Investments and Cash Management  0043-01  ZZall

                                                       - - - Rejoice in the Lord always ... again I say Rejoice !!! - - -


                          TO:  Interested Ministries                                                                                 FROM: Jim Bramer, Retired Auditor-CPA
                                                                                                                                                          FILE:  0043-01/all

                          RE:  Cash Management and Investments                                                   Originated in June 2004


OVERALL PERSPECTIVE

        Somewhere I found the following statement: "It is the Investor's grail ----  generate significant income, grow capital and, above all, never lose any money. Or Ministries need to make money without taking much risk; some honor income, others growth, but most of all revere security." 

RIGHTEOUS INVESTMENTS

         Often a Ministry (Churches in particular) finds itself in a Building Program, whereby they are accumulating sums of money for a major future project. So the Board must be prudent as to how it invests these monies and to assure itself that it gets a good return/yield, but more importantly that the Ministry has it's investment when it needs it for project, etc.     
        Some Ministries end up with what we call '"Board Discretionary Funds"'; which are defined as assets/funds that exist and have no external 'strings attached'.   The Donor has turned the resources over to the Board of Leadership (Board) to generically fuel the Ministry as it carries out its exempt purpose. The Board decides either how to spend it or how to hold it for specific purposes or functions consonant with its program.
        Sometimes liquid funds are left with the Board for a specific 'strings attached' purpose --- whereby the "nestegg" (Endowment) must be invested so that the investment income (yield) is to be used for the specified purpose.
Click Here for some Endowment observations..
        The Board functions as a trustee, or agent, of someone else's money, etc, in a fiduciary capacity, and must be a 'righteous' and forthright steward. It must invest such funds in a prudent and discrete manner so that the investment does not decrease in value and the yield is reasonable.

POLICIES AND PROCEDURES

        Written Policies should be established and followed so that the Board and Ministry Management can do what is proper regarding these moneys. In my opinion, the following items/questions in this area MUST be addressed:

  •       To what extent does the Ministry invest in financial institutions where your balance is insured ..

  •       To what extent do you make investments in a specialized Ministry, or in what we call a  REPLICATING MINISTRY --- or your investment capital is turned around and used for some other Ministry purpose by this Ministry. A Replicating Ministry example is the EVANGELICAL CHRISTIAN CREDIT UNION (ECCU), or its subsidiary oriented to providing funds for Ministry Facilities, etc. Other examples are Generic or Denominational Ministries that take such investments and then turns around and uses them to acquire and/or upgrade facilities for their constituency, or other Ministries..

  •      Do you invest in the Corporate Stock or Bond market; either directly by ownership in specific Corporate Stocks or Bonds, or indirectly through Mutual funds. Hopefully you would NOT have a conflict of interest problem by making interest bearing loans to Staff  or to Board Members (or their controlled entities).  How do you monitor it so that corporations in which you invest comply with your morals, etc. Examples, Alcoholic Beverages or Pornography, etc.

  •      Do you invest in Government Bonds, again directly or indirectly.

  •      How do you define 'going out on a limb' or 'speculate'? What type of investments do you NEVER invest in?? Do you invest in any business endeavors of some of your Board Members? Likewise, do you invest in any business endeavors of a substantial donor? Do you invest your resources in something that requires your active participation ... on-going businesses or leased property, etc.  

  •      Do you simply turn over funds to '"our stock/bond broker'" with no criteria for them to follow; or do you leave the entire matter up to them since they "are the experts, etc."? I think NOT!

  •      Do you evaluate your entire investment picture and set some Investment type percentages?  See example below:

   Per-

Centage

INSURED ENTITIES:

Replicating

50.00%

Non-Replicating

5.00%

Sub-total

55.00%

UNINSURED ENTITIES:

Replicating

15.00%

Non-Replicating

Government Bonds

5.00%

Stocks/Bonds Market

15.00%

Sub-total

20.00%

More speculative but with

potential higher yield

10.00%

Sub-total

45.00%

TOTAL INVESTMENTS

100.00%

       Your Board, obviously, needs to set some policies so that your criteria is followed, etc.

MANAGEMENT OF CASH FLOW and FUND BALANCES

BACKGROUND

FUND BALANCE INTEGRITY:

        We have often encountered the insistence by a Ministry Board (or their Staff) that there be a Bank Account for each Special Purpose Funds (or group thereof); or there is an attempt to 'marry' Bank Accounts to such money on deposit with your Ministry. We heartily acknowledge the need for Fund Balance integrity ---- it is essential for the Ministry to know just exactly how much money is in the respective Funds. The understood intent is that each Fund only spends its own money --- after all, this is the basic reason we have Fund Accounting. This concern especially applies to the General Purpose Fund that often lags behind and borrows from the Special Purpose  Funds
        However, this objective needs to be met without the administrative HEADACHE of having a Bank Account for each fund.

                                                                                    MANAGE YOUR MONEY:

        Another righteous objective is to "manage your Money" to obtain the maximum yield from all Bank deposits and Investments. Too often I have seen Ministries leave too much unproductive deposits in certain Bank Accounts (especially in low interest bearing - if at all - checking accounts) because it was married up to a certain fund balance, etc.

SUGGESTED ALTERNATIVES

FUND BALANCE INTEGRITY 

        Be sure your Accounting System allows you to know immediately upon posting the status of all applicable Fund Balances
        We recommend that you Pool your Bank Balances -- or you do NOT have multiple Bank accounts. 

AGGREGATE OR POOLED INVESTMENT RATIONALE (1)

        Remember, looking at the aggregate/pooled total of available liquid moneys, and not having them married to a Specific Fund, allows the Board to more realistically carry out its Investment objectives. Such an effort often allows you to earn more "Interest Income" as explained in depth when you  Go Here.
   


  This was  UPTD: June 07, 2010  

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