Standard B8 Explained

Definition: Investable Assets¹
Sums of money owned by the organization that are available for investing for terms likely extending beyond one year.

Definition: Investment Policy¹
A policy that provides guidelines on where and how investable assets can be invested.  The investment policy usually includes statements on level of risk to be taken, who is delegated to take what decisions on sale or purchase of assets, use of investment managers, amount of equity or fixed income, etc.

Why is it important to have an investment policy? Directors of nonprofit and charitable organizations can face serious liability risks resulting from improper investment of an organization’s funds.² Having an investment policy will ensure that funds are invested appropriately in order to advance your organization’s strategic objectives and protect the board of directors from liability.

Directors may be liable if they fail to:²

• determine and comply with the investment power in the letters patent or special act creating the charitable corporation;
• determine and comply with specific investment powers contained in agreements accompanying a gift, such as a last will and testament of a donor in making a testamentary gift or a gift agreement by a donor in giving a perpetual endowment;
• determine and comply with the applicable statutory investment power that applies in a particular province in relation to investments made in that province, typically found in provincial trust legislation;
• invest in accordance with the standards of a prudent investor where the provisions of the trust legislation apply, including any mandatory investment criteria required by the Act;
• develop and implement an investment plan as required by applicable trust legislation; and,
• undertake investment decision making them-selves, or in provinces that permit delegation of investment decision making, such as Ontario, to ensure that an appropriate agency agreement is in place appointing a qualified investment manager and that there is careful selection and monitoring of the investment manager chosen.

The investment policies of nonprofit and charitable organizations should:

• be developed with the advice of a financial professional or be reviewed by legal counsel
• define general objectives (preserve and protect the assets; achieve aggressive growth)
• delegate day-to-day asset management to an independent finance committee or a professional manager
• set asset allocation parameters (include diversification)
• describe asset quality (itemize quality ratings for stocks, bonds, or short-term reserves based on your risk tolerance)
• define the investment manager's accountability (include risk in transactions, social responsibility, reporting requirements, and coverage of cash flow needs)
• establish a system for regular review of the policies

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “Chapter 3: Liability of Directors” in the “Primer for Directors of Not-for-profit Corporations: Rights, Duties and Practices,” Industry Canada, 2002.