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Treasury Management in the Nonprofit World : Best Practices from
Christian Children’s Fund
John Zietlow, D.B.A., CCMProf. of Finance, Lee University
William J. Hopkins, CCM
Treasurer, Christian Children’s Fund, Inc.
Copyright 2002 John Zietlow. Portions Copyright William Hopkins, 2002.
Today’s Agenda
Let’s decide on the primary financial objective(s)
Let’s think about how cash flow patterns differ in the nonprofit arena
Let’s determine how you can make a difference to a nonprofit
Let’s hear from some financial institutions about areas for improvement
Your Turn Now: What is the Primary Financial Objective of a Charity?
Can you arrive at a consensus at your table about this? First, each of you write down what you think the objective is. Then, discuss it with others at your table. Appoint a spokesperson.
Now, what do nonprofit managers say is their financial objective?
Many say “financial break-even” – revenues should cover costs
Some say maximizing revenue, reducing risk, or increasing funds raised
Christian Children’s Fund, Inc.
Cost Effectiveness Financial Accountability Maximization and Protection of Cash Flows Maintaining Liquidity that ensures the
future of the organization.
And academics say…
Richard Wacht: “purely financial decisions” to be driven by “cost minimization, subject to the absolute constraint of maintaining organizational liquidity and solvency over time”
My view: strive to meet an “approximate liquidity target” over time (cash flow and cash position management are keys)
Main Defining Characteristics:Nonprofit Treasury Management
Liquidity management (just documented) Organizational size and structure Main source of revenue Importance of cash and cash flow
management
CHRISTIAN CHILDREN'S FUND, INC.Global Cash Management
June 2002
$23 million $18 million REVENUE $28 million $86 million
100,000 Eight Contributions 300,000International International Source Country London Grants U.S.
Sponsors Affiliates Currency 5 accounts Other Sponsors5 currencies
EXPENSES BANKS
International 2 banks InternationalOffice 8 accounts Office
$28 million Richmond
National & 34 banks 23 National 6 Regional 7 Fund 4 GrantOther Offices 84 accounts Offices Offices Raising Centers$14 million 21 currencies Offices
Program 719 banksExpenses 1137 accounts Projects Projects Projects Projects$92 million 21 currencies
Operating CashFiscal Years 2001 and 2002
($2,000,000.00)
($1,000,000.00)
$0.00
$1,000,000.00
$2,000,000.00
$3,000,000.00
$4,000,000.00
$5,000,000.00
$6,000,000.00
$7,000,000.00
$8,000,000.007/
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Operating Account Ledger Balance Overnight Investments
Christian Children's Fund, Inc.Total Cash
End of Fiscal Year 1994 through 2002
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
FY '95 FY '96 FY '97 FY '98 FY '99 FY '00 FY '01 FY '02
Cash in Offices Abroad
In Transit Cash
Operating Cash
Project Cash
$5,000,000.00
$5,500,000.00
$6,000,000.00
$6,500,000.00
$7,000,000.00
$7,500,000.00
$8,000,000.00
$8,500,000.00
$9,000,000.00
$9,500,000.00
May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02
Typical Finance Organization:Treasurer’s Office
Cash M anagem entF in an c ia l In s titu t ion A d m in .,D om es tic , In tl. ,S t In ves tm en t
Risk M anagem entIn te res t R a te R isk ,In su ran ceF orex R isk
External FinancingB orrow in g ,L eas in g ,In ves to r R e la tion s
T reasurer C on tro lle r
Chief Financial Officer
But what about small organizations? ($800,000 median revenue)
Typical Finance Organization:Controller’s Office
Treasu rer
AccountingG en era l L ed g er,R ep orts ,Taxes
Auditing Budgeting& FinancialReporting
Credit& Accounts Receivable
Disbursem entsA ccou n ts P ayab leP ayro ll
Controller
Chief Financial Officer
DIRECTOR, FOUNDATION FINANCIAL MANAGEMENT
Position: Acting as the chief accounting officer for the University of Maryland College Park Foundation, the Director is responsible for all accounting functions of a rapidly growing organization. Supervising a staff of two, you will determine the appropriate delegation of duties, insure that all accounts are reconciled in a timely manner, approve journal entries, operate a computerized fund accounting system and produce financial statements for fund holders and external constituents. You will coordinate the annual audit process and prepare the F.A.S.B. conforming financials. Working with other staff members, you will insure the proper recording of receipts and disbursements and help to determine internal control policies.
N onprofi t O rga ni za tions a s Ca sh F low System s
Cash D isbursedto Cl ient/Benefi ciary
N o Transfo rm ation(P ure D is tribution)
S ervice or P roduct P rovidedto Cl ient/Benefi ciary
T ransfo rm ation(Service or P roduct P rovision)
N onprofi t Organiza tionCash M anagem ent
Cash from Gifts and Grants
CONDUITS TRANSFORMERS
“THE BIG FIVE” Areas for Treasury Improvement
Cash forecasting Positive pay and other fraud prevention Sweep accounts, Segregated ST
Investments Portfolios More liquidity! Harness the Internet
How Can I Assist a Nonprofit?
Go to work for one! Serve on a board
Donate Sponsor an intern
at a local nonprofit (Lenders) Understand their world