FACULTY ENDOWMENT INCOME MATCHING PROGRAM Procedures Handbook for Schools and Departments

This document was prepared by Jim Becker, Financial Management Support (FMS), with assistance by Steve Martin, FMS, and the University Budget Office (UBO), and updated by Susan Parrish, University Budget Office. For questions or comments about this document, please contact Susan Parrish at (812) 856-4609. For technical questions regarding the Faculty Endowment Matching Program, please contact Susan Parrish in UBO, or your campus, school, or departmental budget officer.

INTRODUCTION

BACKGROUND AND GENERAL OVERVIEW

ENDOWING THE FUTURE

ACCOUNT SETUP

DOCUMENTATION REQUIREMENTS

BUDGET AND MATCH CALCULATIONS

IUF EARNINGS REPORT

DISSEMINATION TO CAMPUSES

REPORT FIELD EXPLANATION

BUDGETING

FUNDED ACCOUNTS

BEQUESTS

BALANCE CARRY-FORWARD

REVISING BUDGETS DURING THE YEAR

TRANSFERS

IN

OUT

REIMBURSABLE EXPENSES

HOSPITALITY

DONOR INTENTIONS

ACCOUNT MATCH REIMBURSEMENT

PRESIDENT’S MATCH PROCEDURES

CAMPUS MATCH PROCEDURES

EXAMPLE OF TRANSFER FOR PRESIDENT’S MATCH

EXAMPLE OF TRANSFER FOR BLOOMINGTON CAMPUS MATCH

ACCOUNT EARNINGS REIMBURSEMENT

PROCEDURES

EXAMPLE OF INVOICE

REQUIREMENT OF 8100 WITH WIRE TRANSFER

REPORTING TO IUF

DEPARTMENTS

IU FOUNDATION

AUDITS

INTRODUCTION

This handbook is designed to provide the reader with information and procedures related to the Faculty Endowment Matching Program (FEMP). The handbook contains procedures performed by all IU organizations, and many procedures performed by the IU Foundation. The handbook delineates the flow of information and processes as Endowment Match accounts are created and utilized. Each section describes the procedures that organizations must follow.

Following this introduction is a table showing the general processes required for FEMP accounts. At the end of the document is a revised Process Diagram, which replaces all previous Process Diagrams for FEMP. Please use both tables as quick-reference guides for implementing FEMP procedures. 

BACKGROUND AND GENERAL OVERVIEW

(taken from August 20,1997 memo from Robert W. Holden, MD to departments in the School of Medicine)

Upon the recommendation of President Myles Brand, the Indiana University Board of Trustees authorized in August 1995,  the establishment of a program to match the endowment earnings generated by endowed gifts provided through the generosity of donors. This program was established and implemented as the Indiana University Faculty Endowment Income Match Program. Endowment funds received for the purpose of direct faculty support, especially for Chairs and Professorships, are eligible for this match program.

Following are some general guidelines pertaining to the FEMP:

1.  Endowment funds received after December 1, 1995 through December 31, 1999 for the purpose of direct faculty support, especially for Chairs and Professorships, are eligible for the match.

2.  The full match, that is 1:1, will consist of a payout equal to 5% of the original principal on an annual basis and will be available for gifts of at least $1,000,000. If the gift falls between $500,000 and $1,000,000, the match will be based on a ratio of 1:2. Payout will be in perpetuity. A contractual commitment will be provided to the donor.

3.  The source of the match will be one-half from University Administration and one-half from Campus Administration. At their option, Chancellors may choose to charge the successful unit for all or part of the campus's portion of the match, or they may distribute all or part of the charge to the entire campus.

4.  Any gift that is eligible for the match must be administered by the Indiana University Foundation or Indiana University and not by an outside trustee.

Funding and administration of each endowed professorship/chair will be in accordance with procedures established by and between Indiana University and Indiana University Foundation. In accordance with established procedures, a special Indiana University account will be created for each endowed professorship/chair identified under the FEMP. This account will receive the income from the endowment interest and from the University matching funds sources. This account will also be used to record expenditures of the funds related to the professorship/chair.

Due to the match requirement being effective with the creation of the endowed professorship/chair, the department/administrative unit's match funding will be identified from the effective date and annually thereafter. This is in accordance with the contractual commitment provided to the donor. If there is a time lag between the establishment of the professorship/chair and the naming of an individual to the chair, the matching funds will accumulate in the aforementioned special account created for each endowed professorship/chair. The funds will remain in the account until utilized for an appointed professorship/chair holder.

An income and expense budget will be established in the special account created for the professorship/chair. This budget will not include hospitality expenses and/or other expenses inconsistent with Indiana University policy. 

(taken from the IU Foundation publication)

1.  Endowment funds received after December 1, 1995 for the purpose of direct faculty support, especially for Chairs and Professorships, are eligible for this match.

2.  The full match, that is 1:1, will consist of a payout equal to 5% of the original principal on an annual basis and will be available for gifts of at least $1,000,000. If the gift falls between $500,000 and $1,000,000, the match will be based on a ratio of 1:2. Payouts will be in perpetuity. A contractual commitment will be provided to the donor.

3.  The match opportunity will be in effect until December 31, 1999. A maximum of $4,000,000 will be allocated during this time. Allocations will be made on a first-come, first-served basis, open to all campuses. Unspent available match funds will not be carried forward.

4.  The source of funds for the match will be one-half from University Administration and one-half from Campus Administration. At their option, Chancellors may choose to charge the successful unit for all or part of the campus's portion of the match, or they may distribute all or part of the charges to the entire campus.

5.  To take an example, Mary Jones donates $500,000 for endowment for a faculty position in the School of Public and Environmental Affairs at IU Bloomington. Assume that the payment from the endowment is $25,000 per year (that is, 5% of $500,000, the current spending policy of the IU Foundation Board of Directors). The match is 1:2 on this principal amount ($500,000) in perpetuity. Thus, in addition to the $25,000, SPEA receives an additional $12,500 per year for support of this position. Of the $12,500, University Administration will provide $6,250. The remaining $6,250 is the responsibility of, in this case, the Bloomington campus.

6.  Gifts may be paid over a maximum of five years. The match will be available only if there is a firm, written commitment. However, matching funds will be provided only to the extent that payment has been received (with one exception noted below). So, if there is a gift of $1,000,000 to be paid over four years and $250,000 is received the first year, then the matching funds for the first year are $12,500. Here the match rate is 1:1, and the payout is 5% of $250,000.

7.  In the case of irrevocable trusts established during the match period with no payment until termination of the trust, the institutional payout will begin when the trust is established.

8.  The University President, in consultation with the IU Foundation President, reserves the authority to limit eligibility. In particular, it should not be possible for a single mega-gift to deplete all matching monies. In order to determine the upper limit of a specific gift, a brief written proposal should be submitted to the IU President. The IU Foundation Executive Director, Capital Campaigns will be the initial qualifier of matches under this program.

9.  A qualified gift for a 1:1 match may be distributed between more than one endowed faculty program, where each would qualify on its own for a lesser match of 1:2, or no match at all. For example, a $1,000,000 gift will qualify for the 1:1 match regardless of how the gift is distributed among qualified programs. It is the size of the gift that matters, not how it is distributed among the qualified programs at IU.

10.  Any gift that is eligible for the match must be administered by the IU Foundation or IU and not by an outside trustee.

11.  Responsibility for authorizing exceptions to this policy rests with the University President. 

GIFT VEHICLES ELIGIBLE FOR THE MATCHING PROGRAM

Outright Gifts: (Cash and Securities)

Outright gifts of cash or securities that meet the minimum amount of $500,000 or above are eligible for the matching program. These commitments may be received (between 12/1/95 and 12/31/99) all at once or as a pledge paid over five years. Gifts of securities will be recorded at their fair market value on the date of transfer. Personal property will not qualify for the match.

Other types of funds will be handled on a case-by-case basis.

ACCOUNT SETUP 

DOCUMENTATION REQUIREMENTS

Prior to setting up a new Endowment Match account in the FIS, the following documentation is required. Items 1 and 2 are provided by the IUF Executive Director, Capital Campaign. Item 3 is provided by the IUF Executive Director, Planned Giving Services.

1. A copy of the Endowed Gift Agreement. This stipulates how the money should be spent.
2. A copy of the Income Matching Program Acknowledgement Form. This provides the name of the fund, donors, payment schedule, and appropriate IU signatures.
3. For bequests and other delayed gifts, a document indicating the gift is irrevocable. This allows the University to begin matching the gift even if the gift has not yet been received. For many gifts, an irrevocable clause within a legal document is sufficient. For gifts without such a clause, the donor should sign an Intent to Donate form. Without one of these types of documentation, the delayed gift account may not receive matching funds until the gift is received.

All of these documents should be provided by the IUF to the following IU units:

• School and Department
• Campus Chancellor
• Vice President  & Chief Financial Officer
• Vice Chancellor -Bloomington, and Dean of Academic Affairs
• Associate University Director of the University Budget Office

If your organization does not receive all of the documents for a particular account, contact the IUF Executive Director of Capital Campaigns. UBO staff will also maintain a complete copy of all required documents for Endowment Match accounts.

In addition to these documents, a summary of active and newly created accounts is kept by the IUF Executive Director, Capital Campaign. This summary is sent monthly to the entities listed above. 

BUDGET AND MATCH CALCULATIONS 

IUF EARNINGS REPORT

Each quarter, the IUF Executive Director, Finance, submits a report to UBO identifying annual available earnings and calculated match amounts for each account. This "IUF Projected Earnings Report" is forwarded to campus and school budget officers.

During Budget Construction in March and April, each account will be budgeted according to the most recent IUF Earnings Report. Only earnings and match funds should be budgeted (not unspent IUF earnings or match funds from prior years). Earnings are budgeted using income object code 1179, President’s Match funds and Campus Match funds are budgeted using income object contra expense object code 9915 sub-object PRS or SCH.

Each campus and/or school must compare their account budgets quarterly against the IUF Earnings Report to determine whether the earning and match figures have changed significantly. Earnings and/or match increases should be budgeted to useful object codes to represent anticipated expenses. If no additional expenses are expected, the increased income may be budgeted to unallocated balance.

If the IUF Earnings Report indicates a decrease in earnings or match funds, the department / school should contact the school budget office and UBO immediately to discuss alternatives.

Donations below $500,000 do not receive matching funds and are not maintained with a 28-XXX-XX account. Donations between $500,000 an $1,000,000 receive matching funds at a rate of 1:2 (that is, $1 of matching funds for every $2 of earnings from the donation). Donations $1,000,000 and over are matched at a ratio of 1:1. The match ratio is based on the total gift from the donor. Some donors split their gift among two or more departments, or even across schools, but the match ratio is based on the total gift from those donors. 

DISSEMINATION TO CAMPUSES

UBO staff disseminate the IUF Earnings Report to the campuses and schools. Any changes and/or corrections that arise (such as incorrect match amounts listed in the report) will be disseminated to the campuses and schools as well.

If a department, school, or campus has questions regarding the documents disseminated by UBO, or regarding whether action should be taken in a particular instance, they may contact UBO staff for clarification. 

The IUF Earnings Report contains the following information. The format will be changing in the near future, but the relevant areas will still exist.

Report Field Explanation

BUDGETING

FUNDED ACCOUNTS

BEQUESTS

BALANCE CARRY-FORWARD

REVISING BUDGETS DURING THE YEAR

Departments should contact  the UBO to confirm the level of available income when budgets are revised upward.

TRANSFER

IN

University Budget Office transfers the match amounts for the president and Bloomington campus. For all other campuses the University Budget Office transfers president’s amount and each campus’s Vice Chancellor of finance transfers the campus amount.

OUT

Transfer of Funds documents may not be used to move funds from FEMP (28) accounts to and other account. Expenses may be transferred by General Error Correction (GEC) or Disbursement of Income/Expense (DI/E) documents. Transfer of Funds documents may only be used within an account to move funds from the parent to a sub account.

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HOSPITALITY

Hospitality expenses on Endowment Match accounts must follow standard IU policy as stated in Policy I-50. In addition, in the near future other hospitality expenses may be allowed when the following criteria are met:

• the account must have hospitality expenses budgeted in the account;
• the expenses must be related to the donor intentions or have a clear business purpose; and,
• the expense must be reasonable.

Whenever hospitality expenses are charged to an account, the department must submit documentation to UBO to show that the expenses meet these criteria. The necessary documentation includes date, time and location of the event, attendees (including title and organization), and an agenda of the event.

Hospitality expenses that meet the current policy may be charged to any account. Hospitality not meeting current IU policy cannot exceed the available earnings for an account. Therefore, hospitality expenses not meeting current IU policy may not be charged to accounts that have no earnings income (bequest accounts).

Departments should be aware that specific hospitality charges might not be approved even though the budget includes hospitality expenses.

 

DONOR INTENTIONS

Most departments are aware of a donor’s intentions prior to the actual signing of Endowment Match Program documents. UBO staff encourage the departments to express to the donor the need for detailed donor intentions in the donor agreement, especially where unusual expenses are anticipated.

Chair holders may charge expenses that are directly related to supporting the position of the chair, or that enhance the distinction of the chair. UBO and IUF have determined that expenses that enhance the national and international stature of the chair, the department, and the University are allowable, even if the donor agreement does not specifically identify these expenses.

Departments must identify how the expenses relate to the chair holder’s position, or how the expenses improve the stature of the scholar, department, and University, and obtain approval prior to expensing the account.

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 ACCOUNT MATCH REIMBURSEMENT

The procedures for reimbursement to the Endowment Match accounts include a draw against all IU funding first, then if expenditures amounts exceed the IU match (from both the department and the President) a reimbursement is requested from the Foundation endowment earnings. If the IU Foundation earnings were not required during the last fiscal year the Foundation earnings have not been recognized in the IU records, and will remain available for reimbursement at the Foundation until required. The sequence of reimbursement for current year expenses is:

1. IU current year matches (from both the department and the President) (except for hospitality)
2. IU unused prior year(s) matching funds (carry-forward)
3. IUF current year endowment earnings
4. IUF prior year(s) earnings not yet required for reimbursement

Since the FEMP policies state that the IU matching amounts are required to be transferred to the account even if no FEMP expenditures are incurred in a given year in the 28 account it seems logical to draw against the current matching funds first. The Foundation endowment earnings are isolated and available for reimbursement as needed, but UBO does not submit a request for reimbursement to the IUF until all current year IU matching funds have been drawn down.  

 

PRESIDENT’S MATCH PROCEDURES

During the fall semester, UBO staff review all Endowment Match accounts currently slated to receive funding, according to the IUF Earnings Report. Based on that report, UBO staff prepare documents to transfer the matching funds from the President’s University Administration account to the individual Endowment Match accounts.

The University Budget Office creates a new account called the Endowment Match control account. UBO staff transfer funds from the control account to the various Endowment Match accounts, using the document shown below. The UBO then reimburses the control account from UA funds. This provides sufficient tracking of all President’s Match funds to the various accounts.

Endowment Match accounts that have earnings from the endowment must be matched according to the program guidelines. Departments with accounts that have no earnings yet (bequest accounts and other delayed-gift accounts) may choose whether to accept early matching funds for those accounts, with restrictions, as stated in the "Budgeting" section above.

If required, UBO staff will make additional draws from the control account according to the match requirements of the IUF Earnings Report. 

 

CAMPUS MATCH PROCEDURES

During the fall semester, the UBO staff also transfer campus match funds from the Bloomington campus to the various accounts, again following the IUF Earnings Report. The Bloomington Chancellor’s office creates a control account for campus matching funds on the Bloomington campus. The Bloomington campus has determined that the matching funds for Endowment Match accounts will come from the department receiving the endowment. The matching funds are transferred from the departments to the campus control account. Usually, the school or college takes responsibility for making those funds available for transfer to the campus control account.

UBO staff transfer the funds from the campus control account to the various Endowment Match accounts, using the document shown below. The campus budget officer then reimburses the control account from the various schools and/or departments. This provides sufficient tracking of all Bloomington campus Endowment Match funds to the various accounts. If required, UBO staff will make additional draws from the control account according to the match requirements of the IUF Earnings Report.

Indianapolis, East, Northwest,  South Bend, and Southeast campus Budget Officers transfer their portion of  Endowment Match funds directly to the various Endowment Match accounts. While the procedure for these campuses may be different from Bloomington, the transfer documents and object codes should follow this example. Match funds are expensed before earnings, so it is important for match funds to be transferred in the fall semester.

Endowment Match accounts that have earnings from the endowment must be matched according to the program guidelines. Departments with accounts that have no earnings yet (bequest accounts and other delayed-gift accounts) may choose whether to provide early matching funds for those accounts, with restrictions, as stated in the "Budgeting" section above. 

 

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ACCOUNT EARNINGS REIMBURSEMENT 

PROCEDURES

Endowment Match accounts are reimbursed from the endowment earnings only after all matching funds have been expended. Reimbursements are reviewed on a quarterly basis. UBO staff monitor the expenses for each account to determine which accounts need reimbursement.

For each account requiring reimbursement, UBO staff create an invoice to the IU Foundation. The invoice is printed and mailed to the IUF.  IUF is expected to pay the invoices in a timely fashion, as the process of invoicing the IUF will be separated from the process of reviewing expenditures.

IUF staff members review the invoice for appropriateness and accuracy, and pay the invoice if no questions arise. For some Indianapolis accounts, the departments also review the invoices and associated documentation for accuracy, and submit approval to IUF to pay the invoice. IUPUI departments should review the billing and associated expenses as quickly as possible to expedite payment to the Endowment Match account.

When the invoice is created in IU’s FIS, the account is credited with the earnings income, under object code 1179, "IUF Income". FIS also makes an entry in the 8118 category, "Accounts Receivable". When the invoice is paid by IUF, the 8118 category is offset, canceling  the prior entry.

The departments have no specific duties during this process, but may be called by IUF staff if IUF has questions about expenditures. Departments may also be asked to move expenses to less restrictive IU or IUF accounts, if the expenses are determined to be unrelated to donor intentions.

IUPUI departments should review the billing and associated expenses as quickly as possible to expedite approval of payment. 

 

EXAMPLE OF INVOICE

The following is an example of the invoice document created in FIS to reimburse accounts from IUF endowment earnings.

 

REQUIREMENT OF 8118 WITH WIRE TRANSFER

As stated above, the invoice document in FIS automatically allocates the earnings payment to the account when the invoice is created. It also generates an equal line item in Accounts Receivable, object code 8118.  When IUF pays the invoice, it sends the payment via wire transfer. When the wire transfer is received, IU FMS offsets Accounts Receivable, code 8118.

Departments have no specific duties in this process, but should be aware that IUF has only recently started paying the invoices by wire transfer. Since the process is fairly new, and quite different from other IUF payments to IU, if departments notice that errors have been made with IUF wire transfer payments on Endowment Match accounts they should contact the FMS help desk or UBO staff. 

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REPORTING TO IUF

DEPARTMENTS

Annually, IUF provides a report to Endowment Match donors, indicating how the donor’s funds were utilized. Departments will provide IUF with a stewardship report containing the following information by October 1:

1. Name of chairholder or professor for each Endowment Match account, or explanation why there is none.
2. Narrative description of how the endowment was used to meet donor intentions. This could include names of faculty, staff, and students who received funding from the account, travel that occurred, equipment that was purchased, publications or presentations, etc.
3. Highlights or newsworthy topics of interest to the department and the donor, to be included in the IUF report. This might include presentations given or attended, publications prepared and submitted, conferences attended, research published, and new courses taught.

In addition, departments may be required to provide additional information as requested by IUF regarding particular expenses associated with Endowment Match accounts. 

 

IU FOUNDATION

The IUF must provide a report to each donor of the endowment performance for the year by October 1. The IUF will also provide each donor with a report of income and expenses for each account.

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AUDITS

IU’s Internal Auditors perform a periodic audit of the Endowment Match Program. Departments may be required to provide information to the auditors or to UBO staff as part of the audit process. In particular, departments will wish to maintain documentation on travel expenses by persons other than the chairholder, hospitality and conference expenses, equipment purchases, and non-chairholder salaries. This is not an exhaustive list of expenses reviewed by IU auditors, and departments may be required to provide additional information on other expenses as well.

In particular, auditors check to ensure that the proper staff members are receiving the benefits of the program. To assist the auditors in this task, and to assist UBO staff with ongoing review of account expenditures, the departments should provide UBO with the names of designated chairholders, professors, and other personnel associated with the Endowment Match account.

UBO will request the name of the chairholder or professor in the fall and spring semesters through letters sent to the departments. In the interim, as departments designate the endowed chairs and professorships, they should contact UBO with that information.  

 

 

 

 

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