|
GIFTS / ENDOWMENTS
DEFINITIONS
Gift:
A gift is an unconditional donation to an institution for which the donor does not expect to receive any reciprocal benefit. For the purposes of this document we focus on monetary gifts.
Endowment Gifts:
An endowed gift requires the gift corpus be held in perpetuity and only the income generated by investing the corpus may be spent. Most endowment gifts are invested in the endowment pool, and units of the endowment are assigned to the individual endowment fund. Units are, in effect, a share of the endowment. The number of units a fund receives is based on the gift value as well as the value of the endowment pool at that time. The University calculates the unit value of the endowment pool monthly. Units are then used to monitor the market value and to determine the annual treasurer’s distribution to the fund. Income distributed per University policy becomes available for current use spending. The funds must be spent in accordance with the terms set forth by the donor.
Endowment funds may be categorized as unrestricted or restricted. An unrestricted endowment must be used for general purposes of the tub holding the funds. Restricted endowments are funds established for a more specific purpose, such as a specific department or programmatic activity. An endowment fund for the general purposes of a particular department is considered “restricted” by the tub since it is restricted to the activities of a particular department.
Endowment funds are also further categorized as either Quasi or Permanent Endowment funds. Quasi Endowments are gifts in which the principal may be spent down, but the University chooses to invest the gift in the endowment, therefore making only the annual treasurer’s distribution available for current use purposes. The unit holding the fund may decide from time to time to spend some of the principal. In cases when a portion of the principal is needed, the unit must submit a request to decapitalize a portion of the principal (see section on decapitalization of funds). Permanent Endowments prohibit the use of the original gift corpus; only the income generated from the investment may be spent.
Endowment funds appear in the General Ledger in fund range: 400000 to 699999.
Current Use Gifts:
A current use gift is a donation that may be spent down in its entirety. Like endowment gifts, current use gifts can either be unrestricted or restricted. An unrestricted gift may be used for the general purposes of the tub in which it is established, while restricted gifts are limited by the donor for a particular, defined purpose.
Current use gift funds appear in the general ledger in the fund range: 300000 to 399999.
Add to the Income (Endowment) Gifts:
Add to the income gifts are donations deposited to an endowment fund, but are not added to principal. These donations are treated as current use gifts and can be spent immediately according to the terms of the endowment fund. The decision to designate these as add to the income, or current use gifts is made by the donor, not the Department or Center. A donor makes this type of gift if the income expected to be generated by the fund corpus is insufficient to carry out the donor’s intent of the endowment fund. Add to the income gifts are more common in recently established endowment funds where the fund has not yet received a full year’s distribution.
Construction Gifts:
Construction Gifts are gifts designated for construction projects and the entirety of the gift can be applied to costs of a construction project as specified by the donor.
Underwater Funds:
The term “underwater” is used to describe an endowed fund when its current market value is less than its historic dollar value (the historic dollar value = donor gifts and donor required capitalizations. The book value that appears in the general ledger is the current proxy for historic dollar value). For example; suppose a donor gave $100,000 to set up an endowment fund in September 2008. However by June 30, 2009 the fund’s market value was $85,000. Since the market value is less than the historic donor value (the $100,000 amount of the original gift) the fund is considered underwater. While a fund is underwater the annual income distribution may be limited..
Criteria for Defining Sponsored Gifts:
Non-federal external funding received by the University may be classified as a gift or a sponsored grant depending on a number of criteria. If it is determined that the funds are a gift, the fund is set up through the FAS Office of Finance and the Recording Secretary’s Office and must follow gift fund policy in the FAS. Appendix A provides guidance on distinguishing between a gift and a sponsored award. External funds received may have characteristics that fall within different categories thus, all of the factors in the appendix must be weighed in order to make a final determination.
Sponsored Award funds appear in the general ledger in the following fund ranges:
Federal Grants & Contracts:
100000-199999
Non-Federal Exchange Accounts:
200000-249999
Non-Federal Sponsored Gifts:
250000-299999
Link to OSP/ Setting up an Award
Link to RAS website
PROCEDURES FOR PROCESSING ENDOWMENT AND CURRENT USE GIFTS
Once it has been determined what type of fund should be set up to accommodate a donation, the Department or Center should follow the procedure below pertaining to the particular fund type:
Donors wishing to establish endowment funds should first work with the FAS Development Office. The FAS Development Office will draft fund terms and set up, if necessary, a pledge payment schedule. Endowment funds are generally set up at the request of the Recording Secretary’s Office after the FAS Development Office has worked with the donor.
New Fund Set-up Procedures:
The Department must complete a gift account request form. It is especially important to include the full proposed title of the fund, coding to credit the gift, fund terms and the balance forward designation. Requests for new funds will not be processed without donor terms. Original donor correspondence indicating the gift purpose is sufficient for current use gifts.
The completed form, check (if applicable), and all pertinent documentation should be forwarded to Linda Kuros, 1414 Massachusetts Ave, 4th Floor. Requests will be processed by Linda and forwarded to the Recording Secretary’s Office (RSO). All original documentation is sent to the RSO which is the office of record for donated funds. Both the department and FAS Office of Finance should maintain a copy of the gift documentation.
Once a request is approved, a new fund number will be assigned. The FAS Office of Finance will notify the requesting department via email of the new fund number once it is established. Beginning in 2011, a notification process was put into place to ensure that all departments receive the information needed to manage new gift funds. Departments must acknowledge (via email) that they’ve received the fund notification within two weeks of receipt. Requests for new funds usually are approved within a few days. The approval process may take longer during peak gift giving periods such as calendar year end (December/January) and fiscal year end (June/July).
Gifts to Existing Funds:
Gifts received (by departments) that need to be deposited to an existing fund should be forwarded directly to the RSO along with any correspondence included by the donor(s) using the RSO gift transmittal form.
FUND ATTRIBUTES
Fund attributes are additional pieces of data that provide further information about the fund to ensure proper accounting and classification.
Gift/Interest Override Attribute:
This attribute serves two separate functions.
- It is used to specify both current use/endowment gift deposits to a specified string of coding.
- It is also used to specify what string of coding to post interest earned/charged on unexpended income balances.
For gifts: The RSO system posts gifts to two segments; tub and fund. When the information is submitted to the general ledger, the system looks at the gift override table to determine what org, activity, sub activity and root shall be used to credit the gift.
For Interest: The system uses the string of coding indicated by this attribute when posting interest earned on positive unexpended income balances. It also uses this string to charge deficit balances. The coding in this attribute table is used for current use, endowment and unrestricted designated fund unexpended balances.
Treasurer’s Distribution Attribute:
This attribute directs the system to determine to which 33-digit code to post the annual endowment distribution.
Both the gift/interest override attribute and the treasurer’s distribution attribute are assigned to endowment funds, however only a gift/interest override is assigned to current use gift and unrestricted designated funds.
The FAS Office of Finance recommends using tub, org, and fund (please refer to the new gift account request form to determine the most appropriate option) when selecting default coding for these fields. More often than not, simpler is better.
The coding provided on the new gift account request form is used for these overrides. While it is not required, it is recommended to use the same coding for the treasurer’s distribution override and the gift/interest override.
Balance Forward Designation:
The balance forward attribute is used to specify to which level of coding the unexpended income or gift balance should carry forward to the next fiscal year.
Values and descriptions of the available designations can be found on the bottom of the new account request form. We recommend that you carry balances at the same level of segments as the gift and treasurer’s distribution overrides. This will ensure all segments carry forward in a consistent manner
If no balance forward designation is chosen, the FAS default of BO (Tub, Org, and Fund) will be selected.
In some cases the balance forward designation is pre-determined by the department that “owns” the fund (when cross vals are used). For example: If Department A has use of Department B’s fund, any unexpended balance in A’s tub and Org will roll forwarded as designated by the fund’s owner, Department B. If Department B has designated the balance forward attribute of B (tub-fund), then the unexpended income for department A will carry forward to the tub level. In this case, you should contact the FAS Office of Finance to resolve the viewing issue of the unexpended balance allocated to your department.
Override and the Balance Forward Designations can be changed at any time however, any gifts and treasurer’s distribution already posted to the general ledger will need to be updated via a journal entry. Balance forward changes also require journal corrections, which must be done by the FAS Office of Finance. Please submit a written request to Linda Kuros if you wish to change any of these attributes with respect to gift funds. Changes to unrestricted designated funds should be forwarded to FAS Application Administration at appsadmin@fas.harvard.edu.
Changes to gifts in endowment funds can only be processed by General Accounting, with the approval of the RSO. Please submit a written request to Linda Kuros if you wish to modify an endowment gift segment.
Department and Centers may reallocate current use gifts and endowment distribution between orgs and activities, within a fund/within their unit, by using the following object codes:
| Object Code |
Description |
| 4351 |
Gift Transfers Intra Fund^Current Use Gifts |
| 4411 |
Treasurer's Distribution Transfers Intra Fund |
| 4531 |
GOA Interest Transfers Intra Fund |
Please note that both the debit and credit entry must use the same object code and the entry must be posted within the same fund.
Local Attribute #2:
This attribute gives departments the ability to further classify funds, and can be useful for reporting purposes. For example: if a department wishes to group several of its funds together by purpose, a code can be added to this field allowing the department to query on this code. This attribute can be used for gift, endowment and unrestricted designated funds. For funds under a faculty member’s direction, the faculty member’s root value is assigned so a department can easily report on a particular faculty member’s funds. Departments can also use this attribute to sort their funds. The attribute must be assigned to the fund through a chart maintenance request processed by the FAS Office of Finance. Please contact Linda Kuros or FAS Application Administration if your department has a need to organize funds in this manner.
Please note that the Funds, Gifts, and Unrestricted Unexpended Balances report is the only report that shows the local attribute #2 field.
Fund Purpose Code:
The fund purpose code indicates the purpose of an endowment or current use fund at a quick glance. This is useful for reporting purposes as it enables a unit to group similar funds using the purpose code. This attribute is defined at the University level and is most meaningful at the University and Tub level. Appendix B lists all of the purpose codes available to FAS and Affiliates under the GL Code column. This code is assigned by the FAS Office of Finance when the fund is established and can also be found on the Funds, Gifts, and Unrestricted Unexpended Balances report (FGUUBR).
GIFT ADVICES
Gift advices are used to provide departments with more information about a gift deposited into one of the funds it manages. Gift information posted to the general ledger does not provide the donor’s name, which is often important information for departments.
In order to obtain the donor’s name and other information about the gift, departments need to run gift advices. To access gift advices, departments must log onto the RUFFAS application (Reporting Utility for FAS). Tubs, Departments and Centers are notified via email when a new gift has been posted to one of their funds, and can then access the gift advice report in RUFFAS to review information such as donor name, address, amount, and gift type.
The Gift Advice and CREW report (detailed listing) should be reconciled regularly by the managing department to ensure that gift information is recorded properly between the two systems. Many departments use gift advice information to thank donors for their gifts in addition to the acknowledgements sent by the RSO.
If gift monies received are designated as an “Add to the Income” gift within an endowment fund, the advice will have an RG at the end of the endowed fund number. If RE is present after the fund number, the gift is deposited directly to the principal of the endowed fund.
ACCOUNTING FOR GIFT AND ENDOWMENT FUNDS
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 at the time they are received, adjusted for transfers, capitalizations or decapitalizations. You can obtain the book value of a fund through the general ledger in object code – 3880.
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 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 fairly 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
Beginning in FY06, the Corporation approved a second distribution rate called the Strategic Payout. The purpose of this payout was to fund programmatic priorities as determined by the President of the University and Dean of each School.
From FY06 – FY09 only selected funds were chosen to receive this distribution to fund programmatic priorities as defined by the President and Dean. Beginning in FY10, all FAS funds received this distribution in addition to the baseline distribution. 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; this distribution is posted to object code 4415. Beginning in FY13, the baseline payout and strategic payout will be converged. The payout a fund receives, beginning in FY13, will appear in object code 4410 only.
Assessments:
Endowment funds are subject to 3 assessments:
- Central Support Assessment (CSA)
- Academic Support Assessment (ASA))
- Administrative Expense Allocation (AEA)
Central Support Assessment
The Central Support Assessment, or CSA , was established by the Corporation in fiscal year 2002 and is equal to 50 basis points (one half of one percent) of the June 30th market value of all funds. 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, or 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 offices, libraries, and facilities management). The fund is commonly referred to as the “Dean’s sweep” and is equal to 10% of the gross distribution.
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. This rate is also set during the annual budget process.
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 the FAS Reporting Website- RUFFAS and are accessible by a designated individual 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 call the FAS Office of Finance which will work with the FAS Development Office to determine if the donor or involved family members are living and, therefore can request a formal change in terms. If that avenue is not possible, it may be necessary to take action through the Office of the General Counsel. To explore this further, you should contact Linda Kuros in the FAS Office of Finance.
In addition, there are a number of 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.
Transferring Funds:
In general, donations deposited to a restricted fund must stay in the restricted fund for compliance and stewardship purposes. Funds deposited into a restricted fund
should never be transferred to another fund. Transferring funds makes it difficult to report accurately to donors on the use of the fund. It also leaves an inadequate audit trail and raises questions as to whether the funds were used according to the donor terms.
On occasion it is necessary to allow spending from a fund by another department. In those cases, funds may be transferred to a department’s coding within the restricted fund. This is accomplished by loosening the security rule (cross val) to allow another department to charge directly to the fund. In this case, you would also need to transfer the amount of funding you are authorizing to the other department using object code 5910 or 5921 (please see the internal transfer policy for determination of object code. Please contact the FAS Applications Security group when a cross val is needed. If a gift or endowment fund is involved, a brief description of how the fund will be used is required. This is to ensure that the transfer and use of the fund will comply with the terms of the fund.
Monitoring Balances:
As with all funds, balances should remain positive. Should a fund fall into deficit, it is the fiduciary responsibility of the department to transfer expenses out of the fund. Do not transfer income into the fund from other sources. As noted under the interest on unexpended balance section, funds with a deficit balance at the close of the fiscal year are charged an interest fee in July of the following year.
Miscellaneous Receipts:
Financial managers have a fiduciary responsibility to ensure that spending from gift funds is done in accordance with donor terms. In FY01, the University established the Miscellaneous Receipt Policy which allows for up to $1,000 per year to be deposited to a restricted fund. This policy was established to allow for easy management of small dollar funds. Bear in mind that other income deposited to a gift fund (e.g. fee income, membership dues, etc.) is subject to the restrictions of the fund where the money is being deposited.
RECOMMENDED REPORTS FOR MANAGING RESTRICTED FUNDS
Detail Listing:
This report provides a detailed listing of all transactions posted to a fund. The report is helpful when you want to see the date and amount of gifts deposited into a fund, units assigned and detailed transactions of all activity within a fund.
Fund Summary Report:
This report provides a high-level view of the activity in a fund. The report shows a complete picture of the financial status of a fund by showing the beginning balance, transactions by object code and the fund’s ending balance. This report does not show the principal balance, principal gift activity or endowment units.
Funds, Gifts, and Unrestricted Unexpended Balances:
This report provides summary information (beginning balance, total income & expenses, and ending balance) about a fund. The report is useful in providing summary information on many funds in one report. You may also use this report to sort/view funds assigned the Local Attribute #2 and the Fund Purpose Code. This report does not include the principal balance, principal gift activity or endowment units.
CAPITALIZATION AND DECAPITALIZATION OF FUNDS
To capitalize a fund is to add endowment income earned, or accumulated fund balances, to the principal of the fund. These additions increase the principal value of an endowed fund, and add to the endowment value (i.e. additional units are assigned) which allows the fund to earn more income in future years.
Decapitalizations occur when a portion of the principal of the fund is divested and made available to support current operations.
Required Capitalizations and Standing Orders:
There are many types of endowment funds established at Harvard, and many must reach a minimum balance before income earned can be used. Minimum balances are established so funds can generate sufficient income to support the intended purpose. The minimum balance to establish a general endowed fund within the FAS is $100,000.
Income Distribution on funds that are established before the minimum balance is reached must have that income capitalized until the donor’s giving receipts have reached the University minimum. To accomplish this, the RSO creates a standing order when the fund is first established. Standing order entries are processed by the General Accounting Office (GA) each July. GA also reviews the standing orders each month to determine if the fund has reached its minimum balance and can be activated. The standing order is removed once the fund has signed terms and has reached its minimum gift balance. The RSO submits a request to remove the standing order and the owning department is notified by the FAS Office of Finance that the fund has been activated and is available for use.
Income capitalization may also be donor mandated as part of the terms of the endowment fund. Such mandates may require capitalizing set amounts annually, percentages of current year income, or any unexpended income at fiscal year end. Standing orders for these mandates are processed in the same manner as University minimums.
Standing Orders are closely tied to University capitalizations. They are instructions (journal entries) imposed by the donor or the University as to the disposition of income earned on an endowment fund. A standing order may require the return of current or unexpended income to principal and/or the transfer of current year income between University Departments. The Recording Secretary’s Office establishes the standing order based on the donor’s terms or University minimums. GA maintains the standing order list.
There are three types of standing orders:
- University minimum balance – transfers of income directly to principal. GA posts these in August each fiscal year.
- Transfers (per terms) of income to different departments or schools – Posted by GA in September each fiscal year. Standing orders of this type are posted via object code 5900.
- Unexpended Income (per terms or University policy) – these standing orders are posted during 4th close each fiscal year end (FYE) by GA.
The FAS Office of Finance maintains a database of standing orders that have special arrangements established by the FAS Dean. These are maintained by Marisol Tabares.
Optional Capitalizations:
A Tub, Department or Center, by written request to the FAS Office of Finance, may also request to capitalize unexpended income (if not prohibited by the terms) if there are no plans for the use of the funds in the near future. A Cap/Decap request form must be completed and approved by the appropriate departmental staff. The completed request form should be forwarded to Linda Kuros. If approved by the FAS Office of Finance, the request is then forwarded to the RSO for approval. Once approved, the request goes to the Controller’s Office for processing.
Occasionally, a department may want to capitalize a gift fund (quasi-endow) if it is determined that the gift is not needed for the next 3-5 years and an ongoing income stream is more beneficial to the operations of the department or program. If a department wishes to capitalize a gift fund, the department should first discuss this with the department’s Director or Chair and then contact the FAS Office of Finance to further explore this option. All capitalization requests must be approved by the FAS Office of Finance and the RSO.
All requests sent to the FAS Office of Finance will be carefully reviewed to determine if capitalization is the best use of the department’s unexpended income. The Office of Finance may approve the request after long term fiscal and programmatic implications have been considered and analyzed.
Decapitalizations:
Decapitalizing funds allows a department to divest a certain portion from principal and use it for current expenditures. A department may only divest from principal if the terms of the fund allow.
A request form to decapitalize principal can be found on the FAS Office of Finance website. Please complete the Cap/Decap request form and forward it to Linda Kuros in the FAS Office of Finance by March 15th, each fiscal year, in time for the May Corporation Meeting
Requests must include the following information:
- The fund(s) that you propose to decapitalize.
- The amounts you propose to decapitalize (this can be stated as not to exceed a certain $ amount).
- The planned use of the decapitalized proceeds.
- An explanation of how the Department will manage with less income, as a result of the proposed decapitalization, in the following years.
Upon review and initial approval by the FAS Office of Finance, the request is forwarded to the RSO and VP for Finance for further review and approval. General Accounting will process the decapitalization upon both parties’ approval. Requests that exceed $250,000 must also be approved by the University Corporation.
Capitalizing and Decapitalizing funds is only recommended if the action has been reviewed and vetted in the context of a a long term assessment of the department’s needs. To capitalize income for only a short-term period is discouraged since the investment strategy for the endowment is based on long term results.
Frequently Asked Questions
What do I do when I receive a check for a gift?
First, review the criteria for distinguishing gifts from sponsored awards in Appendix A. If the gift meets any of these criteria, contact the FAS Research Administration Services office (Elizabeth Lennox) for assistance in determining whether this is a sponsored award.
If it is an endowment, please contact the FAS Development Office (Beth Thompson) to work with your department and the donor on terms. The FAS Office of Finance will work closely with the RSO and FAS Development to ensure the appropriate documentation and terms exist. Once the correct information is in place, a new fund will be established. Linda Kuros will then send an email notification with the new fund number, terms, and current income distribution (net of AEA) to the department.
For current use gift accounts, send the following materials to Linda Kuros in the FAS Office of Finance:
The FAS Office of Finance will inform your department when the fund has been established. Typically, this takes two weeks from the time the check is mailed. Financial managers must retain copies of gift documentation to ensure spending is in accordance with donor's terms.
If you receive a check to supplement an existing gift or endowment account, send the check, any attached correspondence, and the 33-digit account code directly to the Recording Secretary's Office using the gift transmittal form.
NEVER DEPOSIT A GIFT USING A CREDIT VOUCHER FORM.
When will a Department begin receiving income distributions from an endowment account?
The University has set minimum capitalization levels for different types of endowment funds. This means that principal must accumulate to a specified amount before an annual income distribution is available for current use. Until a fund reaches its minimum capitalization level, annual interest earnings from the endowment will be added to principal.
The minimum level to create a new endowed fund is $100,000. Exceptions may only be granted by the RSO and FAS Development Offices.
This policy exists to ensure that endowment funds are large enough to fund the purpose for which they have been established. When a fund has reached the required minimum, departments will receive a notification from the FAS Office of Finance that the fund has been activated.
If additional gifts to an existing endowment are received during the year, will it yield additional income to be used in that year?
No. The gifts will receive their first (pro-rated) distribution in the following July, which is calculated based on how many units were held during the previous 12 months. These are often referred to as the average principal units (APU).
Here is an example to illustrate the policy:
A gift of $1 million is added to an existing endowment on July 15, 2010. Assume that the gift received 2,000 units, with a unit value of $500 and a distribution rate of $20 per share. Assume that there are no additional gifts in FY2011.
Under the policy, the first payout on the endowment would occur in July 2011 (FY12) and would be based upon the average number of units the fund held during FY11. The APU is calculated on a June 1 through May 31 basis. Therefore, the average number of units this fund has in FY11 is 1,833.3333 ((2,000 units/12 months) X 11 months). The yield in FY12 would be $36,666.67. In FY13, the fund would calculate its distribution based on 2,000 units because the average number of units for FY12 would be 2,000 units.
If an endowment fund has accumulated a large unexpended income balance can a Department capitalize this income? (Capitalize means to add the income balance to principal.)
Yes, pending approval of the FAS Office of Finance. Typically, this occurs during fiscal year close. Please complete a Cap/Decap request form. If the FAS Office of Finance approves the request, it will be forwarded to the Recording Secretary's Office for final approval and processing.
Because capitalization is not a temporary action, a Department must be reasonably sure that it will not need the funds in the foreseeable future. By capitalizing unexpended funds, a Department will increase the endowment's future annual distributions.
Can faculty members make gifts to the University to support their research?
They may as long as they derive no personal benefit from the gift and do not directly control the funds. For example, the funds could support lab supplies, equipment, or post-docs, but not personal travel expenses.
All gift funds belong to the University, and cannot be withdrawn should the faculty member leave the University. Also, any equipment purchased becomes the property of the University.
What happens if an account falls into deficit?
Financial managers have a fiduciary responsibility to ensure that accounts do not finish the year in deficit. Throughout the year, departments should check the status of their endowment, gift, and unrestricted designated funds. If any funds are in deficit, expenses should be transferred out of the fund to bring it into balance. If the fund remains in deficit at the end of the fiscal year, an interest charge will be posted to the fund in July of the following year.
What should a Department do if a gift deposit is made by accident via credit voucher?
If a gift does get deposited by credit voucher, one of two things may happen depending on the object code you credit.
- It may get processed as you’ve instructed
- Or it may end up in the FAS Office of Finance default account.
If a department catches its own deposit error, the appropriate person should submit a payment request form through the HCOM system (for the amount of gift that was deposited by credit voucher), made payable to the President and Fellows of Harvard College, using the same code that was originally credited on the credit voucher. Once the department receives this check, it should be forwarded to the RSO with original donor correspondence, a copy of the original check and the applicable tub and fund number. The RSO will deposit the gift through gift system.
If scenario #2 occurs, please notify Linda Kuros (6-3934) or Michael Jackson (5-1526) in the FAS Office of Finance. A payment request form to debit the default account will be processed. The department in question will be asked to submit to the FAS Office of Finance information relating to the donor (name, address and any correspondence).
ADDITIONAL LINKS
Recording Secretary’s Office
Gift Policy Guide
FAS Research Administration Services
|
print