Nonprofit Quick Tip: Investment Policy

CPAs & Advisors

Written By: Wendy Thompson, CPA

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An investment policy is an important policy to ensure that excess cash is being invested in a manner appropriate for the organization. It starts with the objectives of the investments; why is excess cash being invested in the first place? The objectives of the investments, in conjunction with the overall availability of financial resources, should help the organization determine its risk tolerance.

Once the organization has determined its risk tolerance, the policy should indicate what types of investments are acceptable for the organization. Different investments have different levels of risk and different levels of liquidity that need to be considered. In addition, in creating the policy, take into account the taxability of the investment and the level of IRS reporting required. For example, foreign investments may have additional reporting requirements that can include penalties of $10,000 if they are not filed appropriately. In creating the policy, the organization may also want to consider how particular investment types, such as alternative investments, impact the cost of obtaining audited or reviewed financial statements. After delineating acceptable investments, most policies will include an asset allocation range to ensure diversification of assets.

Finally, the investment policy should include responsibilities for designated board or management members to oversee the investment process. It is not acceptable to simply hire out the investment management without providing oversight.

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