Nonprofit organizations created to run a specific event or those that do not intend to operate in the long-term may not be as concerned with developing reserve funds. Others have questioned the ethics of an organization soliciting the public for donations while maintaining reserves that would allow it to operate for many months, or even years, without any additional public support. Many of the national watchdog organizations listed earlier in this publication have standards that specify the level of reserves they find acceptable. The distinction between reserves and endowment is significant. An endowment is a pool of money that is invested so that the income can be used to support the nonprofit.
Reserve funds are more flexible.
Reserves come from the accumulated surpluses of the organization over time, and can usually be designated or allocated by the board. Reserves can be spent to expand programs and run the organization, while endowment usually can't. Many large institutions, such as universities and museums, have endowments that are many times their annual budgets. Conflict of interest is difficult to define, yet many people think they know it when they see it. The legal definition of conflict of interest, usually set out in state laws governing nonprofit corporations, is very specific and covers relatively few situations.