Nonprofit Investment Management

Effective Management of
Nonprofit Investments:
The Auditor’s Perspective

Trevor Williams, CPA
Senior Audit Manager

September 18, 2012

Effective Management of Nonprofit
Investments: An Auditor’s Perspective

Trevor W. Williams, CPA
Senior Audit Manager, Gelman, Rosenberg & Freedman CPAs

 Nearly 20 years of experience with audit functions,
contractual compliance rules, regulations and policies

 Supervises the overall planning and administration of
audit, review and compilation engagements

 Nonprofit Involvement:
– Board member, MD/DC/VA Chapter of the Lupus Foundation of
America
– Board member, Mentors, Inc.

Trevor W. Williams, CPA • twilliams@grfcpa.com 2


Table of Contents
I. What is a successful audit?
II. Auditor responsibilities vs. auditee
responsibilities
III.Board of Directors vs. Investment
Committee
IV. Managing investments
V. What do auditors look for?
VI. Common management letter comments


I. What is a successful audit?



Organization is key
 Advance preparation

 Pull, scan, or copy information requested by
the auditor

 Maintain a list (or backup copy) of information
provided

 Make sure supporting documentation is
complete and accurate


II. Auditor vs. Auditee Responsibilities

Have a clear understanding of:

1. Your auditor’s responsibilities

2. Your responsibilities



Auditor’s Responsibilities
 Gather information about your
organization to provide reasonable
(not absolute) assurance that your
financial statements are fairly
presented, in all material respects, in
conformity with generally accepted
accounting principles.



Auditor’s Responsibilities (cont.)

 Examine on a TEST
basis evidence
supporting the
amounts and
disclosures in the
financial statements.




Not to prepare
schedules




Not to perform
bookkeeping
functions



Not to catch fraud,
waste, abuse, etc.



Your Responsibilities
(Management)

 Establish and
maintain internal
controls

 Select and apply
accounting principles



(Management)
 Establish an accounting and financial
reporting process

 Ensure fair presentation of the financial
statements in conformity with U.S.
generally accepted accounting principles

 Management decisions



(Governing Body)
 Designate individuals with suitable skill,
knowledge, or experience to oversee the
programmatic, financial and tax needs
of the organization

 Establish and maintain internal controls

 Monitor financial and programmatic
performance (financial reporting)



III.Board of Directors
vs.
Investment
Committee



Board of Directors

 Trustees of the organization’s assets;
stewards of public trust
– Objective, honest and efficient
– Must exercise good decision-making
without placing organization at
unnecessary risk



Investment Committee
 Smaller sub-group within the larger
framework of the board that assists
in fulfilling the board’s oversight
responsibility for the investment
assets of the organization

 The committee is responsible for
formulating the overall investment
policies and establishing investment



Finance/Investment Committee

 The committee monitors the
management of the portfolio for
compliance with the investment policies
and guidelines and for meeting
performance objectives over time



Accountability
“The state of being
accountable, subject to
the obligation to
report, explain or
justify something;
responsible;
answerable”
- Webster’s Dictionary



IV.Ingredients of Managing Investments
 Investment policy

 Internal controls and procedures

 Adequate approvals of investment decisions

 Sufficient knowledge of makeup of investments

 Monthly statements

 Transaction statements

 Annual statements


V. What do auditors look for?

 Why won’t they just
leave us alone?



What do auditors look for? (cont.)
 Current or updated investment policy

 Evidence that the Investment Committee is
adhering to its charter/roles and
responsibilities

 Evidence that the organization’s
investments are in accordance with the
investment policy

 Evidence internal controls and procedures
exist and are consistently applied



What do auditors look for? (cont.)
 An understanding about types of investments
permitted by law, agreements with donors,
endowments, etc.

 Whether all aspects of investments have been
calculated correctly and properly recorded

 If the organization’s investments are managed by a
broker/investment advisor, whether that
broker/investment advisor has had a service
organizations report (aka SSAE 16 – formerly SAS
70)



Things to Consider
Segregation of duties

 Small organization with limited
resources

 Mitigating circumstances (checks and
balances)



Things to Consider (cont.)
Adequate resources

 Inexperienced/unqualified staff

 Accounting and industry training
programs and seminars



VI.Common Management Letter Comments

 Incomplete accounting records
– No (or infrequent) reconciliation of
– investments to general ledger
– Unrecorded transactions
– Unsupported account balances



Common Management Letter Comments (cont.)

 Lack of an Official Investment Policy
– Outdated
– Too conservative/too aggressive
– Management not adhering to policy



Common Management Letter Comments (cont.)

 Donor’s intentions not honored
(restricted contributions)

 Organizations that use a
broker/investment advisor should
obtain SSAE 16 report and designate
someone within the organization to
read it


4550 Montgomery Avenue, Suite 650N • Bethesda, MD 20814

Connect with Us
Trevor W. Williams, CPA
Email: twilliams@grfcpa.com
Telephone: (301) 951 – 9090
Website: www.grfcpa.com
Visit:

Nonprofit Investment Management

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