It’s a GiftWhy can’t I buy TurboTax?

Lynne Yorita, Audit ManagerUCLA Audit & Advisory Services

©Regents of the University of California March 2011

Agenda

Definitions/Characteristics What can be gifted? UC Foundation or UC Regents Gift Administration Audit Considerations Questions

What is a gift?

Something given voluntarily without payment in return; a present.

What is a gift in the University environment? Assets given for the benefit of the

University when the following characteristics exist: Disinterested generosity; No contractual requirements; Irrevocable.

More “Gift” Characteristics

No obligations or deliverables

No intellectual property rights

General sharing of results

No required reporting (progress or financial)

May be either directed or undirected but no specific scope of work

Characteristics of Grants or Contracts Specified Performance Period

Generally have to return unobligated balance

Specific scope of work

Auditable financial reports

Detailed technical/progress report or other work product

Other contractual obligations (e.g. determination of how intellectual property will be handled, patent rights, etc.)

Why is it so difficult to tell the difference? Award documents may not always use clear,

consistent language.

Recipient’s expectations may not match award maker’s intentions.

Award makers may think that if they are using funds budgeted for philanthropic purposes that they are giving gifts regardless of the restrictions.

Making Distinctions

Requires judgment

Subtle variations

Not based on existence or absence of a single characteristic

Must look at the award “in toto”

Audit Moment

Who or what office on your campus has the responsibility to accept: Gifts? Grants? Contracts?

Has authority been properly delegated in accordance with prevailing policy?

What can be gifted?

Cash – Currency, coin, checks, credit card transactions

Gifts in Kind – Cars, artwork, personal property, etc.

Bequests Planned Gifts Securities Real Property

Where are gifts directed?

The Regents of the University of California The local campus Foundation With the exception of Merced which does

not have its own Foundation

Regents Policy 5203: POLICY ON SUPPORT GROUPS, CAMPUS FOUNDATIONS, AND ALUMNI ASSOCIATIONS

Amended September 22, 2005

Each campus may have a single Campus Foundation, bearing the name of the campus, that is organized and operated for the purpose of fostering private giving, managing gift and endowment funds, and providing other support for the benefit of the campus. The Campus Foundation is the only entity permitted by The Regents of the University of California to hold funds for investment purposes for the benefit of the campus it supports. Each Campus Foundation shall be organized and operated as a separately incorporated, tax-exempt entity under relevant provisions of State and federal tax law, and all operations shall be in accordance with applicable University policies, guidelines, and procedures.

Types of Gift Funds - Uses

Current Expenditure - For immediate use by the University.

Construction/Plant Fund – To support construction or renovation projects.

Loan Fund – For student and/or faculty loan programs.

Types of Gift Funds - Uses Endowment Funds – Intended to support the

long-term needs of a department. The principal is invested to generate income to support the purpose specified by the donor. Can only be established by donor specification

Quasi-Endowment/Fund Functioning as an Endowment – Similar to an endowment fund with the exception that the fund principal can be used for expenditure. May be established by the department or the donor.

What is the difference? Regents Current Expenditure

One time only gifts or memorial/honorarium

Under $1000 Capital/Plant Endowment Gifts in Kind

To be retained/ inventoried

Student loans Faculty loans Inventions Mineral Rights

The FoundationCurrent Expenditure

Single gift or mass solicitation totaling over $1000

Capital/PlantEndowment Gifts in kind

To be soldAnnual MembershipsSolicitations and CampaignsFundraising eventsPlanned and Deferred Gifts

Receipting/Gift Acknowledgement Each gift must be: formally accepted by an appropriately

designated official of the University. properly recorded in the financial records of

the Foundation and/or University Tax deductible to the extent allowed by

law Remittance may be in response to a

solicitation involving an event (e.g., a dinner, for which the fair market value would need to be disclosed.)

Disclosures Privacy Notice

“The 1977 California Information Practices Act requires UCX to inform individuals asked to supply information about themselves of the following: UCX is requesting this information to update the general resource files of its External Affairs Department. Furnishing the information is strictly voluntary and will be maintained confidentially. The information may be used by other University departments in the regular course of business, but will not be disseminated to others except if required by law.

You have the right to review your own data file. Inquiries should be forwarded to _________.”

Disclosures

Donor's Consent for Public Acknowledgment

“The university is grateful for the support it receives from alumni, parents and friends. One of the ways we express our thanks is by listing the names of donors in Web-based and/or print honor rolls. Should you wish that your name not appear as a donor, please notify donor relations at _______if you have not already done so.”

Disclosures Fiduciary Responsibility of The UCX

Foundation

“The UCX Foundation is a California non-profit, public benefit corporation organized for the purpose of encouraging voluntary private gifts, trusts and bequests for the benefit of the UCX campus. Responsibility for governance of the Foundation, including investments, is vested in its Board of Directors.”

Disclosures

Administrative Fee on Gifts“The UCX Foundation and the University of California, _______ apply a one-time administrative fee to all gifts and pledge payments to provide essential support necessary to UCX's overall operation. The fee is currently 6.5%.”

Gift Purpose

The purpose of the gift must be: Reviewed before acceptance. Appropriate to the University. Clearly stated in terms that may be properly

executed by the University.

Foundation Gift Administration Restricted funds received or unrestricted funds

allocated (including investment income) for support of University departments or programs shall be transferred to the University, administered in accordance with University policies, and expended from University department or program accounts.

Administrative Guidelines for Campus Foundations February 12, 2004, Section III F.

Campus Foundation Administration “Restricted funds received or unrestricted

funds allocated (including investment income) for support of Campus Foundation activities, except as provided in Item III. H., immediately below, shall be transferred to the University; administered in accordance with University or written Foundation policies; and expended from regular University accounts or from University agency accounts.”

Administrative Guidelines for Campus Foundations February 12, 2004, Section III G.

Foundation Gift Administration

A Campus Foundation may open bank accounts with the approval of its governing board. Only the following expenditures for Foundation activities may be made from such accounts:

1. payments to beneficiaries and others pursuant to the terms of gift instruments;

2. acquisition and management costs of real property and personal property acquired by gift;

3. premium payments on gifts of life insurance; 4. payments for audit, tax preparation, investment performance

analysis, or legal fees, payments for insurance, payment of taxes, and payments or transfers of assets for investment and cash management to and between investment managers, banks, and other financial institutions;

Foundation Gift Administration5. payments to donors to refund contributions as permitted by

law, or to return overpayments pursuant to a donor's request; 6. payments to campus support groups, the alumni association,

or other organizations of monies managed on their behalf; 7. payments to other organizations of donations or other

remittances made in error to a Campus Foundation; 8. transfers to the University; and 9. legally appropriate payments to support legislation clearly

beneficial to the University, such as capital outlay bond issues, when such legislation has been endorsed by The Regents provided, however, that the President may approve contributions by the Campus Foundation in advance of passage of legislation, and that the contributions can be expended for research and other necessary preliminary pre-campaign activities.

Audit Consideration Perform an analysis of all Foundation

expenditures. Categorize all disbursements. Use judgment to select a sample of

expenditures to examine in detail – pull supporting documentation. Evaluate adherence to disbursement

procedures. All but a very small percentage of the dollar

value of the disbursements should be payments to “The Regents of UC.”

Basic rules of spending gift funds All expenditures must benefit the

University Expenditures must be through

established University processes and must be reflected on the campus general ledger.

Audit Consideration

How do I know that monies in a specific Foundation gift fund are expended in accordance with a donor’s purpose? Is there a 1:1 correlation between a

Foundation gift fund and a Regent’s gift fund?

Gift Challenges

Gift Administration Fee (6.5%) OR Facilities and Administrative Fee (54%) OR Waiver?

Sales & Service Revenue Approved Activity Published Price Lists

Gift Handling Challenges

Monitoring Fund activity should be monitored monthly.

Short Term Investment Pool Fund overdrafts will incur STIP charges (i.e.,

interest expense) Some older funds may receive STIP

earnings.

Auditing Gift Funds

Select a sample of gift funds with expenditure activity within the selected period. Distribute the sample across the organizational units

for your campus. Pick some larger funds, some medium and some small. Looking at gift administration within the responsible

beneficiary campus unit.

Trace the fund purpose criteria back to the original donor documentation.

Auditing Gift Funds

Pull the Detailed General Ledger for the fund and select a judgmental sample of expenses for testing: Adherence to donor purpose Compliance with University policies and

procedures. Look for evidence of monitoring and

determine whether the fund incurred any STIP expense charges.

Additional Potential Audits

Gift versus Grant Classification Support Groups

Regents Policy 5203: “Policy on Support Groups, Campus Foundations, and Alumni Associations”, Amended September 22, 2005.

“UC Administrative Guidelines for Support Groups”, February 12, 2004

Formal Recognition Annual Renewal Fund Raising versus Friend Raising

Agency Accounts UC Business and Finance Bulletin A-54 “Agency Accounts”, October 15, 1987

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