In this litigious age, even for nonprofits, it has never been more important for leaders to commit to writing all fund investment policies and procedures, as was emphasized during the excellent 11/10/11 complimentary seminar/webinar hosted by Jeffrey S. Tennenbaum, Esq. and the Venable Law firm. Compliance with the 2006 Prudent Management of International Funds Act, which imposes appropriations and endowment spending rules for (c)3’s, 4’s, 6’s, and 7’s, now in 49 states, informed the bases for the precautions emphasized throughout the session.
The caution to think through one’s investment intentions, commit them to writing, then follow through, that is “say what you intend to do. . . and do what you say” is an essential discipline in all facets of governance starting with one’s vision, mission and goals, etc., and such is especially true when husbanding the organization’s assets.
Venable counsel Rory M. Cohen urged nonprofit leaders to focus on documentation in preparation for the rigors of an audit. That harkens back to the firehouse principle; if it isn’t ready to protect and preserve at the onset of a fire it’s too late.
Joining Mr. Cohen on the panel were Messrs Robert L. Olcott and Kenneth N. Low of Orion Investment Advisors, and Ms. Shannon V. Spafford, CPA of Larson, Allen.
The central message was that “the board is ultimately responsible” for organizing the approach to investing, formalizing the policies and procedures, implementing with care the intended processes, and then regularly monitoring all the players, especially the potential layers of “external” investment counsel, to ensure all is going forth as planned.
The detailed plan setting out one’s investment intentions should be “viewed as a roadway. . . a living document” that sets out all essentials such as acceptable level of risk, liquidity requirements, expected rate of return, and so forth. The message loud and clear by Mr. Olcott, and joined by the others, was that if “(your) organization sets out with a reasonable and comprehensive approach, and follows it, the group, under audit, would likely be seen as fulfilling its fiduciary responsibility.” To further ensure that all your monitoring bases are covered, Mr. Olcott suggested “one needs a process to review one’s process.”
In summary, among the issues which could be addressed in an Investment Policy Statement (IPS), according to Mr. Cohen, are:
· General investment objectives
· Permitted/prohibited investments
· Acceptable levels of risk
· Asset allocation and risk
· Procedures for monitoring investment performance
· Scope and terms of delegation of investment management functions
· The investment manager’s accountability
· Procedures for selecting/evaluating “external agents”
· Processes for reviewing investment policies and strategies
· Proxy voting
· Frequency of review/change in conditions which would alter the monitoring schedule.
These legal, investment and accounting counsel propose a clarity of intention and documentation not readily seen in the average trade association, professional society, private club or charitable group. I’m sure they’d be glad to assist you in meeting these standards.
At the broader governance level our BoardRoom Arsenal (www.aerg.org) provides a host of Foundation First Governance models and guidelines to help non-profit leaders develop the consensus and document specificity which marks every effective organization.
The recording of the program and the PowerPoint can be had via http://www.venable.com/fiduciary-self-audits-evaluating-decision/making/processes-and-controls-11-10-2011/.
The slides for the Fiduciary Self-Audit presentation alone, and so much more, are available, complimentary, on Venable’s website www.venable.com/nonprofits/publications.
