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When forecasting future income, thought needs also to be given to the reliance of the institute on investment income and interest receivable and the sensitivity to interest rate changes and stock market volatility.
Also bear in mind that as income declines and expenditure increases, a vicious circle starts because cash at bank and investment levels will be reduced and so exacerbate the decline in the income derived from such assets.
Cash management
It is a fundamental requirement of charity law that the charity trustees maximise the return on any asset while not exposing it to undue risk. Good cash management is essential, therefore, an institute should ask:
O Are maximum returns being achieved on money held at the bank? For example, are your monies in the best possible type of account? Is only a minimum amount held in current accounts? Rather than simple deposit accounts, could some of the money be put into term deposit accounts or treasury accounts for a period of 30 days, three months, six months or longer?
O Are unnecessary bank charges being incurred?
O Have these been discussed with the bank manager?
O Has consideration been given to a centralised banking system? O Should some of the money held in bank accounts be invested?
Investments
If the institute is unlikely to need to access cash over the longer term then consideration should be given to the return that may be achieved from that cash having regard also for the potential risk associated with any investment. In respect to those monies not required immediately but needed in the medium term (say less than ve years) then advice should be sought on whether such cash might be placed on term deposits that provide security but give rise to
a return greater than might be obtained from simply holding the funds in
a current account or simple instant access deposit account. Where monies
are unlikely to be needed in the longer term other than to generate income, advice should be sought on whether such funds should be invested in listed investments, for example. Before doing so, the institute might give thought to the following:
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