As a not-for-profit board member, understanding your fiduciary duty means having a firm grasp of investment-related topics and recognizing how the decisions you make impact the long-term viability of the organization. A board member well-versed in their fiduciary responsibilities is positioned to make a positive impact on a not-for-profit’s mission while avoiding any pitfalls that result from fiduciary negligence.
To further explore the financial operations of not-for-profit organizations and the regulations governing them, this paper will cover the prudent management of investment assets, the dynamics facing finance and investment committees, and how investment committee members can directly impact not-for-profit governance.
Duties of the Not-for-Profit Board according to UPMIFA
UPMIFA, which stands for the Uniform Prudent Management of Institutional Funds Act, is the United States’ most comprehensive guidance for the management, investment, and expenditure of endowment funds from charitable institutions. Originally enacted in 1972, the most recent revision of the Act was adopted in 2006 by the National Conference of Commissioners on Uniform State Laws. As of 2012, all states except Pennsylvania have adopted the guidelines. Generally, all organizations that are operated solely for charitable purposes, which include not-for-profits, charitable trusts, and government entities holding funds for charitable purposes, are covered by UPMIFA.
There are several key standards of conduct for managing and investing endowments. Organizations must understand their cost to invest and current economic conditions. Boards are expected to make investment decisions in context with the organization’s overall portfolio and long-term needs.
They are also expected to review return targets and ensure that the organization is taking on an appropriate level of risk. Documents like an Investment Policy, a Spending Policy, and a Gift Acceptance Policy can help organizations institutionalize many of the key UPMIFA requirements. All charitable organizations should consult their state’s version of UPMIFA to determine the key governance factors to consider when overseeing endowments. In particular, they must have an understanding of the purpose, duration, and return expectations for the endowment funds so that these factors can be codified in the organization’s Investment Policy Statement and used as a compass for prudent investment management.
Exhibit 1 - Key Standards of Conduct for Managing and Investing Endowment According to UPMIFA