Transcript Document

Growth vs Governance in NPOs – Striking the Balance
Presented by
Ms Woo E-Sah, Partner
16 September 2008
Difficulties faced by NPOs
Expectations of the NPOs
1)
Transparent, efficient, accountable
2)
Get appropriate people to effectively run the systems
(Competent? Experienced? Committed?)
3)
Financial management
public accountability in financial reporting
Sound/ good in-house procedure
Corporate governance – provide clear and concise responsibilities,
together with appropriate authority and subsequent consequences.
Better stewardship of funds (investment function)
Difficulties faced by NPOs
One of the challenges in financial management is to
manage the reserves of the NPO i.e., growing the
reserves
- to provide additional source of funding
- to ensure no disruption of services
So “how much” to invest depends on the
- Cash inflows (i.e., sources of funds)
- Cash outflows (i.e., cost of services)
Investment Governance Structure
Prudent Man Rule
“Those with responsibility to invest money for others
should act with prudence, discretion, intelligence and
regard for the safety of capital as well as income”
Judge Samuel Putnum in 1830
Investment Governance Structure
Code of Governance
6 FINANCIAL MANAGEMENT AND CONTROLS
6.3 Asset Management
6.3.5 The charity may invest its reserves, if the governing
document permits and it is in accordance with an investment
policy approved by the Board. It should obtain advice from
qualified professional advisors.
6.3.6 There should be a policy to ensure that the facilities
and assets of the charity are efficiently utilised for maximum value
to the charity.
Investment Governance Structure
Accounting Standards Council (ASC) – draft
accounting proposals and reporting requirements
pertaining to Charitites/ IPCs (issued 4 August 2008
for feedback)
Among others, proposing:
Additional Requirements for Annual Report
Investment Governance Structure
Structure, Governance and Management
(i) Organisation structure of charity
(ii) Methods adopted for recruitment and appointment of new trustee
(iii) Transactions and benefits between charity and related parties
(iv) Grant-making policy
(v) Policy towards contribution of volunteers
Achievements and Performance
(i) Investment performance
Investment Governance Structure
Financial Review
(i) Policy on reserves and level of reserves
(ii) What the reserves are being held for and when they are likely to be spent
(iii) Funds in deficit (with details)
(iv) Investment policy
(v) Principal funding sources
(vi) How expenditure in the year supported the key objectives
Custodian Trustee
(i) Funds held on behalf of others (where appropriate)
Investment Framework
1) Form the Investment/ Finance Committee
• Composition
• Duties and Roles
• Investment policy statement
Investment Framework
2) Establish the amount to invest and determine the
investment goals
• Cash flows planning
• Tie to the investment policy statement
• Duration of investment (LT? ST?)
• Risk appetite
• Outsource or in-house?
Investment Framework
3) Select the investment vehicle
– Types of investments
(Government Bonds, Fixed Deposits, Corporate Bonds,
Funds, Equities, Hedge Funds)
– Fund managers
(selection of investment advisors, Guarantees from
investment advisors?)
4) Monitor progress and review
– Timely review
– Reassess based on needs changes
Best Practice internal control techniques
Typical investment controls
1)
2)
3)
4)
5)
6)
Full records (details of those sold or purchased) kept by the NPO
Trustees or Investment Committee responsible for the formulation of
investment policy and ensuring that this is implemented accordingly
Trustees or Investment Committee should take professional advice before
selecting or disposing investments
Trustees or Investment Committee should inspect the statements of
investment performance regularly
Controls should be in place to ensure all dividends or interest payments due
are promptly received and all purchases and sales of investments are
properly authorised and accounted for
Wherever possible, investments should be diversified to ensure the failure of
one investment does not have a major impact on the NPOs
(extracted from a Report on a Survey on NPOs conducted by
pricewaterhouseCoopers in Ireland)
Conclusion
• Cash Management is important
• Knowing the types of investment products in the market
is crucial
• Adopt the Prudent Man Rule
THE END