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Sec. 1 Purpose
The purpose of this Policy is to outline the fundamental objectives and procedures that each institution and U. T. System Administration should follow to develop and maintain an institutional endowment compliance plan to ensure the highest level of fiduciary responsibility and accountability by the institution or U. T. System Administration to the endowment donor.
Sec. 2 Policy Statement
Each UT System institution and U. T. System Administration is charged with raising private sector donations for the purpose of establishing endowments to support its mission and goals. The endowment compliance process begins with strict adherence to the official U. T. System Gift Acceptance Procedures at the time an endowment is established. As authorized by Board of Regents’ Rules and Regulations, Rule 60101, Acceptance and Administration of Gifts, these procedures outline the administrative processes associated with the review and acceptance of endowments held and administered by the Board of Regents of The University of Texas System.
Sec. 3 General Guidelines
It is recognized that the 13 institutions that comprise the U. T. System differ substantially in organizational structure and the number and the nature of endowments. The following general guidelines associated with the endowment compliance process are outlined in order that they can be adapted for use by the 13 different institutions and U. T. System Administration.
Sec. 4 Fundamental Elements of an Institutional Compliance Plan – Content
4.1 Approval of New or Amended Endowments. All proposed new endowments or amendments to existing endowments are initiated by the Development or Advancement Services Office (or similar) of each U. T. System institution and U. T. System Administration and submitted to U. T. System Administration for review and approval by the Office of External Relations, Communications, and Advancement Services of the U. T. System via authority delegated by the Board of Regents. No endowment will be established or announced without prior approval by the Board of Regents or its designee(s).
4.2 Adherence to the Intent and Terms of the Endowment Agreement and Governing Documents. The U. T. System institution and U. T. System Administration should ensure that each endowment is used for the purposes(s) intended by the donor(s) and in accordance with the terms of the official document(s) associated with the establishment and approval of the endowment by the Board of Regents or its designee(s).
4.3 Review of Endowment Accounts. The U. T. System institution and U. T. System Administration should ensure that all endowment accounts are reviewed for compliance on a regular basis by appropriate personnel and that funds are utilized in accordance with the terms of the endowment agreement or other governing documents. The accumulation of large balances in endowment income accounts should be based on sound academic/research plans that are reviewed and approved by the president of the institution or the Chancellor of the U. T. System, or his or her designated representative.
4.4 Annual Reports to Endowment Donor(s). The U. T. System institution and U. T. System Administration should provide annual reports to the donor(s) of each endowment. The report should summarize the major activities associated with the endowment, include a financial statement for the endowment for the report period and, when appropriate, provide information on the holder(s) or the recipient(s) of the endowment. [Note: It is understood that some endowments have no known person or entity to which endowment reports may be directed. Therefore, each U. T. System institution and U. T. System Administration should develop a list of “no report” endowments as a part of its annual report to the U. T. System.]
Sec. 5 Process
5.1 Responsible Party. The president of each U. T. System institution and the Vice Chancellor for External Relations, Communications, and Advancement Services of the U. T. System should appoint a Designated Endowment Executive. [Note: Based on endowment compliance practices to date, it is anticipated that the Designated Endowment Executive will usually be the Chief Development Officer of the institution. The Designated Endowment Executive is free to designate another staff member to assume the day-to-day responsibility for endowment compliance.]
5.2 Endowment Compliance Committee. Each U. T. System institution and U. T. System Administration shall form an Endowment Compliance Committee comprised of key individuals who are associated with the management or use of endowments or who can provide valuable guidance in endowment compliance. In order to best monitor and discuss endowment administration and compliance from a variety of perspectives and expertise, it is recommended that the committee be comprised of representatives from the following areas:
- The Office of Advancement Services (or similar)
- The Office of Business or Accounting (or similar)
- The Office of Student Financial Aid (or similar)
- The Office of Compliance or Audit (or similar)
- The Office of the Chief Academic Officer or Chief Research Officer
- Individual colleges, schools and units that benefit directly from endowments and who can provide perspective on routine endowment use
Under the leadership of the Designated Endowment Executive, the Endowment Compliance Committee shall meet regularly each year and be responsible for considering the endowment compliance effort from a broad institutional perspective and for reviewing the institution’s or U. T. System Administration’s endowment compliance plan. Examples of topics the Committee might be charged with discussing include:
- Endowments with histories of non-spending and potential methods to address them
- Endowments with large accumulations of unspent distributions and potential methods to address them
- The awarding of student support endowments, with special attention given to those with a history of non-awarding and potential methods to address them
- Unfilled endowed academic positions, with special attention given to those that have been unfilled for an exceedingly long period of time and potential methods to address them
- Areas of risk or improvement as identified by the representative(s) from the Office or Compliance or Audit
At appropriate intervals, the Designated Endowment Executive should forward recommendations and comments of the Endowment Compliance Committee to the president of the institution or the Vice Chancellor for External Relations, Communications, and Advancement Services of the U. T. System for his or her review and approval.
5.3 Endowment Risk Assessment. Under the leadership of the Designated Endowment Executive and in consultation with the Endowment Compliance Committee, each U. T. System institution and U. T. System Administration should conduct an annual endowment risk assessment to assess issues that could impact its ability to meet its mission and objectives. These might involve financial, operational, compliance, and/or reputational risks. The risk assessment should take into account the laws, regulations, policies, and procedures to which endowments are subject as well as other factors pertaining to the structure and organization of the institution and the nature of its endowments. Particular endowments may be intentionally selected to assess the impact and probability of occurrence of a specific risk. For example, financial risk might be assessed through a special review of endowments funded over a specified dollar amount.
5.4 Endowment Compliance Training. Under the leadership of the Designated Endowment Executive and in consultation with the Endowment Compliance Committee, a high-quality training program should be developed and implemented as a requirement for personnel associated with endowments and/or endowment compliance across the U. T. System institutions or U. T. System Administration. Such personnel should include, but are not limited to, any staff tasked with the monitoring, spending, or other administration of endowment income accounts; faculty holders of endowed academic positions; and other individuals with the authority to make endowment spending decisions. Employees should be retrained at least every two years.
The content of an Endowment Compliance Training program should cover, at a minimum, permissible and prohibited uses of endowment distributions, as per the relevant endowment agreement(s) and institution spending policy; expectations of minimum annual spending of endowment distributions; the process for creating and monitoring spending/savings plans where necessary; and up-to-date endowment financials (such as available balance, market value, etc.) or resources with which to access them.
5.5 Monitoring Plan. Under the leadership of the Designated Endowment Executive and in consultation with the Endowment Compliance Committee, each U. T. System institution and U. T. System Administration should design and establish a monitoring plan based on its risk assessment. The plan should include a description of activities that will be performed in order to identify and reduce noncompliance for endowments. The plan might include employee training and awareness programs, certification of compliance by endowment holders, periodic testing of select endowment expenditures, and periodic review of policies and procedures.
5.6 Endowment Reporting Plan. The reporting plan should specify the elements of periodic reports that should be made to both internal and external individuals or entities. For example, periodic reports should be made to the president or Chancellor, and may be made to key administrators, such as the provost or chief academic or research officers, deans of colleges and schools, directors of administrative units, etc. The reporting plan should be designed to provide assurance that the institution’s review and monitoring plans are functioning as intended.
In addition, annual reports summarizing each endowment’s use and financial status should be prepared for all known living donors or other primary contacts for the endowment.
5.7 Certification of Endowment Compliance. In consultation with the Endowment Compliance Committee, the Designated Endowment Executive of each U. T. System institution and the Vice Chancellor for External Relations, Communications, and Advancement Services of the U. T. System shall forward an Annual Report on Endowment Compliance to the Chancellor of the U. T. System and/or to his/her designated representative. The report will be due annually on December 20, or the agreed upon date. The report shall summarize the endowment compliance activities of the U. T. System institution or U. T. System Administration and certify that the institution is in compliance with the endowment compliance standards established by the U. T. System.
Designated Endowment Executive - administrator designated by the president of the U. T. System institution or the Chancellor or his or her designee for U. T. System Administration and is responsible for ensuring that the institution’s endowments are in compliance.