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Borrowing from "designated funds"?

Your Legal Questions Answered

Borrowing from "designated funds"?

Can you borrow from "designated funds" to pay other bills, and then replace the funds later?

You run a serious risk in using donor restricted funds for a purpose different from the purpose designated by the donor. In Pennsylvania, the CEO of the Allegheny Health Education and Research Foundation was convicted of misappropriation of entrusted property and sentenced to up to two years in a halfway house for using funds designated for scholarships and research for the general purposes of various hospitals before they filed for bankruptcy. At the very least, you run the risk of civil liability for breach of fiduciary duty, especially if you can’t pay the money back to the designated fund. It may come out of your own pocket.

Monday, January 28, 2008


I am not sure the question was about Restricted Funds. I assumed the question related to Designated, as in "Board-Designated" funds. Since they are Board designated and not donor restricted, the Board may use them as they wish.

 This is an excellent point and shows how easy it is to assume we understand what people mean when using technical terms.  If the funds are designated by the board, they can be undesignated by the board.  If they are designated or restricted by a donor, the board does not have that power.   —Don Kramer

I have a similar question in regards to utilizing board designated funds. Specifically from a capital improvement account. Members of the board want to use these funds for purposes other than capital improvements. It was the board who designated these funds into a capital improvement account. Not a donor. Do I understand your answer above to say that the board can reverse that designation and use the money for whatever they want?

Generally yes. A board can unrestrict funds that it has on its own restricted.  But if the board solicited funds for restricted purposes, the Uniform Prudent Management of Institutional Funds generally assumes that the funds have been restricted by the donors who gave with that restriction in place.  It may not be the same in all states, but you should be award of the possibility.  —Don Kramer 

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