How to Manage a Non-Profit Organization Investment Portfolio

How To Manage A Non Profit Organization Investment Portfolio

Written by Rachel Burrow

June 6, 2024

Having an investment portfolio is one way non-profit organizations can accept gifts from donors and access cash flow and produce additional income. The article provides an overview on how to manage an investment portfolio for your non-profit organization.

General Investment Policy and Spending or Withdrawal Policy

If an organization is going to have investments recorded on its statement of financial position, there are certain policies that it should have in place. The first policy is a general investment policy. Since the organization will rely on a professional investment advisor to do the actual investing of funds in most cases, the policy should include which types of investments the advisor is allowed to make and how aggressive the investment advisor can be. The second policy is a spending or withdrawal policy. This policy should establish the amount the organization can take out of any restricted funds each period based on the needs of the organization. It is also important to have a gift policy in place. Many organizations have a gift policy which requires that gifts of stock are liquidated upon receipt to minimize the risk associated with the stock market.

How to Record Donated Stocks and Changes in Value

Gifts of stock are very common for non-profit organizations as this can be an effective way for donors to give to non-profits and fit it into tax planning. The donated stock is recorded by an organization in investments on the date of donation at the fair market value at that point in time. The difference between the proceeds that are received from the sale of stock and the fair market value recorded on the date of donation should be recorded as a realized gain or loss. If any fees are incurred related to this transaction, they would be recorded as investment fees expense.

Once the investments are recorded on the statement of financial position, any changes in the value of the investments will need to be recorded on the statement of activities. Different types of income including interest and dividends, realized gains or losses, and unrealized gains or losses in addition to investment fees will be shown on a line with a description of, for example, investment income, net of fees. These amounts can be found on the investment statements received from the investment advisor.

Interest income is based on the interest rates in place for the accounts, and dividend income is percent of the profit for certain investments that is earned. Realized gains or losses result when investments are sold during the period. The difference between the cost basis of the investments (the original purchase price or donated value) and the fair market value of the investments (the current value) equals the total unrealized gains or losses on these funds. The activity recorded for the current period is the change in this amount from the prior period compared to the current period. All of these items make up the total change in the value of the investments for the period being reported on.

For additional assistance with recording investment activity and questions on investment-related policies, contact your Hawkins Ash CPAs representative.

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Rachel Burrow
As an audit manager in the firm’s La Crosse, WI, office, I provide audit services for commercial entities, nonprofit organizations and employee benefit plans.

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