Accounting for Gifts and Endowments

Fund Values:

There are two values that apply to endowment funds: Book Value and Market Value.

Book Value: This is the value of the actual gifts deposited to a fund, adjusted for transfers, capitalizations, or decapitalizations. The total book value is made up of two object codes; 3881 – Historical Dollar Value (HDV) – which is made up of donor gifts and any transaction authorized by the donor. And object code 3882 – Non- Historical Dollar Value (NON-HDV), which includes transactions initiated and approved by the FAS or the University, such as capitalizations of income. These values can be found in the Transaction Listing Report.

Market Value – This is what the endowment fund is worth today if you were to sell the investments it holds. The market value of the fund may be obtained by contacting Endowment and Gift Manager (currently Linda Kuros) in the FAS Office of Finance and is only available as of the end of the fiscal year, once the year end audit is complete (this is usually in the Fall).

Treasurer’s Distribution:

The treasurer’s distribution is the amount of income distributed annually to each individual endowment fund. This income is available to spend for current year activity as specified by the fund terms. There are two types of distributions: the baseline distribution and the strategic payout. The distribution is determined annually by the Corporation during the next year’s budget process.

Base-line Distribution

The base-line distribution is the first distribution paid out to a fund and is posted to object code 4410. To calculate the base-line distribution, multiply the number of units in a particular fund by the base-line distribution rate. This distribution is based upon the average number of units held by the fund during the prior 12 months from June 1 through May 31 (Average Principal Units- APU). If new gifts have been received in the current fiscal, they will not be entitled to a distribution. The following year a prorated amount will be included to determine the average number of units held in the past year (APU).

The distribution is funded by a combination of the earnings per unit from the previous year and decapitalization of appreciation from the endowment fund. In years where the University earned flat endowment returns, newly established funds may have had insufficient appreciation to cover the difference between earnings and the distribution. In these cases, only the earnings plus available appreciation is distributed (smaller than normal distribution).

Strategic Payout

Occasionally the Corporation will approve a second distribution rate called the Strategic Payout. The purpose of this payout is to fund programmatic priorities as determined by the President of the University and Dean of each School.

When offered, this payout grows at the same rate as the base-line distribution and is calculated in the same manner except the APU is multiplied by the strategic payout rate; in the past, this distribution was posted to object code 4415. Beginning in FY13, if there is a strategic payout, it is combined with the baseline payout and posts only to object code 4410.

Assessments:

Endowment funds are subject to 3 assessments:

Central Support Assessment

The Central Support Assessment, or CSA, was established by the Corporation in fiscal year 2002 and is equal to 10% of the distribution. Income generated through this assessment support the cost of central administrative activities. The assessment is scheduled to continue through FY2031 and is subject to periodic review by the Corporation.

Academic Support Assessment

The Academic Support Assessment, of ASA, was established by the Corporation in 1993. This assessment is deposited to a school-level fund and supports school-level administrative costs for instruction and research activities (such as admissions, financial aid office, libraries, and facilities management). The fund is commonly referred to as the “Dean’s sweep” and is equal to 10% of the net distribution after the CSA, or 9% of the gross distribution. For FY21, the Corporation has approved a one-time increase in the annual assessment charged to all endowment funds to cover operating costs at the School-level. As a result, the ASA will increase from 9% of the distribution to 12%. This extra assessment directs funds to the Deans to help support transitions to remote learning and research, including the necessary investments to continue to support an environment of academic excellence. The last time the University imposed a special assessment was in 1997 to replenish the reserve for the benefits fringe.

Administrative Expense Allocation (AEA)

The Administrative Expense Allocation, or AEA, was established by the Corporation in 1993. This assessment is designed to support administrative costs related to the maintenance of endowment and gift funds and their use in supporting the mission of teaching and research. The current AEA rate for FAS endowment funds is 11.1% of the annual treasurer’s distribution and is charged using object code 5930 (for the baseline distribution) and object code 5931 (for the strategic payout). The AEA charges are assessed once a year after the treasurer’s distribution has posted, usually by the end of August.

The analogous administrative charge assessed on restricted current use gift funds is 15% of operating expenses. The 15% is applied to charges in expense object codes 6000-8999 (excluding direct student support and object code 8922) of the prior month and posted as an expense charge in object code 8922. AEA on current use funds is posted the middle of the following month.

Interest on Unexpended Balances:

Interest is paid annually on unexpended balances in endowment and gift funds. The interest rate is set by the University Treasury Department through the annual budget process. Interest is calculated by multiplying the June 30 unexpended income balance carried forward by the interest rate. Interest income is posted in July using object code 4530. If a fund is over-spent or in deficit, an interest charge is applied against the fund, at the same rate as interest earned and is posted to object code 7630.

Construction funds earn interest monthly on the available balance in the account.

Spending within the Terms:

When the University accepts a gift and the accompanying terms, it is of critical importance to ensure compliance with the terms. It is the responsibility of the department authorized to spend from the restricted fund to ensure that all expenditures charged to the fund are for the activity specified by the terms, and that all expenses are properly documented.

It is also critical for each department to maintain a record of terms for each fund it manages. The terms should be reviewed periodically with those responsible for spending from the fund. Each year the University’s Risk Management and Audit Services department and external auditors report misuse of donated funds. Terms for each fund are available on in the FINREPORT application, fund terms report and are accessible by a designated individuals in each department.

There may be funds that have very restrictive terms and/or are for an activity that no longer takes place at the University. In such cases, please contact the FAS Office of Finance, who will work with the FAS Development Office and Alumni and Donor Services (ADS) to determine if the donor or involved family members are living and, therefore, may be able to request a formal change in terms. If that avenue is not possible, it can be added to the funds on the cy pres list via ADS/ Office of the General Counsel. To explore this further, please contact the Manager of Gifts/Endowments in the FAS Office of Finance.

In addition, there are many fund terms that specify a flat amount of spending for the given activity. For example, a prize fund may specify that the amount per prize recipient may not exceed $200. In these cases, it is acceptable to increase the flat amount by the Consumer Price Index (CPI) annually. The FAS Office of Finance can assist you with these calculations.