As a volunteer fundraiser and nonprofit board director, I have seen first-hand how the lack of understanding or definition of board members’ roles, specifically Finance Chair or Board Treasurer, can impact endowment management.
Part of the challenge comes from a lack of role clarity for board members. I recall how I was recruited to a nonprofit board many years ago and was very excited to get started since I was so passionate about the cause, and I felt I could lend my expertise right away.
The organization had a nice onboarding meeting where a staff and board member reviewed the history of the organization, presented my board binder, and outlined my meeting attendance, committee assignment, and fundraising expectations.
During the onboarding meeting, we reviewed the board Bylaws which had descriptions of board officer roles, including Treasurer. The Corporate Bylaws described the Board Treasurer Role as follows:
Duties of the Treasurer:
The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation, including accounts and assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and other matters customarily included in financial statements. The Treasurer shall send or cause to be given to directors such financial statements and reports as are required to be given by law, by these bylaws, or by the Board.
In addition to describing the board members’ overall duties, titles, officer roles, and committees, the Bylaws generally describe the board’s overall fiduciary responsibility for the stewardship of the organization’s money.
Yet, the Bylaws don’t go into the detail of how duties and responsibilities should be managed between the staff and the board as well as among board members. Since the Bylaws usually require a board vote to change or update them, organizations must have policies that go into more detail on both operational and strategic fiscal management. The policies should be living documents of the organization, reviewed annually and updated every 2-3 years based on changes in the organization.
What financial policies should an organization have?
Depending on the size of your organization, you may or may not need the following policies which can be combined into one large fiscal policy with chapters or separate policies that are reviewed and evaluated by different combinations of staff and board members.
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Fiscal Policy and Procedures: This document should govern the day-to-day fiscal operations of the organizations from budget development to banking arrangements, contracting authority, banking arrangements, etc. Please visit our checklist here for a full list of areas a robust fiscal policy should cover.
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Liquidity and/or Reserve Policy: This document governs the organization’s cash management and reserve practices including how money flows between the operating accounts, short-, medium- and long-term funds. If the fiscal policy does not contain disbursement limits and practices, then this policy can address these guidelines.
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Investment Policy Statement: This document governs the organization’s long-term endowment, quasi-endowment, or board-designated funds. It should govern the spending policy on an annual and long-term basis, investment allocation guidelines, performance measurement, and staff/board roles.
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Gift Acceptance Policy: While it may seem strange to have the gift policy under “fiscal policies” it is important that an organization have one if it is doing a fair amount of fundraising and donor outreach. It is a must if the organization has a planned giving program. The policy should be reviewed by the Board’s Development and Finance Committee and engage with both the Finance and Development directors since the types and manner of gifts are important to both roles.
What is the role of the Finance Chair or Treasurer in endowment management?
While the Bylaws may go into a bit more detail on the role of a Board Finance Chair or Treasurer as it did for my nonprofit organization many years ago (see details below), every nonprofit should have fiscal procedures or fiscal policies to address the finer details around staff and board roles.
The Treasurer shall (a) deposit, or cause to be deposited, all money and other valuables in the name and to the credit of the Corporation with such depositories as the Board of Directors may designate; (b) disburse the Corporation’s funds as the Board of Directors may order; (c) render to the President, Chairperson of the Board, if any, and the Board, when requested, an account of all transactions as Treasurer and of the financial condition of the Corporation; and (d) have such other powers and perform such other duties as the Board, contract, job specification, or the bylaws may require.
It is important for board members and the Finance Chair to understand their role as advisors and stewards of the organization’s assets versus being hands-on day-to-day. In small organizations without full-time staff, some board members do get involved in day-to-day responsibilities.
Typically, when an organization has an endowment or board fund, there is usually a full-time staff member overseeing the financials whether the day-to-day accounting activities are outsourced to a specialist company or not. When it comes to managing the Endowment, the role of the Finance Chair is typically as follows:
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Investment Committee: The Finance Chair is responsible for forming an Investment Committee or Sub-Committee. If the board is relatively small, then the Finance Chair may be the one primarily involved. When an organization first launches its endowment program, sometimes the Finance Chair appoints a sub-committee of 2-3 volunteers with investment experience.
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Policies: The Finance Chair drafts and presents the Investment and Liquidity Policies for board approval. While the Finance Chair may delegate this work, this board member is responsible for ensuring the Board approves the Investment Policy Statement (IPS) and then signs the IPS. The investment advisor, if not involved in helping to draft or advising on updates, should have a signed copy of this document for adherence to guidelines. It is also important for the Finance Chair to ensure the IPS is reviewed annually.
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Hiring an Advisor: The Finance Chair or delegate will oversee the hiring process for an investment advisor for the endowment.
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Portfolio Reviews: The Finance Chair should ensure the investment advisor meets with the investment committee or sub-committee on at least a semi-annual or quarterly basis (depending on needs from the endowment and whether it’s a new activity of the organization). The Finance Chair should ensure minutes are taken for these meetings either by the Investment Advisor or a delegate of the board or organization. These minutes help new board, committee, and staff members understand decisions made or advice given on endowment management.
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Donor Reports: The Finance Chair should ensure donors receive annual updates on their performance of the endowment if significant gifts are made.
What is NOT the role of the Finance Chair or Treasurer in endowment management?
As a Finance Chair, it can equally be helpful to know what your role is not. While you are the steward of the organization’s money along with the other board members, it is not your role to engage in oversight of finance staff. That is the Executive Director’s role. If you feel there are shortcomings on the part of finance staff or vendors who engage with the accounting or annual audit, it is important that you engage with the Executive Director first.
As often happens, nonprofits grow and evolve and don’t always have the budget to hire experts in roles. Sometimes, leaders are promoted inside an organization without having proper training and coaching.
In the case of my personal experiences, some leaders overseeing the organization as well as finance and operations, were unprepared and untrained at doing a capital project and preparing budgets as the organization grew. Shortcuts were taken and mistakes were made that caused significant strain and near crisis in the organizations.
Still, as a board member, your role in these situations is to ensure the CEO or Executive Director is well-supported to conduct training or hire expert consultants to rectify the situation. Only in rare circumstances should board members have to hire consultants directly to conduct an audit of the organization’s fiscal procedures and practices if they feel something is amiss.
This process should be used judiciously and with the full support of board members and ideally, the Executive Director.
Should the Treasurer or Finance Chair manage the endowment directly? Either paid or unpaid?
While our stance is that having a paid advisor of any kind on your board represents conflicts of interest and should be avoided, some organizations may choose to follow this path. The board should be aware of this conflict, and it should be well documented.
According to a research paper from Andrew W. Lo (MIT Sloan and NBER), Egor Matveyev (MIT Sloan) and Stefan Zeume (UIUC) titled “The Risk, Reward, and Asset Allocation of Nonprofit Endowment Funds” only 38% of endowments in their dataset of 311,322 nonprofits between 2009-2017 had investment advisors managing their endowments. That means organizations were relying on volunteers or were self-managing.
If an organization has a volunteer manage the endowment and board funds, remember that board members typically term off a board. I had a friend who was managing her organization’s endowment on a voluntary basis until her term ended after six years.
Unfortunately, there was no one to take on this role after she left. While she trained staff when she left, the endowment fund did not have structure or discipline around its investment policies or allocations. It is always best to have a plan of action and succession when engaging volunteers or paid staff members.
A productive and well-performing endowment can have a tremendous impact on an organization. One organization I know was able to attract more in donations once they established a robust investment policy, hired an advisor, and began communicating these actions to their donor base.
The organization saw an 800% increase in endowment gifts within 3 years of formalizing its endowment management. Granted, this was tied to a capital campaign but showed that donors were willing to entrust them with more once they saw the discipline and process developed by the organization.
Talk to the financial experts at Fairlight Advisors to learn more about managing your nonprofit’s investments. Schedule a free consultation today!
Jenny Russ
