’s Balance and Investment Strategy
The bigger the fund’s balance the more impactful it can be to the investment pool when the full balance is liquidated. The more volatile the investment, the more exposure or risk that a $500,000 balance as of today will change when the time comes to liquidate the fund.
If the fund is in a high risk or highly volatile investment, then the organization could consider moving it into a cash only position or a less volatile position once notified that the fund holder wants to liquidate their fund.
Consider Fund Advisor Expectations and Communication Guidelines
It is recommended to create guidelines for fund advisor conversations about closing a fund. This will help your team set accurate expectations. The conversation is an opportunity to discover what the fund advisor's objective is and communicate the organization’s commitments in the process.
Guideline topics for fund advisor conversations can include:
- Fund close liquidation process - what it is and what it will look like.
- Timing for key milestones.
- Expectations for final draw down of the fund.
- Discussion of any remaining liabilities, scholarships, grants, or other applicable items.
- Discussion of admin fees and whether or not those will be charged in the last month.
- Minimum fund balance, if applicable.
- Receive documentation that the fund is closed with zero balances and assets remaining.
Close a Fund for Full Liquidation
Step-by-Step Guidance
Add a Task and Note with Alerts
- Navigate to the fund record.
- Add a task to track activities for closing a fund, with a due date defined by the organization’s fund close processes and procedures.
- Assign the task to one or more team members responsible.
- Share the task with the appropriate folks who may need to be aware of tasks related to the closure.
- Task assignees and shared task users could include accounting, donor development, and operations or administrative staff.
- Optional: set a recurring reminder on the task.
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Add a note to the fund with all alert areas checked. Checking the alert areas provides real-time, in-system communication for any transactions that might be processed on the fund.
- Setting the note alert will display the note at the top of the fund record when viewing it.
- Setting the alert areas will create an alert on any of the transactions selected. If a grant is created and the fund selected, a note alert will appear immediately. This can alert your program team that the grant could cause the fund balance to go negative if they process and pay the grant.
Send an internal team memo (optional).
Review and Assess
A fund must have all of these items resolved before it can be closed:
- All open receivables.
- All open liabilities.
- Outstanding grants or scholarships.
- Zero out any balances in equity (net assets) accounts that are not the three default equity accounts.
- Clear out to zero any remaining positive or negative balances in assets and liabilities on General Ledger (GL) accounts.
Run a Balance Sheet
Running a balance sheet on the fund provides a detailed view into what needs resolved on a fund in order to close it.
- Run a balance sheet on the fund.
- Review the balance sheet for any items listed below:
- Any positive or negative balances in assets and liabilities on general ledger accounts will need to clear out to zero.
- If changes to investment strategy have been made, confirm changes reflected on balance sheet.
- Identify equity (net assets) accounts with balances that are not the three default equity accounts.
Resolve
- Resolve all open receivables.
- Resolve all open liabilities.
- Pay or cancel outstanding grants or scholarships.
- Zero out any balances in equity (net assets) accounts that are not the three default equity accounts.
- Clear out to zero any remaining positive or negative balances in assets and liabilities on GL accounts not yet resolved.
Verify
Run a New Balance Sheet
- Confirm there are no assets or liabilities showing on the balance sheet. All should be zero.
- The example displayed is a balance sheet for a fund that is ready to close and has no assets or liabilities displaying.
- The example displayed is a balance sheet for a fund that is ready to close and has no assets or liabilities displaying.
- Process a manual admin fee for the fund. It may be necessary to process a manual admin fee because closing the fund may occur outside of the typical bulk admin fee process at the end of the month.
- Add a note indicating what the admin fee and distribution type were on the fund at the time of closure (optional).
Remove Admin Fee in Admin Fee Settings
Admin Fee Settings are located on the Settings tab and can be removed when editing the fund record.
- Locate the row of buttons at the top of the record, and then click Edit.
- Locate the Admin Fee Settings section.
- Remove all selections.
- Click Save.
Remove Distribution Type
- Locate the row of button at the top of the record, and then click Edit.
- Locate the Distributions section.
- Remove all selections.
- Click Save.
Exclude
If the fund does NOT participate in revenue share, check the box for Exclude from revenue share in Revshare Options.
- These settings can be found in the Cash Management section of a fund, which is accessible when the fund is edited.
Process
Process and pay the remaining balance with a final liquidating grant or scholarship.
Unlink Templates
If the fund was added to any templates, it is important to delete the fund link from the template record before closing the fund. If a template is still linked when the fund is closed, it could prevent inactivating the template in the future.
Close the Fund
- Confirm fund balance is zero.
- Run a new balance sheet and confirm that it shows only net assets or no balances at all.
- Run a manual fund statement. The manual fund statement provides visibility to the fund holder of the end of life of the fund as well as documentation for proof for the auditor.
- Confirm that the fund statement shows a beginning balance and also shows that the ending balance is at zero.
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Attach the fund statement file to the fund’s record. Share the file to the Portal so the fund advisor can access it and can see that the fund has a zero balance (optional).
- Closed funds are visible on the Portal, but are excluded from bulk fund statements.
Remove Grant and Voucher Approvers
It is recommended to remove the approvers at this time. Not all organizations will have both grant and voucher approvals set as part of their workflow. It is more complicated to remove approvers once the fund is closed and there is employee turnover once user accounts are deactivated.
Remove Grant Approvers
- Click the Settings tab.
- Locate the Grant Approval section, and then click Edit Grant Approvers.
- Uncheck the box next to the approver's name, and then click Save.
- Once grant approvers have been removed, a yellow message will display on the Details tab.
- Once grant approvers have been removed, a yellow message will display on the Details tab.
Remove Voucher Approvers
- Click the Settings tab.
- Locate the Voucher Approval section, and then click Edit Voucher Approvers.
- Uncheck the box next to the voucher approver's name, and then click Save.
Final Steps to Close the Fund
- Locate the row of buttons at the top of the record, and then click Close.
- Enter the Close Date as the same date of the final liquidating grant, and then click Close Fund.
- It is recommended to close the fund on the same date as the date of the liquidating grant and not to wait until the fiscal period is over or end of month. This reduces effort with posting, making adjustments, and editing.
- A journal entry for the close transaction will be generated by CommunitySuite for zeroing of the net assets.
- Red text that reads Closed will display at the top of the fund record, and a Fund Closed banner will display at the top of the fund's Details tab.
Common Causes for a Fund Not to Close
Common Causes
Balance Sheet Shows Total Assets Equal Zero but the Fund Does Not Close
Even though total assets may display as zero for the balance sheet, the asset balances that display are what will prevent a fund from closing. In this example, even though the balance sheet totals to zero, the balance in each account will need to equal zero.
More Than the Three Default Equity Accounts Appear on the Balance Sheet
When closing a fund, CommunitySuite will automatically create a journal entry that will zero out principal and spendable balances into the default equity account. If more than the three default equity accounts show on the balance sheet, the equity (net assets) accounts with balances will prevent the fund from closing.
In the example below, there is an additional net asset account showing on this fund’s balance sheet. The balance in Account 3400 will prevent the fund from closing.
Accounts Payable Balance
The $55.00 balance will prevent this fund from closing.
Fixed Assets Balance
A fund may show a zero principal and spendable balance, but still have items like fixed assets that can prevent a fund from closing. This example shows fixed assets and how they appear on the balance sheet. Journal entries may be necessary to resolve these items.
Non-Standard Liability Accounts
A balance in an Other Current Liability account, including Unapplied Payments accounts, can also be a cause for a fund not to close. It is recommended to run a balance sheet to find these items.