13.4 Guidelines for the Financial Administration of Endowment Accounts

I. Purpose

To consolidate in one document a concise outline of the responsibilities and administration of endowment accounts. For more detailed information, reference should be made to the Donor Relations Manual.

II. Accountability

A. The responsibility for establishing and administering of endowment funds is with the university Development Office.

B. The president of Wilfrid Laurier University has signing authority and the responsibility for any unrestricted endowment funds.

C. Signing authority for restricted endowment funds is assigned as appropriate given the designation of the fund income.

D. The selection of an investment manager and regular investment performance reviews, are the responsibility of the Finance and Physical Resources Committee of the Board of Governors.

III. Definitions

A. Gifts to Wilfrid Laurier University are either expendable or endowment
The terms expendable or endowment refer to whether or not the principle amount of the gift can be spent.

B. Gifts are divided between the categories of restricted or unrestricted
The term restricted refers to a gift that must be spent in accordance with instructions received when the gift was made, whereas an unrestricted gift can be spent in accordance with the wishes of the university.

C. Endowment Fund
A donation fund in which cash gifts are held and invested in perpetuity with only the annual investment income spent.

D. Named Endowment Fund
An endowed donation fund that has been named by the donor(s) after themselves or in honour or memory of another individual.

E. Capital Account
An account that holds the principal amount of the gift. This amount is invested in perpetuity.

F. Disbursement Account
An account that holds an amount available for expenditure. This amount is either investment income from the related capital account or cash intended for expenditure.

G. Restricted Gift
Donation for which a donor has requested a specific designation.

H. Unrestricted Gift
Donation the donor intends the university to allocate to its highest priority need(s).

IV. Endowment Earnings

A. Endowment earnings are earned on the investment of the capital of the endowment fund during the university's fiscal year. The rate of return is determined on a book value basis net of external fees (management fees, custodial fees) and an internal fee calculated at the rate of 0.5 of a percent of the book value of the endowment fund. At the end of each fiscal year, the investment earnings are allocated based on the average monthly value of each individual endowment capital account in accordance with the following rules. The amount added to the individual disbursement account in any one year can not exceed 4% or the average monthly book value of the respective endowment capital account. The investment income added to the disbursement account during a particular fiscal year is spent during the following fiscal year.

B. If the calculated rate of return is in excess of 4%, the first 4% will be allocated to the individual endowment spending account with the excess being applied firstly to an endowment stabilization reserve fund (ESRF) for each endowment account until it reaches its maximum allowable value and secondarily to increase the value of each individual endowment capital account.

C. If the calculated rate of return is between 0% and 4%, the actual rate of return is applied to the individual disbursement account. This amount allocated to the disbursement account will be subsidized by drawing funds from the individual ESRF accounts. This subsidy will be used to increase the value of the amount added to the disbursement account in any one year, to a maximum of 4% of the average monthly value of each individual endowment capital account. Any subsidy payment is contingent on there being sufficient funds in the individual ESRF accounts. If the individual account's ESRF is not enough to support 4% spending, then only the balance in the ESRF will be allocated to the disbursement account.  The Board of Governors of the university may decide to subsidize the disbursement account against the capital of the individual endowments, unless there is specific legislation from external agencies that disallows principle reductions.

D. If the rate of return is negative, the Board of Governors of the university will determine the amount to be added to the individual disbursement accounts, the extent to which each ESRF account can subsidize the negative return and the extent of any negative charge to be made against the capital of the individual endowments, unless there is specific legislation from external agencies that disallows principle reductions. It is intended that in no circumstances will there be a charge against the operating fund of the university to subsidize the negative rate of return realized by the investment of the endowment funds.

E. Endowment Stabilization Reserve Fund (ESRF)
An ESRF shall be established for each endowment fund to cushion the effect of varying investment endowment returns. This fund shall be funded from endowment earning in excess of 4% and will not be allowed to exceed 5% of the monthly average balance on the endowment.  It will also not be allowed to become negative in value except in the first year of operation and then only with the prior approval of the Board of Governors of the university.

F. New funds will not receive endowment earnings into their award account in the first year.  The earnings will be applied to the fund's ESRF but will not be allowed to exceed 5% of the monthly average balance on the endowment.  Any remaining earnings will be allocated to the fund's capital account.

V. Management of Endowment Accounts

A. When a new fund is established, a donation account number is obtained from Financial Services. A terms and conditions document is prepared in consultation with the donor and relevant university faculty or staff, as the case may be.

B. Two original terms and conditions documents are signed by both the donor and university representative and distributed, one to the donor and one to the Development Office.

C. Each February, Financial Services provides a list of endowment funds reporting on capital and disbursement account balances. The Development Office follows up on accounts where there are outstanding disbursement accounts that must be either expended before fiscal year-end or added to the capital amount.

D. In August of each year, Financial Services produces separate financial statements for each endowment fund. The Development Office sends a complete set of these to Student Awards. The Development Office also sorts the statements by faculty with a copy being sent to the appropriate faculty.

E. During the fall, the Development Office prepares personal letters to donors for all named endowment funds and sends these along with a copy of the relevant financial statement.

F. All background documentation for restricted, named endowment funds, including correspondence with donors and lawyers, copies of will bequests and so on, is kept and maintained in separate files in the Development Office.

G. Named endowment funds will not be established unless there is a certainty of a minimum of $5,000 in donations.

H. All endowment funds are to be reviewed annually to determine their viability. Small dormant endowments may be closed and the funds transferred to the capital account of another endowment with a similar purpose.