AIA St. Louis   |   AIA Pittsburgh

AIA ST. LOUIS

Financial Policy
Written by the Finance Committee of AIA St. Louis
Approved by the AIA St. Louis Board of Directors, September 2000

Mission
To establish financial policies for the management of
• operating funds (temporary operating portfolio)
• long term emergency funds/reserves (reserve portfolio)
• designated funds (board designated funds)
To provide financial guidance to future treasurers, finance committee and staff
To provide a vehicle for financial reporting to the membership
To clarify responsibilities in the financial management of the chapter

Purpose
To define segments of the chapter’s wealth and policy for segment management and evaluate the chapter’s resource every quarter.

Temporary Operating Portfolio (TOP)—temporarily available funds, primarily from dues paid before services provided. (Sweeps checking account at AIA St. Louis)

The investment objectives of the TOP are
• Safety – investments of such quality that loss to principal is minimal. Impairment of TOP will cause disruptions to chapter operations.
• Liquidity – investments must mature quickly to provide required operating cash.
• Yield – to attain the highest return possible with reservation of capital. It is important to maximize yield after providing for safety and liquidity because earnings from the top serve to supplement chapter revenues.

Reserve Portfolio (RP)—50% of current year’s budget; accumulated surplus - to be accrued and invested; To be carried for at least one year, and not to be used without substantial prior notice (CDs owned by AIA St. Louis)

The investment objectives of the RP are
• Safety – to minimize loss since funds must be available for emergencies.
• Yield – to maximize total return over a full market cycle, subject to prudent levels of risk because earnings from the RP serve to supplement chapter revenues.
• Liquidity – it is anticipated that utilization of the principal will be low. Funds therefore can be scheduled to mature each year as additional assurance that emergencies can be met.

Board Designated Portfolio—funds set aside to purchase special equipment, or to fund future moving costs. Investment objectives are determined by the immediate or long range needs, with the TOP approach for short term investments and the RP approach for long-range investments.
• Investment Guidelines
• Temporary Operating Portfolio

Based on investment objectives (safety, liquidity, and yield) and cash flow needs, the TOP shall be invested as follows. Funds shall be invested in such proportions as deemed appropriate to best achieve cash flow needs. TOP funds should not be invested for a period of over one-year to provide immediate access for operational expenses.

Permitted Investments and quality:
• Federally insured savings and interest bearing checking accounts. Such investments and other accounts held in any single institution should not exceed the Federal insurance limit, ($100,000.00)
• Federally insured certificates of deposit, not to exceed limit of $100,000.00
• Federally insured money market funds and money market funds that invest primarily in government back securities.
• Obligations of, or guaranteed by, the US government, its agents

Reserve Portfolio:
• Based on investment policy of RP (safety, yield, liquidity), investment guidelines for RP are as follows. Reserve funds should be invested at all times, with the prevailing market conditions guiding the investment instrument. As a general guideline, permitted investments should represent no more than 50% of the portfolio. No more than 75% of the reserve fund should be invested in immediate term (3-5 years) investments.

Permitted investments and quality (RP):
• Federally insured certificates of deposit, not to exceed $100,000
• Federally insured savings and interest bearing checking accounts, not to exceed $100,000
• Federally insured money market funds and money market funds that invest primarily in government backed securities
• Funds that invest in obligations or guaranteed by US, its agents
• Preferred stock and corporate debt securities. Rated at least AAA, AA or A by Standard & Poors or Moody’s Investors Service, Inc. rating
• Mutual Funds that invest primarily in bonds
• Commercial paper. Rated A-1 by S & P or Moody’s
• Banker’s Acceptance

BOD Designated Funds
• Based on the investment objectives, the BOD funds shall be handled as either TOP or RP, based on the time line for the funds’ use

AIA PITTSBURGH

BACK TO BASICS: GOOD FINANCIAL PLANNING
Presenter: Anne J. Swager, Hon. AIA, Executive Director, AIA Pittsburgh

Sound financial management is important for components, and board members are in charge of the component’s fiduciary matters. It is their responsibility to ensure the component’s money is spent appropriately because board members have an ethical and moral responsibility to members and component staff.

Key Elements of Financial Management
There are three key elements necessary for sound financial management within a component: a budget, an income statement, and a balance sheet. A financial budget serves as a component’s plan, while the monthly income statements measure how well a component is meeting its plan.

Budget
A budget is crucial for identifying a component’s sources of revenue and its expenses. If a component makes a profit, there are several ways to use the profit. A component can give the profit to a like-minded entity, use the profit to stay in business and apply it to a future budget (e.g., use it as seed money for a local seminar or conference), or put the profit in reserve. For example, AIA Pittsburgh used its reserve fund for two consecutive years as seed money for a three-day conference it hosted.

Swager encouraged participants to look at their reserve as an opportunity fund to help them get through rough times. She noted the difficulty some components have in building a reserve, but said it can be built into a budget as a line item, marked Contingency Reserve. “The major cause for a chapter to decline is not because it didn’t make a profit, but because it didn’t have any working capital,” noted Swager. She recommended components put three to six months’ of operating expenses in reserve. AIA Pittsburgh puts up to 5 percent of its total revenue in its reserve fund.

Income Statement
An income statement is a monthly historic snapshot of a component’s finances. It should show the daily costs to run a component office, and include both revenues and expenses. Statements can be in one of two forms, cash or accrual. A cash basis accounts for money as it is received; an accrual accounts for anticipated revenue. AIA Pittsburgh uses a cash basis simply because it’s easier.

Balance Sheet
A balance sheet lists a component’s assets, liabilities, and fund balance. A component’s assets are equal to its liability and fund balance. Component assets can include such items as computer equipment, building (if a component owns it), furniture, and documents. Liabilities include taxes, member dues, and member dues not accounted for yet. The fund balance is a component’s reserve.

Internal Controls
Every component should require two signatures on all checks written. Swager cautioned participants never to sign blank checks and to make certain the checks they are signing have a receipt or invoice. She noted the difficulty of board members being geographically apart, but she cautioned participants to do what makes sense for them. To ensure two signatures are available to sign checks, AIA Pittsburgh gives signature authority to its executive director, past president, first vice president, and treasurer.

Swager also encouraged participants to get directors and officers insurance. She cautioned that the insurance would help board members in certain risks by covering defense bills, but will not help if the component breaks a law.

Investment Policy
Board members should decide how much of their money they want to invest. Noted Swager, “This is a cultural issue. You have to determine what your board is comfortable with, and put it in writing.” For example, AIA Pittsburgh invests only in certificates of deposit, while AIA Pennsylvania uses a brokerage house.

Signs of Distress
There are a few distress signs of which board members should be aware: declining critical revenue sources (if this occurs, board members should find out why), selling of a component’s assets, and overspending on miscellaneous expenses and consultant fees.

Financial Questions Board Members Should Ask:
• Do we have a sound financial plan?
• Do we have enough cash?
• Do we have enough reserve?
• Are our major expenses in line?
• Are we meeting our budget?
• Are our expenditures appropriate?
• Are we insured against risk?
• Are we meeting the requirements of our funders?