A SIGNATURE PROGRAM OF INDIANA GRANTMAKERS ALLIANCE

1. A SIGNATURE PROGRAM OF INDIANA GRANTMAKERS ALLIANCE

2. 2013 BOOT CAMP

3. Community Foundation Boot Camp Unit 3Finance/Investments

4. Stewardship and Fiscal Responsibility Good stewardship involves the following: • Investment and spending policies • Managing risk • Fiscal accountability • Audit reports and filings • Budgeting • Protecting donors intentions

5. Common Investment Objectives ofCommunity Foundations • Maintain the purchasing power of all endowed assets and future contributions • Maximize total return within prudent and reasonable levels of risk • Minimize the short-term volatility of spending patterns • Increase the predictability of spending patterns • Recognize and fulfill donor wishes

6. Investments • Investment/Finance Committee • Investment (Spending) Policy • Investment Advisors/Managers • Request for Proposals

7. Investment/Finance Committee Investment Committee: • Reports and processes dealing with the investment of endowment assets Finance Committee: • Reports and processes dealing with budgets, interim financial statements, etc.

8. Investment/Finance Committee Oversees all issues pertaining to the financial status of the Foundation and interpreting this information for the full board. Tasks include: • Recommend investment and spending policies for approval by the full board • Review asset allocation and the performance of individual investment managers on a quarterly basis • Interview and recommend new investment managers to the full board Continued…

9. Investment/Finance Committee Tasks continued: • Recommend annual Foundation budget to the full board for approval • Monitor Foundation expenditures in accordance with the annual budget • Establish the audit process, review and evaluation of the annual audit, and presentation of audit results to the full board

10. UMIFA (UPMIFA) • The Uniform Management of Institutional Funds Act (UMIFA) was a pioneering statute, adopted in 1972, providing uniform and fundamental rules for the investment of funds held by charitable institutions and the expenditure of funds donated as “endowments” to those institutions. • In 2007, UMIFA was changed to include the word ‘prudent’ (UPMIFA). The UPMIFA (UMIFA in Indiana) now allowed the boards of institutions with endowment funds to spend principal of endowment funds when considering the following elements: • Duration and preservation of the endowment fund • Purposes of the foundation and the endowment fund • General economic conditions • Possible effects of inflation or deflation • Expected total return from income and appreciation of investments • Other resources of the foundation • Investment policy of the foundation

11. Spending Distribution Rate (SDR) The SDR is the total amount that a community foundation pays out for grants (distributions, scholarships) and administrative fees from the endowment funds. In order for the endowed assets to grow, disbursements must be less than your SDR. If disbursements are greater than the SDR, corpus is depleted. *4.5% (grants) + 1.0% (administrative fees) = 5.5% (SDR)

12. Investment/Spending Policy The purpose of an investment policy is to provide sufficient return to support the foundation’s spending budget (spending distribution rate) and to protect the historic gift value of the endowment funds.

13. Investment/Spending Policy Items to include: • Describe duties of the Investment/Finance Committee • Clear investment goals and performance objectives • Clearly define asset allocation target and ranges • Determine investment benchmarks to measure asset classifications • Monitoring and regular assessment of investment performance • Standard evaluation procedure for investment managers • Process for changing investment managers

14. Asset Allocation • Process of dividing investments among different kinds of assets – such as stocks, bonds, mutual funds, real estate, and cash – to optimize reward/risk tradeoff based upon Foundation’s investment/spending goals.

15. Asset Allocation Investment styles: • stocks of companies that are growing earnings and/or revenue faster than its industry. • mixture of assets composed of stocks, bonds, and money market funds. • stocks of companies that are fundamentally sound, higher dividend paying.

16. ASSET ALLOCATION

17. Investment Professionals Custodian: • An agent, bank, trust company, or other organization which holds and safeguards the Foundation’s assets for them. Investment Advisor: • A person or organization employed by the Foundation to provide investment advice. Investment or Fund Manager: • The individual responsible for making decisions related to any portfolio of investments (often a mutual fund, pension fund, or insurance fund), in accordance with the stated goals of the fund.

18. Request for Proposal (RFP) The Foundation should periodically review its relationship with its investment advisors/managers to assure optimal investment performance. • Process for selecting investment advisors or managers: • RFP reviewed by legal counsel prior to distribution • Matrix for evaluating RFPs – investment goals, fees, philosophy, client satisfaction • Communication in a timely manner with firms not chosen • Interview process – who is involved • Conflict of interest disclosed before final decision is made

19. Fund Accounting • Fund accounting is an accounting system organized on the basis of funds. Each fund is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self balancing accounts that are comprised of receipts, disbursements, and its investment and cash balance.

20. Interim Financial Statement Classifications do NOT equal Audit Classifications Unrestricted Net Assets Operating Funds Temporarily Restricted Assets Pass-Through Funds Permanently Restricted Net Assets Endowment Funds

21. Audit vs. Accounting Language

22. Sample Chart of Accounts

23. Fund Accounting Activity • All investment earnings are allocated based upon each fund’s balance within the total investment pool. • All funds are charged an administrative fee. The fee is transferred to the general operating fund. • Annual distributions are transferred to the available to spend upon approval by the Board. Grants are paid out of unrestricted fund. This will show as ‘release from restrictions’ on Income Statement.

24. Year-End Closing

25. Operational Budget Where to Start?

26. Types of Budgeting Models Zero-based Budgeting—you start over every year from scratch and re-create the budget Actual-based Budgeting—you assume you are going to repeat what you did last year and use the prior year actual figures to estimate your new budget Work Plan-based Budgeting—you create the budget from a Board-approved Strategic Plan or Work Plan which has been broken down by year. Everything included in your budget should generate from the Work Plan

27. Budgeting Revenue When it Comes to Sustainability, Not All Revenue Sources are the Same, Some are Much Better than Others • Best • Administrative Fees on Endowed Funds • Payout from Operating Endowment • Good • Administrative Fees from Pass-through Funds • Annual fundraising for Operating Funds • Not So Good • Grant from Unrestricted Fund • Draw on Operating Reserve 10

28. Budgeting Expenses • Personnel • Salaries • Payroll taxes • Benefits • Staff education & training • Grants & Community Leadership • Grantee education • Grant-related events • Nonprofit networking • Scholarship-related expenses 10

29. Budgeting Expenses • Donor Services • New & Existing Donor Meetings—travel, meals, entertainment, etc. • Donor events--Annual Dinner and other • Professional Advisors • Donor research • Annual Appeals & Capital Campaigns • Marketing & communications • Printing & publications • Advertising • Promotional materials & exhibits • Website and other social media 10

30. Budgeting Expenses • Administrative • Professional fees—legal & accounting • Dues & subscriptions • Staff, Board & Committee meetings • Office expenses—supplies, office equipment, etc. • Postage & delivery • Insurance • Communications—telephone, cell phones & internet • Technology • Occupancy costs—rent, utilities, etc. • Bank & merchant services fees • Depreciation 10

31. Budgeting Process • When to start? • Calendar vs. fiscal year end • What is anticipated date of final approval? • Work backwards from this date and develop time-line for budgeting process • What is process? • Staff prepares draft for Finance Committee review • After approval by Finance Committee, presented to Board for final approval • It is important that Treasurer or Chair of Finance Committee presents budget to the Board • More meaningful when peer to peer • Staff can be available for detail questions • Important that budget be approved BEFORE beginning of new year • This prevents any delay in new year activity waiting for budget approval 10

32. Staff Responsibilities Do you have the right people on the bus? • Change in leadership often brings a change in other staff positions • YOU, as the new leader, need to determine what is best for YOUR organization • Review processes and procedures • Do away with “legacy” processes • Implement technology where possible • Streamline processes to avoid multiples “touches” • Written documentation of processes • Ensure adequate separation of duties • Review Management Letter prepared by external auditors for issues identified in most recent audit

33. Software What are the choices available? • Technology Affinity Group (TAG) - Consumers Guide to Integrated Software for Community Foundations—January 2012 • 2011 Snapshot results • 58 Indiana CF used FIMS by MicroEdge (62%) • 16 Indiana CF used Community Pearl by Brommelkamp(17%) • 12 Indiana CF used Quickbooks (13%) • 7 Indiana CF used Raisers and Financial Edge by Blackbaud (8%)

34. Reporting Know your audience • What is the purpose of the report being prepared? • Internal use by Staff • Committee • Board of Directors • Public

35. Reporting (continued) Committee & Board Reports • Reports should be meaningful to the audience • Reports should be used to transfer information into knowledge • Reports should be used to make thoughtful decisions

36. Reporting (continued) Report Conversation • What information should be included on reports? • What has been your experience with your current reports? • What do you believe would make a meaningful report?

37. Annual Audit Why is This Important? • Required by National Standards • Provides external stakeholders with an independent and objective opinion of the organization’s financial health • Provides Management Letter to the Board of Directors identifying any material weaknesses in internal controls

38. Annual Audit Who is Responsible for the Audit? • Audit Committee of the Board of Directors • An Audit Committee must be designated by the board • Many CFs combine the Audit Committee with the Finance/Investment Committee • At completion of the audit, external auditors are required to meetwith the Audit Committeeto present the audited financial statements along with the Management Letter • Staff should be excused for a portion of this meeting so that auditors have opportunity to speak freely with Audit Committee about any issues discovered during the audit • After acceptance by the Audit Committee, the final audited financial statements and management letter are recommended for acceptance by the Board of Directors • Acceptance should be documented in the minutes

39. Tax Compliance Form 990 • Required to be filed 5 ½ months after year end • For calendar year end—May 15th • For June 30th year end—Nov 15th • Automatic 3-month extension available • Information only return • No tax due unless Unrelated Business Taxable Income (UBTI) • Major changes to the return in 2008 • Most important part of Form 990 is Public Support Test • Must be at least 33 1/3% or more • Form 990 must be reviewed by Board of Directors prior to filing

40. Tax Compliance Indiana Form NP-20 • Required to be filed 5 ½ months after year end • For calendar year end—May 15th • For June 30th year end—Nov 15th • Automatic 3-month extension available • Do not need to file form for extension • Information only return • Simple one-page form • Attach copy of Form 990 • No tax due unless Unrelated Business Taxable Income (UBTI)