Balancing the Mission Checkbook

Cash is cash, right? Then why are so many nonprofit directors and board members suddenly so concerned about the safety and security of their bank accounts?  All it takes is one alarming story, such as today’s report that some Minnesota private colleges couldn’t access all of their short-term funds. It sounds like the funds will be available, and how would you feel if you couldn’t arrange a transfer of some funds that you consider to be “liquid?”

So how concerned should you be? In general, you shouldn’t panic, but you also can’t make assumptions that all is well just because you haven’t had a problem before. It depends on how your short-term cash accounts are actually invested or deposited. Many nonprofits have balances of funds that are needed for payroll and regular expenses, for reserves, and to hold funds that are restricted or designated for a specific program or purpose. It’s common to have a checking account, other bank accounts, and some money market funds or short-term investments.

However, over the last 20 years the distinction between keeping funds in a bank account and a range of other investment options has gotten pretty fuzzy. We’ve become a little lazy about using terms – like money market account, money market fund, and short-term investments – interchangeably. But they are not the same.  Your first priority is to find out where, in fact, your nonprofit’s cash balances are – do you have a bank account or a mutual fund? If it’s a bank money market account deposit, what is the FDIC insurance coverage? Some banks offer a service to provide additional coverage or work with other banks to enhance the coverage by exchanging funds within a network. If your funds are invested in a money market mutual fund, it’s wise to read the prospectus or other information from the fund manager to learn about the types of investments that are owned by the fund. Money market funds range from ultra-conservative investments in treasury bills to investments with a little more risk. If you have made direct purchases of short-term investments, read up on what you have and how those investments are valued or affected by the current market.

Again, know what you’ve got and then have a discussion with the finance committee about any risks, concerns, or restrictions. Then you can decide whether to make any changes. This might also be the trigger for you to re-visit or create an investment policy and educate yourself and the finance committee on fiduciary duties and nonprofit investment practices. I highly recommend a short book published by BoardSource, Minding the Money: An Investment Guide for Nonprofit Board Members.