Accounting Guidelines: Restricted Term Gifts and Endowment Funds

LAST UPDATED: March 28, 2017

Departmentally Managed Gift & Endowment Funds

Overview

The most common and expected accounting practice for restricted endowment income and restricted term gifts in Fund 20 is to use a distinct project/grant for recording spending against each such funding source. Gifts or endowment income streams with very specific purpose restrictions should be administered through a unique Spending Project/Grant (“SPG”), and should not support funding transfers to other project/grants. By contrast, gifts or endowment income streams with less specific purpose restrictions may be administered through multiple project grants and may support funding transfers to other project/grants.

Gifts or endowments that require a high level of donor reporting or stewardship should be treated like those with very specific purpose restrictions. In these cases, the single project grant/no funding transfer method should be used to facilitate easier reporting to the donor, since all activity will be posted in one place.

The guidelines below provide examples of restriction language that typically appears in gift instruments to help the reader determine whether purpose restrictions are so specific as to rule out funding transfers and multiple project/grant administration. The first section gives examples and guidelines for those funds which have very specific purpose restrictions and the second section provides examples and accounting guidelines for funds that have less specific purpose restrictions.
 

I. Endowment Income and Term Gifts Restricted to a Very Specific Purpose Within a Given Department, or Which Require A High Level of Donor Reporting or Stewardship - No Funding Transfers and Single Project/Grant Administration

When a donor makes a contribution to the University with the stipulation that the funds must be used to support a very specific purpose within a particular department, the best practice is to record all qualifying expenses directly to the spending project/grant where the endowment income or gift is initially deposited. Transfers of endowment income or gifts should not be made from such SPGs. Examples include:
 

Type of Fund Example
Named Travel/Field Study Funds Charles Smith '99 Chemical Engineering Student Travel Fund
Named Seminar Funds Charles Smith '99 Memorial Seminar Fund
Named Senior Thesis Funds Charles Smith '99 Molecular Biology Senior Thesis Research Fund

Named Prize/Award Funds

Charles Smith ’99 Senior Thesis Prize in German

Named Annual Lecture Funds

Charles Smith ’99 Lecture Series Fund

Named Art/Book Collections

Charles Smith ’99 Stereo optics Slide Collection Fund

Funds for maintenance of specific pieces of equipment/property

Charles Smith ’99 Memorial Bench Fund

Spending Authority - All transactions against restricted gift project grants must be authorized by an individual in the spending department who is familiar with the restrictions on the gift or endowment income stream, and who has appropriate signature authority.  Each department head is responsible for the implementation of this control within his/her area.

Accounting Guidelines for Very Specific Purpose-Restricted Gifts or Endowment Income

1. Qualified expenses must be charged directly to the applicable restricted gift or endowment-funded SPG, using appropriate expense-side account codes.

2. Income transfers from the SPG to other project/grants should not occur.

3. Income transfers to this SPG may occur if the restrictions on the source fund permit, and if additional income is needed to cover the restricted purpose in the SPG.

4. Expense transfers may only occur: a) to correct an expense that was erroneously recorded in the SPG; or b) to move expenses to another qualifying project/grant in cases where the original SPG is in deficit.

II. Endowment Income and Term Gifts Restricted to a Less Specific Purpose - Funding Transfers and Multiple Project/Grant Administration Allowed

Many gifts and endowment income streams have broad or general purpose restrictions that permit them to be used to support many activities in a department or area. The following table shows examples of more general restriction language, and explains whether or not transfers to other project/grants within the same department (intra-department), and/or whether transfers to other departments’ project/grants (inter-department) may occur in such case.
 

Sample Restriction Language Intra-Department Transfers Acceptable Inter-Department Transfer Acceptable

“to benefit the department of [subject] at Princeton University ”

Yes Yes, if the expenses to be covered in the other department are expenses that benefit the originating department, such as in shared conference expenses.
“the income to support faculty research in the department of [subject]”
 
Yes, to project/grants that record faculty research expenditures.
 
In rare cases, if the faculty member only has a research P/G in another department, but does work related to the department of restriction.
“the income to support faculty research in the social sciences [subject]” Yes, to individual project/grants that record only faculty research expenditures. Yes, to project/grants in other departments that record faculty research expenditures. Department making transfer must notify other department of the restrictions on the use of the gift or income.
“the income to support the [named] seminar in [subject]” No, costs related to a specific lecture should be posted to original funding receipt project/grant. No, costs related to a specific lecture should be posted to original funding receipt project/grant.
“the income to support seminars in the humanities” Yes, to project/grants that record expenses for a seminar in the humanities. Yes, to project/grants that record expenses for a seminar in the humanities.

Spending Authority - Funding transfers must be authorized by an individual in the spending department who is familiar with the restrictions on the fund, and who has appropriate signature authority.

Accounting Guidelines for Less Purpose - Restricted Gifts or Endowment Income

1. Qualified expenses for moderately restricted funds should be charged directly to the applicable restricted fund project/grant if at all possible.

2. Income transfers from this project/grant may occur if the restrictions on the source fund permit, and if additional income is needed to cover the restricted purpose. The project/grant to which income or gifts are transferred must not have other restrictions that contradict the restrictions on the funding being transferred. For example, if the income being transferred is restricted to support of faculty research, the income cannot be transferred to a project/grant that records both faculty and student research; the student research-restricted money should be kept separate from the faculty research-restricted money.

3. Expense transfers into the SPG may be made if a specific, qualifying expense booked in another project/grant is identified.

Account Code Usage for Funding Transfers

1. The account code for endowment income transfers depends upon either the account code used when the funds were received in the original SPG and/or where the funds are being transferred.

  1. When endowment income is received in the SPG with a 198 account code, all transfers of this income should be coded with an account code of 199 on both sides of the entry (unless the transfer is to an agency project/grant 540XXXX or 541XXXX; see below). If there is no 198 code income, then the 199 code cannot be used for the transfer.
  2. When income is received in the SPG with 130/131 account codes, gift income, all transfers of this income should be coded with an account code of 193 on both sides of the entry (unless the transfer is to an agency project/grant 540XXXX or 541XXXX; see below). If the whole gift amount needs to be moved to another project/grant, contact Alumni and Donor Records to have the gift moved via the STRIPES system.
  3. Transfers of gift or endowment income to agency project/grants 540XXXX or 541XXXX should use account codes 278 on the source (Debit) side and 156 on the receiving (Credit) side.

2. Expense account codes should only be used when a distinct, qualifying expense has already been booked in another project/grant and needs to be moved onto the SPG. The expense should simply be moved as would any expense correction by moving the expense using the same expense code from one project/grant to another. For example, if a student’s research travel was initially booked to a project/grant in the department, but you’ve now identified an endowed senior thesis research fund that can cover this expense, debit the travel expense code in the endowment-funded SPG and credit (remove) the expense on the travel expense code in the original project/grant.

Roles and Responsibilities for Funding Transfers to Other Departments

If a department decides to transfer income from a restricted endowment project/grant or part of the balance of a restricted gift to another department, the following procedures should be followed to ensure that the receiving department understands and follows the restrictions on the funding source being transferred.

Originating (Source) Department:

Notify the receiving department of the restrictions on the use of the gift/endowment income (such as emailing the restriction summary and/or deed of gift to the receiving department),

Request assurance that the receiving department will spend the transferred spending authority consistent with the restrictions, and

Request an accounting of the receiving department’s use of the gift or endowment income if there is any need to report to donors, or if there is any question about the receiving department’s compliance with the gift or endowment restrictions.

Receiving Department:

Create a distinct project/grant to receive the funding transfer from the Originating Department, if one does not already exist. For example, if the receiving department is holding a conference that three other departments are helping to support by transfers of endowment income, the receiving department should create a distinct “conference” project/grant to receive said income transfers and to record expenses associated with that event,

Follow accounting practices to ensure that a complete reconciliation and justification can be prepared at the request of the Originating Department, Development, Treasurer’s Office, Audit & Compliance or other office, and

Return unspent balances to originating department in cases where the originating department transferred income for a one-time, non-recurring purpose such as a conference or event. In cases where there is a standing project/grant to receive income each year, balances can roll-over and returns are not recommended unless the originating department requests a return of funding.

Each department head is responsible for the implementation of this control within his/her area.


 

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