The document provides best practices for treasury management in non-profits. It discusses how the treasury function is evolving to focus more on strategic activities. It outlines concerns of CFOs, financial performance metrics, financing mechanisms like loans and lines of credit, the budgeting process, asset management practices, and challenges of international treasury management. The document provides detailed guidance on setting up an effective treasury department through organization, technology, policies, metrics, and risk management.

1. Best Practices in Treasury Management
Mary Karen Wills, Leonard Williams & Ryan Byrd
December 2, 2015

2. Outline
• Treasury Function is evolving
• What CFO’s are concerned about?
• Financial Performance Metrics
• Financing Mechanisms
• Budgets
• Asset Management
• The Use of Fund Accounting
• Challenges of International Treasury Management

3. Treasury Function is evolving-
• Past Focus
• Strategic-5%
• Analyical-15%
• Operational-80%
• Current Focus
• Strategic-50%
• Analyical-30%
• Operational-20%

4. What CFO’s are concerned about?
• Cash management optimization
• Implementing or Improving Cashflow
• New or improved Technology/Systems
• Managing Treasury risks in Emerging markets
• Understanding how changes in regulations impact their
organization

5. Best Practice- Treasury Department
• Often viewed as a hub and spoke relationship with all
revolving around the Treasury Department
• Board of Directors
• Internal Stakeholders
• Financing Institutions
• Donors
• Banks
• Awarding agencies
• Regulations and Compliance

6. Best Practice Treasury Department-cont
• Organization & Structure
• Strategic Focus
• Staffing
• Level
• Skillsets
• Centralized vs decentralized
• Regional treasury function vs non-regional
• Across the Board Support
• Team Members
• Liquidity and Working Capital Management
• Cash Forecasting
• Netting
• Pooling
• Reporting structure and metrics

7. Best Practice Treasury Department-cont
• Technology
• Integrated data
• Straight through processing
• Systematic Controls
• Stress the appropriate use of electronic payments
• Policy Framework
• Implement a hierarchy of formal policies, procedures and desk
instructions should be in place
• Particular emphasis for international operations should be
developing local procedures to those polices upstream

8. Best Practice Treasury Department-cont
• Treasury Metrics
• Develop key metrics to gauge and analyze treasury performance
• Set overall objectives for the function
• Determine what should be measured
• Establish processes to utilize technology to gather pertinent information
• Create a dashboard to provide a view of key metrics
• Risk Management
• Develop strategies to identify, measure and manage risks for:
• Operational
• Liquidity
• Market

9. Best Practice Treasury Department-How to
Get There
• Develop a plan for any changes needed
• Prioritize Resources
• Link Dependencies to Risks
• Establish timeline and milestones
• Gain buy-in for the benefits
• Roll out plan
• Timely and consistent communication updates to team

10. Financial Performance Metrics
• Statement of Financial Position Indicators
• Ability to Manage Debt
• Organizations liabilities as a percentage of total assets if gets close to the
50% mark, then could jeopardize the delivery of programs and services
• Ability to Steward Facilities
• If an organization owns property and equipment, there must be adequate
dedicated reserves to replace or repair
• Appropriate Liquidity
• As a general rule less than three months of cash is tight for non profits

11. Financial Performance Metrics-cont.
• Statement of Activities Indicators
• Revenue Reliability
• An organization’s track record of bringing in recurring dollars, on an
unrestricted operating basis, year after year.
• Need to predict a level of income with a fair amount of certainty, based on
historical performance
• Consistent Surpluses
• Positive operating results (unrestricted revenue consistently exceeding
expenses) are an indicator of strong financial management
• Full Cost Coverage
• Covering the full costs of doing business includes the direct and indirect
operating expenses as well as depreciation on fixed assets and reduction in
any debt principal which are traditionally covered by surpluses. Surpluses
should can also contribute to savings and strategic opportunities

12. Financing Mechanisms
• Loans
• Not for profits can apply for a bank loan but will need collateral or
someone to guarantee the loan, and some evidence of a viable
business
• The most important information to have when applying for a loan
is recent, accurate financial information about the organization, a
plan for the amount and use of funds, a repayment plan
• Lines of Credit
• A line of credit allows the organization to borrow up to a certain
sum for a specified period of time
• May want to apply for a line of credit before you need it for a
safety net

13. Financing Mechanisms-cont
• Federal Letters of Credit (FLOC)
• The Letter of Credit is a payment method that authorizes award
recipients to request an electronic drawdown/advance of funds to
pay for award costs.
• Is the preferred method for federal financing of contracts, grants
and cooperative agreements for non-profit organizations.
• Awardees must minimize the time elapsing between draw down of
Federal funds and disbursement by the awardee in accordance
with Treasury regulations at 34 CFR 74.22(a) for nonprofit
organizations.
• USAID ADS 303 and 636 govern the process for USAID grantees

14. Financing Mechanisms-cont
• Federal Letters of Credit (FLOC)-cont.
• The LOC grantee completes and submit a “SF 1199A-Direct
Deposit Sign-up Form” and “Division of Payment Management
Payment Management System (PMS) Access Form to establish a
PMS account at US Department of Health and Human Services
(DHHS).
• Access codes to the PMS are then provided to the organization
after DHHS has reviewed the information
• The obligated funding will be posted to the PMS/LOC account and
will then be available for drawdown via the internet by the grantee

15. Financing Mechanisms-cont.
• Drawdowns for Federal Awards
• The US Government disburses funds to grantees in two ways:
• By advancing funds
• By reimbursing partners for expenses after they have been incurred
• To request funds, a SF -270 “Request for Advance or
Reimbursement” must be completed and submitted.
• Initially, the organization will limited to requesting funding advance
one month at a time.
• Each request must be for the amount you estimate the
organization will spend in the upcoming 30 day period
• The drawdown of Federal funds is for immediate needs only

16. Budgets
• Budget Planning Issues
• Zero-Based versus Incremental Budgeting
• Types of Budgets
• Steps in Preparing Budgets
• Capital Budgets

17. Budget Planning Issues
• A budget is a compilation of the plans and objectives that covers all
phases of operations for a specific period of time
• Lead-time for grant requests and other multiyear programs must be
factored into the budgetary planning process
• An effective budget should establish criteria that would signal
management if a change is needed or if a course of action should be
refined or altered
• Staff and management accountability is an aspect of budgeting:
responsibility should be associated with those that are actually
capable of realizing the goals
• A budget’s usefulness is diminished without active awareness and
participation of those carrying out the organizational mission

18. Zero-Based versus Incremental Budgeting
• The organization starts from zero by assuming that no program is
necessary and no money need to be spent.
• Involves an orderly evaluation of all elements of revenue and
expense
• Each program must be examined to justify its existence as well as
effectiveness as compared to alternative programs
• A not-for-profit’s historical costs are the usual base from which budget
planning starts
• An organization must decide whether its budget is to be based on
measurable and predictable statistics or only on good guesses

19. Types of Budgets
• The basic budget is a comprehensive look at the entire
organization’ s overall projection of the revenues or
financial support and its expected expenditures
• Specialized or supplemental budgets can provide a
specific focus on fragments of financial activity relative to
individual programs or revenue centers.
• The master budget coordinates all of the financial
projections in the organization’s individual budgets in a
single organization-wide set of budgets for a time period.
• A rolling budget continually forces management to think
concretely about the upcoming 12 months

20. Steps in Preparing Budgets
• The revenue budget should be the starting point in a
budget planning process because program delivery will
depend on the forecasted level of revenue.
• The next step is program or project budget
• How much should be offered to support the estimated level of
service revenue?
• Fund-raising goals will also determine programmatic
service levels because service oriented revenues will not
finance all program offerings completely

21. Capital Budgets
• Capital budgeting is the process of making long-term
planning decisions for investments
• The stages of capital budgeting include:
• Identification
• Distinguishing which types of capital expenditures are necessary to
accomplish the organizational objectives
• Search
• Explores several alternative capital expenditures investments that will achieve
organizational goals
• Information acquisition
• Considers the predicted costs and consequences of alternative capital
investments

22. Capital Budgets-cont.
• The stages of capital budgeting include:
• Selection
• Projects are chosen for implementation
• Financing
• Project funding is obtained either through internally generated cash or through
debt from the capital markets
• Implementation and Control
• Puts the project in motion and provides for ongoing monitoring of investment
performance

23. Asset Management
• Cash Flow Planning
• A/R
• Monies owed to the organization by another party
• Monitor A/R with weekly cash recounts
• 31 days of A/R means lost earning and more dependency on credit line
• A/P
• An outstanding bill from a vendor that the organization has obligation to pay
• Don’t pay early-utilize electronic invoice payments when available
• Pipeline
• Shows all the prospects being cultivated and potential timing
• Pipeline is very fluid-is not a fixed income forecast
• Attaching a “likelihood” or probability indicator can be helpful in the current
and out year budgeting process.

24. Asset Management-cont.
• Endowment Fund Management
• Defined as an investment fund set up by the organization in which
withdrawals from the invested capital are used for on-going
operations or other specified purposes. Endowments are funded
through donations.
• Need to be governed by:
• Investment Policy which dictates the types of investments the manager can
make and how aggressive they can be in meeting return targets
• Withdrawal Policy determines the amount an organization can take from the
fund in each period which is driven by the organization needs as well as
balance in the fund
• Fund Usage Policy ensures that the money from the fund is being used
properly and for the resources set out by the fund

25. The Use of Fund Accounting
• Operating Fund
• Also known as the unrestricted current fund, this fund is used to record
organizational activity that is supported by which governing boards have
discretionary control
• Restricted Current Funds
• These fund types are used to record organizational activities that are supported by
resources whose use is limited by external parties to specific operating purposes
• Plant Funds
• Some not for profit organizations record plant and equipment in a plant fund
• A plant fund can be a single group of accounts or
• A plant fund may be subdivided into the following sub fund account groups:
• Unexpended plant funds, funds for renewal and replacement, funds for retirement of indebtedness and
investment in plant funds

26. The Use of Fund Accounting-cont.
• Loan Funds
• Are used to account for loans made to constituents and those resources available
for loan purposes.
• Assets for loan funds may be provided by donors, granting agencies or designated
by governing boards
• Fund balances of loan funds represent net assets available for lending
• Annuity and Life-Income Funds
• May be used to account for resources provided by donors under various kinds of
agreements in which the organization has a beneficial interest in the resources but
is not the sole beneficiary
• Agency or Custodian Funds
• Are used to account for resources held by the organization as an agent for
resource providers before those resources are transferred to third party recipients
specified by the resource providers.

27. Challenges for International Treasury
Management
• Making/Transferring Payments-Challenges
• Short lead time to prepare funding mechanisms
• Sponsoring agency deployment schedules and expectations
• Emerging needs in-country
• High volume cash needs
• Inadequate, insecure, and/or weak banking systems and
structures
• Risky financial or political conditions
• Employment status of in-country personnel

28. Challenges for International Treasury
Management-cont.
• Making/Transferring Payments-Solutions
• Maximize Field/Cash Advances
• Payment to custodian by check
• Direct wire/EFT to foreign bank account
• Utilize for operations, including in-country payments for contractors and
foreign nationals
• Contract with a “logistics” firm
• Expertise in foreign legal, regulatory and general business environment
• Branches/offices in the field
• Payments can generally be made by wire or check
• Direct Deposit
• Salaries and expenses for US citizens-ACH to local account with subsequent
wire to employee foreign bank account if applicable

29. Challenges for International Treasury
Management-cont.
• Currency Exchange Fluctuations
• A organization’s foreign exchange policy should:
• Include definitions of various exposures
• Outline hedging objectives and
• Establish internal controls associated with the foreign currency risk
management function
• The design of the organization systems and processes should:
• Help natural offsets and monitor cross-border payment flow
• Monitor for cross-border payment flows, intercompany payments and currency
conversions