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Endowment Income Spending: Oversight and Compliance

  • 1.  Endowment Income Spending: Oversight and Compliance

    Posted 15 days ago
    Hi All -- I posted on this topic last August and am curious if people can help with some follow-up questions re: the role of an org's Finance departments in endowment income spending oversight: 

    1. Would it be fair to say that an organization's Finance department should proactively enforce its spending-rule policies on endowed funds?  That is to say, if there is chronic under-spending or even no spending out of an endowed fund income account (and NOT because of too-restrictive objectives of the fund that makes spending hard to impossible), the Finance and/or Budget teams should have the reporting mechanisms, policies, and personnel in place to proactively rectify the issue in whatever form that may take, e.g. a commensurate reduction in annual division/departmental budget allocation, a "takeover" of the fund in question, or something else, so that the problem does not continue?
    2. If the answer to #1 is "Yes," how common is the practice?  I.e. is this standard practice that a Finance Dept takes "buck-stopping" ownership of monitoring endowment income build-up and enforcing related policies to prevent it?
    Thanks for any input. 

    Tom



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    Tom Yates
    Temple University
    Executive Director of Gift Planning
    215-926-2545
    tyates@temple.edu
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  • 2.  RE: Endowment Income Spending: Oversight and Compliance

    Posted 15 days ago
    Tom, reading between your lines I cannot help but think you are fighting a battle of some sort :-)

    The apparent answer to item #1 is a resounding yes.  If an institution has a formal policy on any topic, the policy is of little use if the same policy does not address compliance and assign responsibilities.  That said, I cannot blanketly state that the compliance you are looking for must reside in the Finance division. Indeed, that would seem the logical owner.  However, your Endowment Policy could specify a different overseer.

    But, regardless of the overseer, the policy should dictate the protocol to follow.  And, ultimately, your Board has final authority over all of this as they (usually) are the ones who approve these policies.  If another division determines that anyone is violating any policy, it is their responsibility to bring those violations to the attention of management.

    However, I must add that Advancement has a role in this area - especially when it comes to ensuring donor intent is followed.  And, more to the point, Advancement owes it to the institution to work with the donor or their heirs to amend endowment agreements that prove too restrictive.  That donor interaction does not belong with Finance - that is our job.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 3.  RE: Endowment Income Spending: Oversight and Compliance

    Posted 15 days ago

    Thanks John.  Yes, I'm addressing how to handle the issue internally, not with donors.  Fundraising office always interacts with donors, including efforts to amend "bad" agreements when possible.  

    If I'm reading your response correctly, it seems like it doesn't necessarily have to be the Finance Dept that oversees/enforces compliance, but 1) chronic policy violations should come with repercussions and 2) departments charged with oversight should have the tools and a formal mechanism in place to report violators up the chain of command... and it's ultimately up to executive leadership and Board to see that those policies are enforced.  

    Thanks again, 

    Tom



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    Tom Yates
    Temple University
    Executive Director of Gift Planning
    215-926-2545
    tyates@temple.edu
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  • 4.  RE: Endowment Income Spending: Oversight and Compliance

    Posted 15 days ago
    That's pretty much where I come down on the endowment fiscal oversight issue.

    Official institutional policies should identify departments responsible for the compliance, as well as what body has "authority" for the policy.  I am right now looking at several of our policies from NC State issued by the Board.  These clearly indicate who, or what departments, are responsible for what.  In many cases, multiple areas are named.  Specific accountability reporting requirements are outlined, too.

    I cannot speak to the Temple Endowment Policy and who is responsible for what.  However, that is where you begin.

    The same policy should indicate what to do, or where to go when a violation of university policy occurs or is believed to exist.

    I will add that when it comes to endowment management issues, Boards typically play a huge role.  They usually are the ones demanding accountability reporting on all aspects of institutional financial health, including this area.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 5.  RE: Endowment Income Spending: Oversight and Compliance

    Posted 14 days ago
    Tom,

    It is a tricky issue for most of us given the lack of institutional mandate to compel departments to spend the funds that they receive. We have an obligation to donor intent, and that is how I try to frame the conversation internally. A few years ago we built a report in our Oracle BI environment that shows the multiple of most recent annual distribution amount that was in the spending account. In other words, if the previous year's distribution was $10,000 and there is $76,000 sitting in the account, the reader can quickly see 7.6 is the magic value to show them how unused the funds are. While there is no single number that sets off red flags, it is very helpful to be able to quickly illustrate concerns about spending (or lack thereof) to be able to say "Hey, you have over 7.5 years worth of distributions sitting there". Our enterprise CBO has been known to ask questions about it, but I'm not sure how many.

    -jsg

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    Josh Greenbaum
    Executive Director, Advancement Information Svcs
    Emory University
    josh.greenbaum@emory.edu
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