All endowments require the creation of an endowment capital fund and an associated spendable income fund.

An endowment capital fund (fund type 6A) is the donated capital held in perpetuity by the University and used to generate annual income. All transactions pertaining to these fund types are handled by Endowment Accounting, Financial Services or University Advancement.

The spendable income fund (fund type 2A, 2B, 2C, 2D, 2E, or 2K) is the fund linked to an endowment, where the annual income generated by the endowment capital fund is recorded and spent in accordance to the donor wishes.

The amount of income distributed to spendable income funds (budget) is determined by multiplying the number of MIP units held in the related endowment capital fund by the spendable rate per unit for the fiscal year. This spendable rate is communicated each Fall via the FFO listserv and is also referred to as the MIP Unit Income Distribution Rate, MIP rate, and/or distribution rate. The spendable rate for any given fiscal year is displayed when using the Banner form FNIEBAL.

[The 平特五不中 Investment Pool (MIP) is a unitized pool. When funds are transferred into an endowment capital fund, they are used to purchase MIP units at the applicable market rate prevailing on the date of the transaction. The MIP market value per unit rate is updated four times a year, as at April 30th, July 31st, Oct. 31st, and Jan 31st, and is displayed when using the Banner form FNIEBAL.]

Budgets for spendable income funds are set-up in early June once the prior fiscal year closes, by Endowment Accounting. The budget is based on the number of MIP units held in the endowment capital fund at year-end and reflects any year-end requests for decapitalization, capitalization and authorized carry forwards.

The set-up of this budget allows for transactions to be processed on the fund without having received the full 鈥渋ncome鈥� for the year. Budgets are set-up in account code 600001 for endowed chairs and 700012 for all other endowment types. The Endowment Planning report has been created to help estimate budgets for the next fiscal year.

Actual income received is posted on a monthly basis, through feeds, to account code 500122. This occurs when the monthly unitization and income distribution processes are run, three to five business days after a fiscal period closes.

Changes to endowment holdings (fund type 6A) may occur throughout the year and are usually due to two factors:

• A new donation is received which translates into an increase in the number of MIP units held in the endowment capital fund.
• Endowment Accounting processes a request to capitalize or decapitalize funds which translates into an increase or decrease in the number of MIP units held in the endowment capital fund.

There may be a lag period between the gift date, when the money was received by the University, and the date when it was transferred to the endowment capital fund. The quarterly MIP market value per unit rate used for the unitization of new donations is based on the gift date, and not the date the transfer was processed to the endowment capital fund. While the Book Value of an endowment reflects new holdings as soon as they are transferred, the Number of (MIP) Units Owned is only updated the following fiscal period once the unitization process is run for the closed period.

Changes in endowment holdings directly impact the budget set-up (spending power) for the associated spendable income fund and are reflected shortly after the fiscal period closes. Once the unitization and income distribution processes are run, budget adjustments and retro income distributions are posted through feeds to spendable income funds. This results in the budget being adjusted to reflect changes in endowment holdings incurred over the month.

At year end, all current year unspent income is capitalized back to the respective endowment fund unless otherwise specified by donor agreement. This means that agreed upon carry forward balances from the prior year should have been used as indicated or will be capitalized. Spendable income funds should not end the fiscal year in over-expenditure. Should this occur, it is the responsibility of the Fund Financial Manager to correct the situation prior to the close of each fiscal year.

Requests to capitalize income from spendable income funds (fund type 2A, 2B, 2C, 2D, 2E, or 2K) may be made at any time during the year unless prohibited by the donor agreement. Only income which has been carried forward from the prior fiscal year may be capitalized.

Requests to decapitalize income from the endowment capital fund (fund type 6A) may be made at any time during the year unless prohibited by the donor agreement. Decapitalization requests are limited to unspent income capitalized during the last five years.

• The amount to decapitalize may not exceed the amount capitalized during that time frame and must take into account prior requests for decapitalization within the same time frame.
• Decapitalization may not encroach upon the capital used to establish the endowment unless agreed upon by the donor.
• Decapitalization should not result in a carry forward balance at year end.

These request must be made in writing (email is acceptable) to Endowment Accounting and must come from the Fund Financial Manager (FFM) or the FFM must be cc'd to signify their sign-off on the request. The need for the additional funding (decapitalization requests) or confirmation that the funds will not be required (capitalization requests) must be clearly stated in the request.

For decapitalization requests:

• The amount will be decapitalized from the endowment fund and credited to the corresponding spendable income fund using the quarterly MIP market value per unit rate in effect at the date of the request (as indicated in FNIEBAL).
• Since decapitalization impacts endowment holdings, budgets will only be updated once the budget adjustments and retro income distributions feeds are posted to spendable income funds. This occurs as soon as the unitization and income distribution processes are run at the end of the fiscal period in which the request was processed.

TIP: Budget

To calculate how current budget in account code 700012 for an endowment spendable income fund will be affected by a capitalization or decapitalization request, use the formula below:

Budget = Adjusted Budget for account code 700012 from FGIBDST + (capitalization amount/MIP market value per unit rate from FNIEBAL * spendable rate from FNIEBAL * the amount of months remaining in the year)
OR
Budget = Adjusted Budget for account code 700012 from FGIBDST - (decapitalization amount/MIP market value per unit rate from FNIEBAL * spendable rate from FNIEBAL * the amount of months remaining in the year) + decapitalization amount

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1. Requests for the opening of new ENDOWMENT FUNDS are made by completing the Requests for new Fund online form found on the Financial Services website (sign-in is required).
   • Be sure to select Yes when answering the question Is funding from a donation?
   • You must submit supporting documentation with this form. This documentation could be one or many of the following:
     - Written Agreement in the form of Memorandum of Agreement (MOA), Letter of Intent (LOI) or other document
     - Provost and Vice-President's approval (if the donation is to be used for a university chair)
     - CESA approval required for scholarships/bursary/fellowship/prize/medal award - if applicable
     - University Advancement (UA) allocation code (as per Push report)
2. Financial Services will assess and process the request.
3. Endowment Accounting will open the endowment capital fund (fund type 6A) and related spendable income fund (fund type 2A, 2B, 2C, 2D, 2E, or 2K) in Banner.
4. Once the funds are opened, you will receive a confirmation email.
5. The initial donation or transfer is processed to the endowment capital fund by University Advancement or Endowment Accounting.
6. Once the month closes and the unitization and income distribution processes have been completed, the resulting income budget is set up in the spendable income fund.

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In the past, account codes 800001 鈥� Inter-fund Transfers In and 800002 鈥� Inter-fund Transfers Out have been used to reflect contributions made by one fund to another fund.

The issue with this practice is that when contributions are made from or to an endowment spendable income fund, no expense or recovery is reflected in the endowment spendable income fund.

As such, when a contribution is being made from or to an endowment spendable income fund in the current fiscal year, the account code 870714 T/F Internal Endowment Contributions should be used to record the transaction. Please note that this account code only applies to contributions from or to endowment spendable income funds. Account code 700522 is now reserved for external contributions.听 If an endowment spendable income fund is being used to cover a specific expense, e.g. a portion of someone鈥檚 salary, the appropriate account code should be used. Account codes 800001 and 800002 should still be used for transactions not involving endowment spendable income funds.

In order to clearly distinguish internal and external contributions, the following account codes should be used:

Use account code 700522 for contributions to non-平特五不中 entities.

Use account code 870714 for contributions involving endowment spendable income funds ONLY.

Continue to use account codes 800001 and 800002 for contributions NOT involving endowment spendable income funds.

Note: In 2012, account code 700714 was introduced to record internal contributions from/to endowment spendable income funds. While this practice appropriately reflected the associated expense or recovery in the endowment spendable income fund, the other funds affected resulted in credit balances in their expenses. As a result, effective October 1, 2013, any internal contributions from or to endowment spendable income funds is to be recorded in the account code 870714 - T/F Internal Endowment Contribution.

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