Managing financial risks
In order to reduce investment and foreign exchange risks, War Child adheres to a strict Treasury Policy, which is approved by the Supervisory Board. In short, War Child does not take avoidable risk with the money that it has been entrusted with by its donors, which needs to be available within a short timeframe. For these reasons, neither long-term nor short-term investing with a speculative character is appropriate for War Child and fall outside our mandate. Only short-term investing in the safest short-term securities remains a possibility. To date, War Child has not yet made such investments. Since its inception, War Child has never invested any money in securities. During 2013, all of War Child’s available funds were deposited in accounts with reputable banks. In 2013, War Child opened a savings account with ASN bank.
War Child aims to maintain its cash holdings in euro and in the Netherlands to the largest extent possible. By the end of 2013, 77 percent of its funds were held in four Dutch banks (€ 6.7 million). Most country offices have accounts in euro as well as in local currencies. War Child head office and some project offices have bank accounts in US dollars to account for donor grants and expenditures in US dollars.
In accordance with the Dutch Accounting Guidelines for fundraising institutions (RJ650), War Child holds a continuity reserve to ensure a buffer allowing the organisation to function in the case of adverse financial incidents.
War Child annually monitors the desired size of its continuity reserve based on risks perceived, which is approved by the Supervisory Board. The risk analysis includes stress testing adverse events such as a major security incident, or reputational damage resulting in stagnating income over the next three years. The most recent analysis was performed in December 2013 and resulted in target level continuity reserves of € 3.3 million to survive multiple incidents occurring in a period of one year, € 4.9 million to ensure continuity if multiple incidents last for two years, and € 5.7 million to cover a period of three years of ongoing incidents.
The continuity reserve at the end of 2013 was € 5 million, which, according to the risk analysis, ensures continuity for the organisation over a period of two years of adverse incidents. This is 87 percent of the target level needed to cover the worst case scenario of three years of ongoing incidents. War Child will gradually grow its continuity reserve and expects to reach the target level for the worst case scenario within the next five years. War Child has chosen to take a number of years to reach the target level to ensure that continuity reserve growth does not occur at the expense of current programming capacity.
War Child’s continuity reserve is in compliance with the demands of VFI as stipulated in its policy for financial control of NGOs (‘Financieel Beheer Goede Doelen’). The maximum continuity reserve is 1.5 times the specified annual costs of the organisation. With annual costs of € 13 million, War Child’s maximum continuity reserve would be € 19.5 million.
Added to My report
add to My report