Cash & Investment Management for Nonprofit Organizations

CASH & INVESTMENT MANAGEMENT FOR NONPROFIT ORGANIZATIONS......Page 5
CONTENTS......Page 7
ABOUT THE AUTHORS......Page 21
ACKNOWLEDGMENTS......Page 23
PREFACE......Page 25
CHAPTER 1: CASH FLOW AND YOUR CASH POSITION......Page 27
1.1 LIFE IN THE NONPROFIT FINANCE OFFICE......Page 28
1.2 TARGET LIQUIDITY AS THE PRIMARY FINANCIAL OBJECTIVE......Page 30
1.3 SETTING YOUR LIQUIDITY TARGET......Page 38
1.4 HOW DO PROFICIENT CASH MANAGEMENT AND INVESTMENT MANAGEMENT ENABLE YOUR ORGANIZATION TO ACHIEVE ITS LIQUIDITY TARGET?......Page 47
1.5 SUMMARY......Page 49
CHAPTER 2: CASH PLANNING AND LIQUIDITY......Page 51
2.1 CASH FLOW CHARACTERISTICS OF NONPROFITS......Page 52
2.2 CASH SHORTFALLS AND WHAT TO DO ABOUT THEM......Page 53
2.3 TIERS OF LIQUIDITY AND THE SPECTRUM OF LIQUIDITY......Page 54
2.4 MEASURING AND MANAGING SOLVENCY, LIQUIDITY, AND FINANCIAL FLEXIBILITY......Page 55
2.5 MANAGING CASH FLOW......Page 59
2.6 CASH BUDGETING......Page 62
2.7 SUMMARY......Page 72
APPENDIX 2A: SARBANES-OXLEY COMPLIANCE CHECKLIST......Page 75
APPENDIX 2B: CASH CONVERSION PERIOD......Page 86
BACKGROUND INFORMATION......Page 90
QUESTIONS......Page 93
REGRESSION ANALYSIS......Page 94
OTHER STATISTICAL METHODS......Page 97
CHAPTER 3: CASH COLLECTIONS AND POSITIONING......Page 100
3.1 INTRODUCTION......Page 101
3.2 OBJECTIVES OF CASH COLLECTIONS AND POSITIONING SYSTEMS......Page 102
3.3 FRONT END OF COLLECTIONS: RECEIVABLES MANAGEMENT......Page 104
3.4 U. S. PAYMENTS SYSTEM......Page 107
3.5 EXPEDITING CHECK COLLECTIONS......Page 114
3.6 ACCEPTING CARD PAYMENTS......Page 116
3.7 ACCEPTING ELECTRONIC PAYMENTS......Page 117
3.8 COMPARISON OF ALTERNATIVE COLLECTION SYSTEMS......Page 118
3.9 CASH POSITIONING......Page 120
3.10 INTERNATIONAL CASH COLLECTIONS AND CONCENTRATION......Page 124
3.11 FRAUD ISSUES......Page 127
3.13 BENCHMARKING AND OUTSOURCING......Page 128
IMPLEMENTATION CHECKLIST......Page 133
4.1 INTRODUCTION......Page 135
4.2 OBJECTIVES OF CASH DISBURSEMENT SYSTEMS......Page 139
4.3 DISBURSEMENTS POLICY......Page 141
4.4 CHECKS AND DRAFTS......Page 142
4.5 PURCHASING/PROCUREMENT CARDS......Page 146
4.6 OTHER ELECTRONIC PAYMENTS......Page 148
4.7 COMPARISON OF ALTERNATIVE DISBURSEMENT SYSTEMS......Page 152
4.8 ESTABLISHING YOUR BANKING NETWORK: PRODUCTS AND SERVICES TO CONSIDER......Page 157
4.9 FRAUD PREVENTION AND INTERNAL CONTROL......Page 163
4.10 INTERNATIONAL CASH DISBURSEMENTS......Page 168
4.11 IMAGING......Page 170
4.12 OUTSOURCING DISBURSEMENTS OR PAYABLES......Page 171
4.13 SUMMARY......Page 172
APPENDIX 4A: Prices for Bank Services*......Page 175
HOW TO ENHANCE INTERNAL CONTROLS......Page 181
ACTIONS TO TAKE......Page 182
5.1 INTRODUCTION......Page 189
5.2 OBJECTIVES FOR YOUR BANKING RELATIONSHIP......Page 191
5.3 COMMUNICATING WITH YOUR BANK......Page 192
5.4 SERVICES PROVIDED BY BANKS......Page 193
5.5 DEPOSITORY SERVICES AND THE AVAILABILITY SCHEDULE......Page 195
5.6 BANK SELECTION......Page 206
5.7 MANAGING BANK RELATIONSHIPS......Page 211
5.8 NONBANK SERVICE PROVIDERS......Page 226
5.9 INFORMATION SERVICES......Page 227
5.10 BANKING GLOBALLY......Page 228
5.12 CASH MANAGEMENT AUDITS......Page 229
5.13 SUMMARY......Page 232
APPENDIX 5A: TOP-RATED FINANCE SERVICE PROVIDERS......Page 235
APPENDIX 5B: SAMPLE BANK REPORT CARD......Page 237
6.1 INTRODUCTION......Page 239
6.2 OBJECTIVES OF DEBT MANAGEMENT......Page 240
6.3 DEBT POLICY......Page 241
6.4 SHORT-TERM BORROWING......Page 242
6.5 HOW A BANK VIEWS A NONPROFIT BORROWING REQUEST......Page 246
6.6 DEBT MANAGEMENT METRICS AND BENCHMARKS......Page 249
6.7 SUMMARY......Page 251
CAPITAL STRUCTURE......Page 254
DEVELOPING A STRATEGY FOR COMPREHENSIVE CAPITALIZATION......Page 256
CAPITALIZATION AND THE FUNDING SYSTEM......Page 259
APPENDIX 6B: CHURCH LOAN CASE STUDY......Page 260
CHAPTER 7: INVESTING PRINCIPLES AND PROCEDURES FOR OPERATING AND STRATEGIC RESERVES......Page 266
7.1 INTRODUCTION......Page 267
7.2 MANAGING LIQUIDITY FUNDS AND OPTIMIZING RETURN ON EXCESS SHORT-TERM WORKING CAPITAL......Page 269
7.3 CRITERIA FOR INVESTING......Page 270
7.4 INVESTOR OR SPECULATOR?......Page 281
7.5 STANDARD OPERATING INVESTMENT PROCEDURES......Page 282
7.6 INVESTMENT OPERATIONS: AN INTRODUCTION......Page 283
7.8 YIELD CURVE ANALYSIS......Page 293
7.9 YIELD SPREAD ANALYSIS......Page 297
7.10 PRICE MOVEMENT OF FIXED-INCOME SECURITIES......Page 300
7.12 SUMMARY OF YIELD CURVES......Page 303
7.13 FIXED-INCOME INVESTMENT INSTRUMENTS: AN INTRODUCTION......Page 304
7.14 U. S. TREASURY SECURITIES......Page 305
7.15 U. S. GOVERNMENT AGENCY SECURITIES......Page 307
7.16 MUNICIPAL DEBT INSTRUMENTS......Page 314
7.17 CORPORATE DEBT INSTRUMENTS......Page 319
7.18 MONEY MARKET INSTRUMENTS ISSUED BY BANKS AND INVESTMENT COMPANIES......Page 324
7.19 REPURCHASE AGREEMENTS......Page 329
7.20 SUMMARY......Page 335
REPORTING......Page 338
INVESTMENTS......Page 339
REVIEW AND/OR MODIFICATION......Page 340
AUTHORIZED INVESTMENTS......Page 341
DIVERSIFICATION:......Page 342
SAFEKEEPING:......Page 343
U.S. GOVERNMENT AGENCY OBLIGATIONS......Page 344
BANK OBLIGATIONS......Page 345
COMMERCIAL PAPER......Page 346
CORPORATE NOTES AND BONDS......Page 347
REPURCHASE AGREEMENTS......Page 348
MONEY MARKET MUTUAL FUNDS......Page 349
APPENDIX 7D: IMCA STANDARDIZED INVESTMENT MANAGER QUESTIONNAIRE......Page 351
CHAPTER 8: INVESTING PRINCIPLES AND PROCEDURES FOR ENDOWMENT, SELF-INSURANCE, AND PENSIONS......Page 369
8.2 ENDOWMENT MANAGEMENT......Page 370
8.3 CHARACTERISTICS OF ENDOWMENT......Page 378
8.4 ENDOWMENT INVESTMENT......Page 382
8.5 PRINCIPLES OF ENDOWMENT MANAGEMENT......Page 384
8.6 ENDOWMENT SPENDING POLICY......Page 395
8.7 SELF-INSURANCE AND PENSIONS......Page 404
8.8 INVESTMENT ADVISORS......Page 405
8.9 SUMMARY......Page 413
APPENDIX 8A: UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT......Page 415
STATEMENT OF INVESTMENT OBJECTIVES......Page 416
GUIDELINES FOR THE SELECTION OF FIXED-INCOME SECURITIES......Page 417
PERMISSIBLE AND NONPERMISSIBLE ASSETS......Page 418
SELECTION OF INVESTMENT MANAGERS......Page 419
RESPONSIBILITIES OF THE INVESTMENT MANAGER......Page 420
APPENDIX 8C: INVESTMENT POLICY STRATEGY FOR ERISA SECTION 404( C) PLANS......Page 421
APPENDIX 8D: UNIFORM PRUDENT INVESTOR ACT......Page 423
INVESTMENT ASSETS......Page 424
RESPONSIBILITIES OF THE INVESTMENT COMMITTEE......Page 425
RESPONSIBILITIES OF THE CUSTODIAN......Page 427
GENERAL INVESTMENT PRINCIPLES/ASSUMPTIONS......Page 428
ASSET QUALITY......Page 429
INVESTMENT OBJECTIVES......Page 430
ASSET ALLOCATIONS......Page 431
PERFORMANCE EVALUATION AND REPORTING REQUIREMENTS......Page 432
MODERN PORTFOLIO THEORY—THE INVESTMENT PHILOSOPHY......Page 434
MODERN PORTFOLIO THEORY—CONSTRUCTING A PORTFOLIO OF MUTUAL FUNDS......Page 436
THE R-SQUARED STATISTIC FOR BENCHMARKING MUTUAL FUNDS......Page 437
THE BETA STATISTIC FOR RELATIVE RISK ASSESSMENT......Page 438
THE ALPHA STATISTIC FOR MEASURING RISK-ADJUSTED PERFORMANCE......Page 439
ASSESSING ALPHA QUALITY......Page 440
APPLYING MODERN PORTFOLIO THEORY......Page 441
IMPORTANT INFORMATION TO CONSIDER WHEN INVESTING IN MUTUAL FUNDS......Page 442
INDEX......Page 445