Trust Fund Workshop

1
Trust Fund Workshop

• Presented By
• Trust Fund Operations Committee
• (TFOC)
• October 21, 2008
• 9 am -1030 am

2
Agenda

• Introduction
• The Campaign for McMaster University
• Best Practices for Establishing Chairs
  Professorship
• Donor Reporting
• Accounting, Budgeting and Financial Statements
• Questions

3
Introduction
4
Rank of TOTAL Endowment FundsMcMasters
endowment consistently ranks among Canadas top
10 universities
5
Statistics McMaster Chairs / Professorships

• 2008
• 75 Chairs and 11 Professorships out of approx.
  1500 trust accounts
• Market value of Chairs and Professorships 105m
  
• Market value of all Trusts 357m
• 2003
• 50 Chairs and 4 Professorships
• Market value of Chairs and Professorships 42m

6
Chairs by Area October 14, 2008

• Endowed Chairs at McMaster 75
  52 Health Sciences, 11
  Engineering, 4 Business, 2 Science, 2
  Humanities,
• 4 Shared between two faculties
• Professorships at McMaster 11
• 8 Health Sciences, 2 Business, 1 Social
  Sciences
• McMaster is well placed nationally in terms of
  number of endowed chairs

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Definition of a Trust Fund

• From the Operational Policy and Procedures for
  Trust and Endowed Fund Management
  www.mcmaster.ca/bms/policy/trust/opguide.pdf
• Holds donations or bequests
• Terms and conditions agreed upon by the donor
• Externally restricted funds
• May have the following components
  non-expendable (including preservation of
  capital) and expendable or, it may have
  expendable only
• Chairs Professorships are a subset of Trusts

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Key role of trust fund administrators

• Participate in the appropriate initial set-up of
  the fund
• Administer and care for the fund
• Assists with reporting on the use of the fund
• Budget fund resources
• Assists with stewardship of the fund and its
  donors
• Administrators may delegate some of the
  administrative duties

9
General Rules

• From the Operational Policy and Procedures for
  Trust and Endowed Fund Management
  www.mcmaster.ca/bms/policy/trust/opguide.pdf
• All deposits to trust funds are processed through
  University Advancement
• All trust funds are to be opened according to
  established criteria
• Income will be assigned to General Trust accounts
  only
• Income is distributed in accordance with the
  Expenditure Policy General Trust Funds
  (Externally-restricted Endowments) at
  http//www.mcmaster.ca/univsec/policy/Expend-ExtRe
  stEndow.pdf

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General Rules (Contd)

• The non-expendable portion of trust funds is
  invested by the external managers under the
  Statement of Investment Policies and Objectives
  Investment Pool at http//www.mcmaster.ca/univsec/
  policy/InvestmentPool.pdf
• The expendable portion of trust funds is invested
  under the Statement of Investment Policies and
  Guidelines Working Capital see
  http//www.mcmaster.ca/univsec/policy/WorkingCap.p
  df

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General Rules (Contd)

• Internal funds should not be transferred into
  trust funds
• For exceptions refer to Internal Transfer Rules
  Application and Interpretation

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Definition of a Chair or Professorship

• From the Policy Guidelines for Establishing Named
  Chairs and Professorships www.mcmaster.ca/senate
  /hrfaclty/endow.htm
• Chairs
• Established in perpetuity
• Normally 2,000,000,
• Annual return is to support the activities of the
  chair-holder
• Professorships
• Reflect naming opportunities
• Annual return is to support the activities of the
  professorship
• Policy is owned by Board Secretariat and is
  under review, as current Campaign has resulted in
  new types of chairs and professorships that need
  to be added.

13
Types of Matches

• Central Budget Match currently 4 to a maximum
  of 40k
• Department Match generally up to 40k
• Capital Match the university would match the
  capital into the 0-7 account, this is rare and
  not included in the current campaign
• Not all Chairs and Professorships are matched
  depends on the gift agreement

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• The Campaign for McMaster University

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The Campaign for McMaster University

• Overall Goal 400 million
• Board of Governors approved campaign priorities
  in May 2006
• Wrap up and Celebration in early 2010
• Outcomes
• Enhanced programs across campus
• New facilities
• Enhanced culture of philanthropic and volunteer
  support
• Enhanced public awareness of McMasters unique
  strengths

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Campaign Priorities Endowed Chairs

• More than 50 Endowed Chairs proposed
• 1 million each
• 12 Priority Endowed Chairs - 2 per Faculty
• 2 million each

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• Best Practices

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Best Practice for Establishment of an Endowed
Chair/Professorship

• Inclusion as a Fundraising Priority
• Priorities determined by Faculty, based on their
  requirements
• Information passed to University Advancement to
  pursue these priorities
• Fundraising
• Development Officers conduct proposal
  development, prospect clearance and communication
  with potential donors
• Officers also create Gift agreement in
  consultation with donor obtain appropriate
  signatures

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Gift Agreements

• For every new Endowed Chair requires a signed
  gift agreement
• Validate McMasters accountabilities and intent
  of the gift
• Generally not considered legally binding
• The gift is made without the expectation of
  return or benefit
• Coordinated primarily through the Office of
  Stewardship Donor Relations
• Signed gift agreements are circulated to all
  parties involved in the management of the Endowed
  Chair /Professorship

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• Faculty Creates Terms of Reference
• Brief document outlining the details and duties
• Selection process and term of appointment details
  may be included
• Useful in defining the scope and in selecting a
  Chair holder/Professor
• Dean prepares a letter recommending the
  establishment of Chair/Prof
• Terms of reference and recommendation letter
  submitted to Provost for Senate approval

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• Selection Committee Process
• Dean, in consultation with appropriate
  stakeholders, ensures an appropriate Selection
  Committee is formed
• Follow the details spelled out in terms of
  reference and gift agreement for selection
• Once a candidate is selected and they accept,
  Dean prepares a letter of nomination, submitted
  to Provost and University Senate for approval

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• 5. Finance / HR Paperwork
• Submit relevant paperwork for the chair holder /
  professor position to finance and HR offices
• hiring forms
• budget forms
• financial details of the chair

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• Senate Approval to Formally Establish the Endowed
  Chair/Professorship
• Terms of reference and Deans letter of
  recommendation sent to Provost for approval
• Upon approval, forwarded to University Senate for
  approval
• Senate Approval of Appointment to Endowed
  Chair/Professorship
• Terms of reference, nomination letter from Chair
  of Selection Committee and candidates current CV
  sent to Provost for approval
• Upon approval, forwarded to University Senate for
  approval

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• Publicity
• Publicity may not commence until Senate approval
  received
• To be arranged by Public Relations and/or
  University Advancement departments
• May include a special event to recognize the new
  Chair or Chair holder

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Best Practice for Establishment of an Endowed
Chair / Professorship (Contd)

• Chair Review
• appointed for limited terms
• submits a review of their term
• A review panel reviews the performance and
  results and recommends / declines renewal
• If the Chair is not renewed, an open competition
  will be initiated by the Dean
• Details on review process should be reported to
  the donor

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• Donor Reporting

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Donor ReportingEndowed Chair / Professorships

• Package includes
• Endowed Chair / Professorship holders report
• McMasters Annual Financial Report
• Newsletter from Office of Stewardship Donor
  Relations
• Other faculty materials
• Financial Statement for the Trust
• 75 Financial statements for Endowed Chairs and
  Professorships reports will be prepared for
  2007/08

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Donor ReportingEndowed Chair / Professorships
(Contd)

• Package includes
• Financial statement for Endowed Chair /
  Professorship account (generated manually by the
  Accounting Assistant, Trust Funds)
• This is the information that is sent to you for
  verification before it goes out
• This is the focus of our training

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Endowed Chair / Professorship Reporting Package

• Who are the packages sent to?
• Donor contacts those persons identified as
  the best contact to receive any communication on
  the Endowed Chair / Professorship
• Sometimes outlined in the gift agreement
• Timing
• Sent out in Nov/Dec annually
• Who coordinates the mailing of packages?
• Coordinated primarily through Office of
  Stewardship Donor Relations
• Some handled at the Faculty level (e.g. Health
  Sciences for many of their Chairs/Professorships)

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• Accounting, Budgeting and Financial Statements

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Accounting

• There are 2 types of accounting Book Value and
  Market Value
• Book Value
• Original Donation
• Actual cash value of the fund, less actual
  expenses, plus realized income
• Market Value
• What its worth in the market today
• Book value plus unrealized investment
  gains/losses

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Accounting Contd

• Chairs and Professorships have a 7 account as
  well as a corresponding 2 account

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Endowed Chair and ProfessorshipsPossible Sources
of income
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Budget

• A University Central Budget match will be part of
  the annual allocation received from the budget
  office and will show in your envelope allocation
• If the Budget match is received and not spent it
  needs to be carried forward so the cumulative
  funds are available once a chair is appointed.

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Endowed Chair/Professorship - Annual Budget in
the 2-Operating Account

• Developed by Chairholder and Faculty
  Administration, including the Trust Fund
  Administrator
• Expenditures of the prior year are reviewed and
  used as a guideline
• Total budgeted expenditure must not exceed the
  anticipated income of the trust fund and/or
  funding agreements

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Endowed Chair/Professorship - Annual Budget in
the 2-Operating Account (Contd)

• The Income Budget for the new fiscal year is
  formulated using the following criteria
• Carried forward balances
• Carried forward interest in 7 account projected
  allocation
• All matches
• Working capital projection
• External interest earnings

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Chair Expenses

• Each Chair/Professorship trust fund (7 account)
  requires a corresponding 2 account.
• All Endowed Chair Expenses flow through the
  corresponding 2-Operating account (not the 7
  ledger)
• The 2-operating account may receive an interest
  match and /or have unspent interest funds carried
  forward from April 30th of the prior year at May
  1 annually.

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Chair Expenses

• The 2-Operating account balance should be
  reviewed monthly
• Only the total Interest available to the chair
  holder can be transferred to the 2 Operating
  account from the trust
• Expenses exceeding the interest available at
  fiscal year end must remain in the 2-Operating
  account and will be a first call on the next
  years interest allocation.

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Example A 1,000,000 Capital held at McMaster
University Central Budget Match of Interest on
1.0M
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Example B 2,000,000 Capital held at McMaster
University No Match
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Example C 2.0 M. Capital held Externally (e.g.
SJH Foundation)
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Endowed Trust Fund Statement

• The Name of the Chair or Professorship Here
• May 1, 2006 to April 30, 2007
•       

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• Reading Your Endowed Trust Fund Statement
• Capital Received Funds received during the
  reporting period and to date
• University Capital Match Funds contributed by
  the University to enhance the capital as agreed
  upon in the Gift Agreement
• University Contribution Funds contributed by
  the University for expenditures as agreed upon in
  the Gift Agreement
• Additional Faculty Contribution Funds
  contributed by the Faculty for expenditures
• Net Investment Income Net investment income
  includes realized and unrealized income net of
  investment management expenses (currently 0.4)
  and endowed trust fund administration costs
  (currently 1.0)
• Expenditures The actual amount of money
  disbursed for the agreed upon purpose
• Fund at Market Value The market value of the
  endowed trust fund as of April 30, 2007
• For questions concerning this statement, please
  contact
• Name Title of Administrator here
• McMaster University, Address of Administrator
  here
• [phone], extension here

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Non-Endowed Trust Fund Statement
The Name of the Chair or Professorship Here May
1, 2006 to April 30, 2007
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• Reading Your Trust Fund Statement
• Expendable Gift Funds received during the
  reporting period and to date
• University Contribution Funds contributed by
  the University for expenditures as agreed upon in
  the Gift Agreement
• Investment Income Investment income consists
  of earnings on the Universitys short term
  working capital portfolio
• Expenditures The actual amount of money
  disbursed for the agreed upon purpose
• Fund at Market Value The market value of the
  trust fund as of April 30, 2007
• For questions concerning this statement, please
  contact
• Name Title of Administrator Here
• McMaster University, Address of Administrator
  Here
• [phone], extension here
• email_at_mcmaster.ca
• Thank you for your ongoing support of McMaster
  University

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Available in TFAIS (Trust Fund Accounting
Information System)
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Questions?