B

A board might vote to set aside three months of operating expenses as a rainy-day fund, or earmark money toward a future capital project. Because that money came with no donor-imposed strings attached, it’s still technically unrestricted — the board itself created the restriction, and the board can just as easily reverse it.

This is the key distinction from donor-restricted funds: a board designation is an internal management decision, not a legal or contractual obligation. On the statement of financial position, board-designated amounts are usually disclosed in the notes rather than presented as a separate net asset class, since GAAP only requires the two donor-based categories (with and without donor restrictions).

Tracking board designations separately in the accounting system — even though they aren’t a distinct GAAP category — helps leadership see at a glance how much of the “unrestricted” balance is actually freely available versus already earmarked.

If a program budgeted $80,000 for staff travel and actually spent $95,000, that’s a $15,000 unfavorable variance — about 19% over budget. A favorable variance runs the other direction: spending less, or earning more revenue, than planned.

Variances aren’t inherently good or bad; they’re a signal to ask why. A large unfavorable variance on program supplies might mean a grant scaled up faster than expected (good news, wrong budget), or it might mean costs are running away from a program manager (a real problem). A favorable variance on payroll might mean a position sat vacant longer than planned, which could be masking a delivery problem even as it looks good on paper.

Reviewing budget variances monthly — not just at year-end — gives finance staff and program leads time to course-correct, request a budget modification from a funder, or flag a risk to the board before it becomes a surprise.