IT'S 2011.  DO YOU KNOW WHERE YOUR INVESTMENTS ARE?

by C. Yvonne Chenier

Recent headlines that indicate the assets of charities are being caught up in scandals worldwide have prompted me to consider once again the importance of reviewing investment policy and investment powers for organizations. No one wants to see their charity named in headlines involving any mention of misuse of their funds. 

 Two recent headlines that have caused me to consider this are "Madoff trustee sues JASA for $5.2M" (http://www.thejewishweek.com/news/breaking_news/madoff_trustee_sues_jasa_52m). This headline arose out of the fact that the trustee for Bernard Madoff's Ponzi scheme is looking to the Jewish Association for Services for the Aged for moneys that the trustee claims were profits from the Madoff Ponzi scheme that they had received over a six year period.  This leads one to think that money in the bank in today's day and age may not be as sure thing as it used to be, depending on where it's been.  So do you know where your money has been?

The second headline that caught my eye was "Royal Bank to pay $41M SEC fine" in the Tuesday PM September 27, 2011 edition of Advisor.ca (http://www.advisor.ca/). This headline drew my attention to an article about the United States Security and Exchange Commission making an agreement with Royal Bank capital markets division to settle charges over allegations that it sold unsuitable investments to five Wisconsin school districts.  In Canada we have similar not-for-profit organizations that have surplus cash to invest.   Many of them rely on those in the money management business to invest it for them. 

When you have charities caught up in Ponzi schemes and buying unsuitable investments from blue chip financial institutions, it make one wonder what blame could be placed on the organization themselves if they do not have or have not properly followed a responsible investment policy.  A sound investment policy is crafted with a trusted professional, and that takes into consideration the legal investment powers that the charitable organization actually has.  All investments made are then in strict compliance with the policy.  To find out the investment powers that a charitable organization actually has you have to look at the legislation that created the organization or the bylaws that have been adopted by the organization. In many charity reviews that I have done over the years it is not unusual to find charities that are investing outside their powers.  Inadvertent or not, this is a situation that would not sit well with donors reading headlines such as the ones referred to above. In this case, as in most cases with charities governance, it is best to be proactive rather than reactive.