February 8, 2011

AgendaDefinitions:

GiftGrant and contractPrivate support

Types and tenders of gifts – rules and processingSpecial events - special rulesThe Gift Fee and STIP Gift recording in the systemsWhere does the gift go once recorded?Regents versus Foundation – which entity and the

outcomes?Private grants – where do we get the information?Reporting private support – to whom and when?ReferencesEndowment – how does it work?

DefinitionsGIFT A conveyance or transfer of an asset

(including cash or negotiable instruments) given with charitable intent and without consideration – (legal definition).

Processed by Gift Processing

Definitions, contWHAT MAKES A GIFT TAX DEDUCTIBLE?Given to a bonafide charity recognized by the United States

Internal Revenue Service for its charitable purpose. Charitable gifts are not made to individuals and cannot be restricted to benefit individuals for personal benefit.

Funds are awarded irrevocably.May be restricted for a specified purpose such as an

approved capital project or facility improvement within new or existing buildings, for general research purposes and for various endowment purposes, as well as for current expenditures to benefit specific campus groups such as for scholarships, fellowships, library or equipment purchases.

Not a “quid pro quo” transacation (even exchange of funds for results or services) by the University or its employees for the gift, other than to use the funds for the purpose intended by the donor. (There can be a quid pro quo component, and that part will not be tax deductible)

DefinitionsGRANT Written agreement between two or

more parties which obligates the recipient to provide something or perform a service of more than incidental significance to the grantor.

Grants have “terms and conditions”, or consideration.

Often intention is still charitable, and the requirements are more of a detailed reporting nature within a time frame.

Processed by OCGA.

DefinitionsCONTRACT Written agreement between two or

more parties which obligates one party to provide significant services, research with deliverables or ownership rights in exchange for money, goods or other services from the other party.

Contracts are even exchanges and are not charitable.

They are never included in private support totals

Processed by OCGA.

What is Private Support?PRIVATE SUPPORT (CASE

Management Reporting Standards)All gifts and private grants provided by private entities in support of educational, research and outreach missionsDoes not include contractsIncludes support from private sources

– defined as being from non-governmental entities, for profit or not-for-profit.

A role of Advancement Services is to report all Private Support given to UCSD (more later)

Overarching GuidelinesWhat are the policies governing gifts?UCOP Development Policy and

Administration ManualUCOP Policies and Delegations of AuthorityUCSD Policy and Procedure ManualUCSD Foundation Policies and GuidelinesCASE (Council for Advancement and Support

of Education) Management Reporting Standards

IRS RegulationsOther legal/ethical considerations(many of these have references at the end)

Responsibilities of Department Personnel Preliminary Classification of an Award from a

Private Source per PPM 150-35 http://adminrecords.ucsd.edu/PPM/docs/150-35.HTML

UCSD PPM 150-35: All awards received directly by a campus department will be preliminarily classified by that department as a gift, fellowship, contract, grant or service agreement. All awards initially classified as gifts or fellowships shall be forwarded to the Gift Administration Office. However, all awards which are not considered clearly definable gifts or fellowships by the Gift Administration Office will be immediately forwarded to the OCGA for additional review and classification. It is the policy of the Gift Administration Office to routinely send all proposed gifts for research from private, for-profit sponsors to OCGA for review. OCGA has the authority for final determination of an award classification

Ensure gift made to correct entity Gift Documentation (more in a minute!) Sent to Gift Processing in a timely fashion Stewardship: Acknowledged by Department or

Development personnel

Responsibilities of Gift ProcessingTo adhere to UCOP “delegations of authority” at each

campus for our specified role. UCSD Gift Processing is officially designated as the

UCSD office to accept or obtain acceptance, record, receipt, report, and maintain records for all gifts to the campus – Regents or Foundation.

To report PRIVATE SUPPORT given to the campus to UCOP, CAE and the campus (It has to get IN the system to be reported!) Generally CASE Standards guide us.

http://www.ucop.edu/instadv/documents/2009.pdf To ensure GIFTS meet IRS Regulations and UC and

UCSD policy and are truly a gift. A transaction may not be called a gift to cover another underlying type of transaction (ie, one that may be prohibited, or require the assessment of overhead).

Delegation of Authority for Gift Acceptance

Over $5 Million: UC President Up to $5 Million: Chancellor Up to $1 Million: VC- External and Business

Affairs Up to $500,000: AVC: Development Up to $250,000: Director, Advancement

Services Up to $100,000: Dep. Director,

Advancement Services Up to $25,000: Manager, Gift Processing

All Foundation gifts in excess of $5 million must be accepted by the UC President as well.

Development/Dept staff should not sign to accept a gift or gift agreement.

FUND TYPESCurrent Funds: Current funds are funds that are to be entirely expended for the

purpose designated by the donor. Are held by either the Regents or Foundation. Once expended, the fund is closed Current funds are not credited with the STIP earnings…

earnings are swept

Endowed Funds: Endowments are gift made to be held and invested in perpetuity:The principal is never spent to ensure growth and long

term funding Endowments require special gift language. Endowments are held by either the Regents or Foundation. Endowment Spending Policies allow for spending some of the

annual return. This “spending” is then made available to the Departments.

Purposes/UsesCampus ImprovementDepartment SupportInstructional SupportResearch Student SupportOther PurposesUnrestricted

Processing a GiftWhat do we need to process a gift to EITHER the UC

Regents or the UC San Diego Foundation?A proper gift or pledge letter from the donor or

solicitation letter sent to the donor (required for all gifts over $10,000; otherwise encouraged)

Pledge versus contingent pledge (pledge potential)

Check (unless it is only a pledge)Credit Card informationStock giftsOther Gifts in Kind (a little later and special

processes may apply)Deferred gifts and bequests

Processing a Gift (cont.)A proper Regents or Foundation gift fund number the

gift may be placed in, or a request for a new gift fund if neededFund Accounting rules = all gifts for a similar

purpose are allocated to the same fund. New funds are only created when a unique purpose cannot be attributed to an existing fund.

Need a new fund info sheet for a Foundation gift http://www-er.ucsd.edu/foundationDir/FDN-ACT/fundfrms/fundinfosheet1.pdf

Always use Gift Acceptance form for a Regents fund http://www-er.ucsd.edu/giftprocessing/pdf_excel/GiftAcceptanceForm.pdf

Economic Interest Statement from the faculty member if applicable. (discussed later)

Event TicketsOften have a Quid pro quo component– defined

as “value received” (get what you pay for) In a gift or event transaction, the charity is

responsible, per IRS guidelines, to SPECIFICALLY disclose at the time of solicitation, the fair market value of any benefits a donor receives in exchange for a gift.

Special events are notorious for this: meals, entertainment, drink, valet, music, etc. The COST of providing these items to the charity is not necessarily a measure of FMV, especially if the costs were underwritten. The charity still must disclose the FMV of the benefits, which is NOT a tax deductible gift.

Raffles RAFFLES are regulated by the State of

California Charitable raffles are now permitted, via

a registration process. Only the UC San Diego Foundation can hold a raffle. The dept. holding the raffle must file a financial report after the raffle. For more information and forms go to: http://ag.ca.gov/charities/raffles.php

There is a 90/10 rule where 90% of the proceeds must go to charity and only 10% of the proceeds spent on expenses (50/50 raffles are illegal).

Raffles,cont. The ticket sales are still not a charitable donation,

as they represent the purchase of a chance to win, or 100% quid pro quo.

Raffles can be complex and have tax implications for the winners of the prizes. If the prize is over $5,000, there is tax withholding rules and you may need to get the taxes from the winner before they take possession of their prize.

Generally, they not widely used or recommended.

Call Gift Processing if you are considering holding a raffle at your next fundraiser.

AuctionsAuctions involve a good amount of

organization and paper trail. They have two components:

1. Incoming gifts in kind from donors (the items to be auctioned off): Some items are recorded and receipted as

gifts, such as tangible personal property. Other items, such as free services, free uses

of facilities or homes etc, are lost income and are not receipted or recorded.

Auctions, cont.2. Items Auctioned Off:

Must be listed with a fair market value at the auction with disclosures related to deductible and non-deductible.

Anything paid under or at FMV is quid pro quo, meaning, no gift and no tax deductibility.

Anything paid in excess of FMV is receipted as a gift and tax deductible.

Event SponsorshipsSPONSORSHIPSponsorships come in two forms:

where commercially valuable benefits (generally meaning commercially viable advertising of the sponsor and their products, or by virtue of UCSD training of sponsor company personnel) are returned to a sponsor by the donee entity, the sponsorship is considered business income to the donee entity and advertising or marketing expense to the sponsor (that is, not a gift).

Such income may be subject to Unrelated Business Income Tax (UBIT) by the donee.

Event SponsorshipsSPONSORSHIP (cont’d)

Where only incidental benefits are returned to a sponsor by the donee entity, such as use of the sponsor’s name or logo for donor acknowledgment, and when less than 2% the sponsorship paid is returned in value of goods or services to the sponsor, then the sponsorship is a “qualified sponsorship” to the donee entity, is not subject to UBIT, and is a defined as a GIFT under University policy and IRS regulations.

UnderwritingEVENT UNDERWRITINGGenerally a gift provided to assist UCSD in putting on

an event.Underwriting is solicited often at UCSD and is treated

as a charitable gift, as long as the benefits returned to the sponsor fall under the 2% rule.

Some benefits, in the form of event tickets, etc, may be provided in return to the underwriter, as quid pro quo, and will be receipted accordingly.

Gift Fees and STIP crediting Assessment Fee – PPM 410-3

94% of every $ given goes towards the purpose for which it was intended; 6% is directed to administrative costs related to fundraising

Applies to Regents and Foundation gifts, only exceptions are gifts in kind that are not sold and certain fellowship gifts

Does not apply to grants STIP Crediting PPM-410-10

STIP defined STIP is not credited to funds. It is swept.

What Charitable Entities at UCSD Can A Gift Be Made To?

Two Legal CharitiesGifts that are solicited on behalf of UCSD belong to

either of the following two legal entities:The Regents of the University of California

(95-6006144)UC San Diego Foundation (95-2872494)

The UC Board of Regents are a governing Board of the system. The Regents do have charitable status. Each campuses gift office may accept and process gifts on behalf of The Regents.

The individual campus foundations were established to provide a local Board and entity which could more effectively support the raising and management of funds for the unique needs of each campus. Each campus has a foundation, governed uniformly by a single policy.

Regents vs. Foundation What’s the difference between the entities? How are gifts processed to each? When does a gift go to the Regents vs. the

Foundation? Once money is in the Foundation, how do

you get it out? (Transferring funds for expenditure)

GUIDELINES ON DIRECTING A DONOR’S GIFT TO THE REGENTS OR THE UC SAN DIEGO FOUNDATIONThere are various administrative and donor relations advantages to be considered in directing a donor’s gift. In particular, the UC San Diego Foundation is geared to handle high volume funds (many gifts solicited for the same purpose.), ongoing funds (those that will continue to receive gifts in the future) and endowed gifts. The Regents is primarily geared to handle individual one time gifts, particularly those for current expenditure. OF NOTE: Except for in-kind gifts to be held and retained by UCSD, any gift may be made to EITHER entity!OF NOTE: All gifts are counted for private support and credit to Development should be done regardless of the entity!

The Regents One-time current use gifts (directed

to a specific researcher and/or project)

Gifts-in-kind to be held and retained by department and not sold – includes gifts of intellectual property rights

Real Estate to be held and used by UCSD

Previously established Regents Funds

Fellowships with a named Fellow and an application process: money really belongs to the Fellow

Any gift where a case cannot be made that the donor made an error and did not intend it to go to the Foundation

Bequests that do not specifically state “UC San Diego Foundation” or a Foundation fund

All items classified as Grants, Contracts, or Business Agreements

UC San Diego Foundation

Most gifts solicited by Development Gifts made to funds that will be

ongoing with a balance maintained over period of years

Annual funds and other higher volume gifts

Fundraising events managed by Development (gifts with quid pro quo)

Gifts-in-kind to be sold Most planned/deferred gifts (Lead

Trusts, Life Estates, Gift Annuities & Charitable Remainder Trusts)

Real estate for sale Previously established Foundation

Funds Most endowed gifts Most gifts for capital projects

Parameters Commonto Regents and Foundation Quid pro quo (discussed earlier) Gifts that must be approved and accepted by

the President of the UC Endowed chairs Real property to be retained by UC Gifts over $5 million

Parameters Commonto Regents and Foundation(cont.)Gifts-in-Kind (tangible items) - must have

“related use” to UCSD; exceptions for appreciated property of securities and real estate.

Valued at their fair market value Equipment gifts:

Need a department owner. Are documented using a gift letter or deed of gift

form If new, must be valued at our “educational discount”

cost to purchase. For used for equipment – we need to ensure it is safe,

and we often ask for help to determine the value.

Parameters Commonto Regents and Foundation(cont.) Free or reduced services are considered

“Lost Income” and are not charitable gifts. Only out-of-pocket costs related to providing these gifts may be deducted by the donor.

Intellectual property gifts are particularly cumbersome – and rare now. Contact us.

Real estate gifts require a great deal of due diligence and are handled as a planned gift.

Parameters Commonto Regents and Foundation(cont.)

If the FMV of a GIK is $5,000 or more, donor will need an appraisal and must submit an IRS Form 8283 with tax return.

Gifts-in-kind are receipted with a description of the gift only -- “value as declared by donor” is listed as the amount.

Donors are responsible for determining the deducted amount on their tax returns.

Parameters Commonto Regents and Foundation(cont.)

Matching gifts Donor completes, signs & send with gift GP Staff finalizes and submits for payment Dept. Staff NOT authorized to sign

Anonymous gift Request must be in writing Two types: a flag, or, we really don’t know!

Gifts of Marketable Securities Valuation date is the date they are received

into our brokerage account (via DTC wire) or the properly endorsed certificates are delivered to UCSD

Parameters Commonto Regents and Foundation(cont.)

Marketable Securities (cont.) Valuation amount is the average of the high and low price as published by the

exchange on the date of the gift Donors are advised of how UCSD calculated the value of their securities gift; however,

it is the donor’s obligation to determine valuation deducted for tax purposes VERY IMPORTANT: Donors should not endorse the back of stock certificates. Separate stock power

forms should be used. Consult with our Planned Giving Office or Gift Administration for proper handling.

Donor completes, signs & send with gift GP Staff finalizes and submits for payment Dept. Staff not authorized to sign

Anonymous gift Request must be in writing No information will be released to anyone

Gifts of Marketable Securities

Parameters Commonto Regents and Foundation(cont.)

Conflict of Interest Filing (PPM 200-13)Having a direct or indirect financial interest in the sponsor of

research, which is funded in whole or in part. When is the filing required Negative vs. Positive EI Exclusions

Gift Receipts Sent out by Gift Processing as soon as possible,

generally within a few days unless there are funds to be set up, issues with documentation or COI, or questions as to whether it is a gift or not

Non-monetary gift receipts describe the item given only – not a valuation

Gift Recording Process Review the gift documentation to ensure it is a

gift and determine acceptance criteriaBatch checks for depositBatch gifts for keying (includes checks, credit

cards, pledges, in kind etc. )Key pledge/payments/ outright gifts into

Millennium DatabaseReceipt and thank donor File our back-up informationE-mail notifications – next day, to Development

and to PI or BO

What happens to a Foundation gift once processed?

Foundation Accounting gets all the data and

accounts for the transactions in the Foundation’s Fund Accounting system

Department owners access the information on the fund from their login on the Foundation web portal

Spending a Foundation GiftThe Foundation fund works like a savings

account Departments request use of Foundation funds by

lump sum transfers to the UniversityThe transferred funds are placed in a University

Fund by Foundation accounting personnel.Departmental personnel then expend the funds in

the same manner as other University fundsThe transfer fund works like a check book

What happens to a Regents Gift once processed?

Review the gift documentation to ensure it is a gift

and determine acceptance criteriaBatch checks for deposit (creates a financial entry in

IFIS)Batch gifts for keying (includes checks, credit cards,

pledges, in kind etc. )Key pledge/payment/outright gift into Millennium

DatabaseReceipt and thank donorBudgetarily allocate the gift in the University Fund

Accounting systemFile our back-up informationE-mail notification to PI or BO

Note: Only after a gift is allocated will the gift show on the Department ledger for spending.

Spending a Regents GiftGifts may be spent from the ledger in

accordance with normal ways to expend all University funds. For example….Check requestTravelPurchase orderPayroll costs

These funds work like a check book

Private GrantsPrivate grants are received monthly by a

report from OCGA. We code and record them in the database

so that the private support can be properly reported.

The office of acceptance is “Grant” and is listed under “category on the Mill screen.

Private Support ReportingWe report internally weekly.We report to UCOP quarterly and

annually using both the CAE criteria and the “Regents” criteria.

We report to CAE/VSE annually and to UCOP annually for campaign totals.

Other Policy References UC Development Policy and

Administration http://www.ucop.edu/ucophome/policies/devpol/

UCSD Gift Processing Manual http://www-er.ucsd.edu/giftprocessing/

Classification of Awards from Private Sources PPM 150-35

UCSD Gift Fee Policy – PPM 410-3 UCSD Naming Policy – PPM 410-4 UCOP Resources

http://www.ucop.edu/instadv/fundraising.html

FormsFoundation Fund Information Sheet,

Signature Authorization http://www-er.ucsd.edu/foundationDir/FDN-

ACT/fundfrms/Forms.asp

Gift Acceptance Formhttp://www-er.ucsd.edu/giftprocessing/

EndowmentA gift given whereby the original gift is not to

be expendedIt is to be invested, generally with the

objective to grow the principal over time by investment returns.

Generally invested in diversified portfolios of stocks, fixed income and alternative investments that produce both cash returns of interest and dividends and return in the form of unrealized appreciation (or depreciation, as the case may be!)

EndowmentIf the gift cannot be spend, what good then, is

the gift? The idea is that a portion of the annual

investment returns will be used for expenditure. This is called the “endowment spending policy”. It is set by the policy of the governing board.

The unexpended amount of return is retained in the principal, helping to protect it from inflation and thus protect the future “spending streams”

EndowmentPut another way: Grow the principal, grow the

spending. Purchasing power hopefully stays the same, or improves, over time.

The fund lasts forever, done right. Permanent money is the best kind to have!

But yes, a large endowment is needed to produce any reasonably sized spending stream.

We manage endowments under the guidelines of the Uniform Prudent Management of Institutional Funds Act “UPMIFA”

Impact of the recent drastic market on value

Questions?