NATIONAL STANDARDS FOR U.S. COMMUNITY FOUNDATIONS (As approved by the Community Foundations Leadership Team on June 8, 2000 and including explanatory language as of June 10, 2004 and a technical correction as of March 24, 2004)
Definition of a U.S. Community Foundation
A community foundation is a tax-exempt, nonprofit, autonomous, publicly supported, non-sectarian 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, typically no larger than a state. Explanation: In addition to the definition above and the characteristics below, a “ U.S. Community Foundation” is defined as a community foundation located in and primarily serving a geographic area in the fifty states, one district and fourteen territories that comprise the United States.
A community foundation is founded and operated for public benefit and has a well-defined, articulated mission.
A community foundation is recognized by the Internal Revenue Service (IRS) as tax-exempt under Internal Revenue Code Section 501(c)(3), organized and operated exclusively for charitable purposes .
A community foundation meets the public support test set forth in Internal Revenue Code Section 170(b)(1)(A)(vi) as modified by Treasury
A community foundation has an independent governing body broadly representative of the community it serves.
Explanation: “Governing body” means the board of directors or board of trustees of the organization. “Broadly representative” means that the governing body reflects the diverse composition and different perspectives of the community it serves, and its members are not drawn solely from a single subset of the community.
A community foundation’s governing body retains variance power by which it may modify any restriction or condition on the distribution of assets, if circumstances warrant. Further, with respect to assets held in trust, the governing body must have the power to replace any participating trustee for breach of fiduciary duty under state law or for failure to produce a reasonable return of net income.
Explanation: “The governing body must have the power to modify any restriction or condition on the distribution of funds for any specified charitable purpose or to any specified organization if, in the sole judgment of the governing body, such restriction or condition becomes, in effect, unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community or area served. The governing body must be able to modify the restriction without obtaining the approval of any participating trustee, custodian, or agent of the community foundation.” ( Legal Compendium for Community Foundations, Christopher R. Hoyt, Council on Foundations, 1996)
For those community foundations with assets held in trust, the governing body must also have the authority to remove the trustee responsible for those assets in at least two circumstances. This power of removal must be available if the trustee breaches its fiduciary duty or if the trustee fails to produce a reasonable return on investments. The governing body of a corporation normally has the power to remove asset managers, so the power need not be separately articulated in the governing instruments of the corporation. However, provisions in gift agreements that attempt to restrict this power would be material restrictions and should not be accepted by a community foundation
A community foundation serves a particular geographic area such as a municipality, county, state, metropolitan area or closely related aggregation of such areas that are considered for some purposes as a community, typically no larger than one state. An organization serving a single greater metropolitan area would satisfy this criterion even if that greater metropolitan area included parts of several states. This criterion excludes national and multi-national organizations. Explanation: Service to a particular geographic area typically includes grantmaking, community leadership, and service to donors in that identified area. Unrestricted/discretionary funds primarily serve the community foundation’s identified geographic area; other grants may be distributed beyond that area.
A community foundation’s governing body:
is responsible for the mission, direction and policies of the organization. Explanation: The governing body of the community foundation is the ultimate fiduciary and is legally accountable for all of the activities of the organization, even when it delegates responsibility.
ensures adequate human and financial resources and actively monitors and evaluates the organization’s chief executive officer. Explanation: Human resources may include paid or unpaid staff. It is the responsibility of the governing body to provide adequate resources to meet the National Standards.
approves policies to prevent perceived, potential or actual conflicts of interest.
serves without compensation (exclusive of the chief executive officer.)
is not controlled by any other nonprofit organization, or by any single family, business or governmental entity or any narrow group within the community.
reviews and adopts an annual operating budget.
ensures that the governing documents include policies for size of the board, required number of meetings annually, limits of members’ terms, and structure and responsibilities of standing committees.
ensures that the community foundation reflects the diversity of the community it serves. Explanation: This item correlates to the item above regarding the governing body membership reflecting the community. Here, the governing body is looking beyond itself, and seeking staff and committee diversity, policies that do not promote exclusivity, and endeavors that address diverse communities.
ensures that the community foundation meets all laws and legal requirements. Explanation: All applicable local, state, and federal laws and regulations must be observed.
approves all grants. Explanation: The governing body has responsibility for grant approval, which may be exercised through delegation of the decision-making process.
A community foundation has, or works to develop, broad support in the form of contributions from many separate, unrelated donors with diverse charitable interests in the community served by the community foundation.
Contributions to a community foundation represent irrevocable gifts subject to the legal and fiduciary control of the community foundation’s governing body.
A community foundation has a long-term goal of securing resources to address the changing needs of the community it serves. Explanation: Building discretionary funds to provide both flexible and permanent funding sources for meeting changing needs should be a goal of the community foundation.
A community foundation accepts and administers a diversity of gift and fund types to meet the variedphilanthropic objectives of donors.
A community foundation adopts gift and fund acceptance policies that address minimum fund size, types of fund options, types of gift mechanisms, and policies and procedures for accepting various types of assets, and makes these policies available upon request. Explanation: This item promotes accountability, policy and process disclosure, and consistency. Fund acceptance policies include purpose and use of the fund.
During the gift planning process, the role and relationships of all parties involved are fully disclosed to the donor. Explanation: The intent is to disclose any financial benefit that might accrue to a third-party participant in the gift planning process.
A community foundation is a steward of charitable funds, investing and prudently managing funds and maintaining accurate financial records.
A community foundation is accountable to the community it serves and regularly disseminates information on its programs and finances.
A community foundation maintains a written record of the terms and conditions of each component fund and all such records must reference the variance power.
A community foundation honors the charitable intentions of its donors consistent with community needs and applicable laws and regulations.
A community foundation observes the balance between donor involvement and governing board control and complies with applicable laws and regulations.
A community foundation ensures that the foundation’s financial resources are used solely in furtherance of its mission. Explanation: Some examples of intent here include 1) salaries and benefits are within a range considered reasonable and customary for community foundations of similar size and taking into account the background and experience of staff, and 2) assets of the foundation are not used for personal benefit of either board or staff.
An annual audit (financial review when assets total less than $1 million) is performed by an independent public accountant, reviewed and accepted by the governing body and made available to the public upon request.
A community foundation
has investment policies that include asset allocation guidelines, a spending policy and criteria for measuring investment performance.
makes available to the public upon request the names of its investment managers, fees charged (including investment and administrative fees), governing body or appointees responsible for investment oversight and investment.
A community foundation operates a broad grants program to multiple grantees that is limited neither by a single focus or cause nor exclusively to the interests of a particular constituency.
A community foundation awardssome grants from its discretionary resources through open, competitive processes that address the changing needs of the community.
A community foundation widely disseminates grant guidelines to ensure the fullest possible participation from the community it serves.
A community foundation performs due diligence to ensure that grants will be used for charitable purposes. Explanation: Due diligence applies to all grants made by the foundation, and includes gathering and evaluation of information on the grantee and may include the intended use of the grant. Vigilance regarding quid pro quo benefit to a donor advisor would fall within the scope of this item.
A community foundation works to identify community issues and opportunities and acts as a leader and convenor, using its human and/or financial resources to address immediate and long term community issues and opportunities.
A community foundation communicates openly and welcomes public scrutiny.
A community foundation has a communication strategy that includes a report, widely distributed at least annually, which describes the community foundation’s mission, activities and financial operations.
