8.33 University Development Fund

Purpose:	To provide procedures for contributing to the University Development Fund when gifts greater than $5,000 are received.
Policy Owner:	Financial Management

Background
The financing of fund-raising costs campus-wide is a shared enterprise requiring a significant amount of University resources for appropriate alumni and development activities and oversight.  It is imperative that fundraising and related alumni activities continue unabated after “Campaign Arizona” ends.  Therefore, the following policy regarding the reallocation of gift income is adopted. This central financing scenario applies to all cash or cash-equivalent contributions, pledges, additions to endowments or capital accounts, some grants, sponsorships, and all other gifts in excess of $5,000 committed after June 30, 2005 without exception.  Gifts are defined in Appendix A, which is a part of the Gift Policy, Chapter 8.12 in the FRS manual. This University policy is required for the continuation of a successful fundraising operation.

Alternative Financing Mechanisms
In order to simplify gift administration and processing the two alternative financing mechanisms used to meet campaign financing needs are being modified. These alternatives were intended to provide donors and departments with some flexibility to pay campaign costs either by holding gift income for investment, if not needed immediately, or paying upfront out of gifts received or out of other undesignated funds when the need arises to expend gift income immediately. This alternative described as an investment income reallocation is hereby eliminated effective June 30, 2005.  The upfront contribution is dealt with in more detail below.

Upfront Contribution for Endowed and Non-endowed Gifts
Beginning July 1, 2005, 6 percent is to be taken upfront out of the principal amount of all non-endowed and endowed gifts, including payments on obligations created prior to July 1, 2005, in order to permit immediate use of the gift.  Alternative arrangements can also be made to contribute 6 percent of the amount of the gift upfront from other sources (e.g., an equivalent contribution could be made from other undesignated departmental funds on hand).  Funds currently being held for Campaign Arizona will continue to be held until maturity.  However, no new holding agreements will be made in lieu of the 6 percent upfront fee.  The 6 percent must be paid upfront.  Four percent of the gift will fund development activities, one percent of the gift will go to central administration, and one percent will be treated as unrestricted support for college activities.  Distribution and use of the four percent and the one percent for college activities will be managed by the Development Executive Committee.  At some point during the year, when sufficient funds have been realized, the Development Executive Committee will announce a process where development proposals will be sought, reviewed and awarded on a one-time basis to Deans, Athletics and Alumni.

Donors' concurrence should be sought early in the solicitation process to avoid any and all later misunderstandings as to the application of the entire amount of the gift and the 6 percent reduction to support fundraising costs.  Thus corporate or foundation gifts which may have performance deadlines that may have prevented holding the gift for the 6 percent return must now pay 6 percent up front.  The department could also use other undesignated funds to support the cost of fundraising.  The Foundation will review all written solicitations to ensure that appropriate disclosure and acknowledgment are made.

All new restricted, scholarship, and other gifts and pledges in excess of $5,000, endowed or non-endowed, will pay an upfront contribution of 6 percent of the value of the gift.

Other General Policies
For non-cash gifts in excess of $5,000 (pledges, securities, property, etc.), the 6 percent upfront contribution will be applied after the pledge is received and the gift is converted to cash. In addition, the full direct costs involved for asset disposal (including appraisal fees, surveys, attorney's fees, etc.), plus 3 percent of the net realized value, will be charged against the proceeds for all real property transactions.

For any transactions involving transfers of gift funds, accounts, or assets between The University of Arizona and The University of Arizona Foundation or another affiliated foundation, the upfront contribution will be applied only once and be applied by the initial recipient.

The 6 percent upfront contribution will be applied in addition to any other applicable University administrative fees. To the extent the 6 percent exceeds the need for development financing, the University's hard dollar commitments will be reduced proportionately.

The 6 percent upfront contribution policy will be reviewed annually and continued only if the President so decides.

Exemptions
No exemptions or exceptions can be permitted except as noted below.

• This policy does not apply to the income on existing endowment or quasi-endowment accounts. However, any additions to the principal of existing endowment and quasi-endowment accounts (both scholarship and non-scholarship) will be subject to the financing plan.
• Grants received from public agencies are not gifts, including payments from state, local or federal entities, and will not be subject to the 6 percent upfront contribution.
• Private research grants, included in the definition of "What is not a gift" in Appendix A (attached), are not gifts and are not subject to the 6 percent upfront contribution.
• Program revenues that are subject to the Administrative Service Charge are not "gifts" subject to the 6 percent upfront contribution. For example, sponsorships are considered program revenues to the extent that there is no gift element and this is communicated to the sponsor. If there is a partial gift element, that portion of the payment is subject to the 6 percent upfront contribution.
• Pass-through scholarships and fellowships that will be fully expended within 12 months of receipt are exempt from the 6 percent upfront contribution.
• Student fundraising activities - The Development Financing Policy shall not apply to gifts solicited by currently-enrolled students, with no substantial faculty or staff involvement, to be expended solely upon student-run educational projects or activities in which such students are the active participants. The involvement of a faculty or staff advisor to such activity shall not disqualify it as "student-run," provided that all administrative and organizational aspects are controlled by the participating students.
• Gifts to purchase identified equipment - A gift from a single donor, which (a) is earmarked by the donor for purchase of an identified piece of equipment that will be used by a department or program in its educational mission, (b) covers the entire acquisition cost of the identified equipment and (c) is discounted if purchased through the University rather than by the donor, will be treated as equivalent to a gift of the equipment itself.
• Funds contributed by University Medical Center and University Physicians Health (with supporting documentation identifying a fund B designation) to units of the Arizona Health Sciences Center shall be considered departmental transfers and will be exempt from the campaign financing plan. Such contributions will be considered gift funds and counted toward the CAE and CASE reporting totals.
• Written and acknowledged pledges made before November 15, 1999, are exempt until fully satisfied.

Examples:  Several examples of gift types follow which may aid in understanding the application of the policy.

1. ABC Foundation makes a $50,000 gift to support Professor Susan Smith's research project in the College of Agriculture. The "grant agreement" from ABC Foundation requires the funds to be spent within 12 months for the project, but there is no product or service commensurate in value to the foundation, and the foundation pays no indirect costs. After discussing the 6 percent upfront rule, ABC Foundation does not want to pay an equivalent contribution out of the gift. Professor Smith agrees to pay 6 percent ($3,000) out of discretionary funds held at the UA Foundation for her research.
2. Big Computer Company makes a gift of $200,000 in computer equipment to the Eller College for use in undergraduate computer labs. There is no intent to sell or otherwise dispose of the equipment in the near future. This policy does not apply.
3. Bigger Drug Company (BDC) makes a grant of $500,000 to support the research of Chip Jones in the College of Pharmacy, including full payment of indirect costs. The data derived from the research along with any and all patentable products will be accessible to BDC upon completion of the research. This is a research contract that is not subject to the 6 percent upfront contribution.

Affiliated Foundations
All "affiliated foundations" as defined in the Affiliated Foundations Policy in the FRS manual except the Arizona 4H Youth Foundation and the University Medical Center Foundation will be subject to these requirements and will pay to the University the 6 percent upfront allocation, or expend some portion of such allocation directly on fundraising-related expenses as approved in writing in advance by the President.

Questions
Questions about the application of these rules should be addressed to the University Comptroller.

Appendix A

 DEFINITION OF A GIFT

(copied from FRS Departmental Policy Manual, Chapter 8.12, Gifts)

 What IS a gift: A gift is defined as a voluntary transfer of items of value from a person or organization where no goods or services are expected, implied or forthcoming for the donor. Gifts normally take the form of cash, checks, securities, real property or personal property and may be unrestricted, designated or restricted to a general area of use that benefits the University or one of its components. Once the University has accepted the gift, it becomes University property, and the donor has no direct decision-making power regarding the gift.

   A gift will generally possess the following criteria:

A gift is motivated by charitable intent

Gifts are irrevocable, and the University is not expected to return all or part of the gift. In the event the University is unable to comply with donor intent, or if the gift was directed to the University in error, a return of the gift may be issued at the University's discretion. Approvals for such returns are made by the Assistant Vice President/Controller of the University or designee.

Gifts do not have contractual agreements imposed, although objectives may be stated and funds may be restricted to a specific purpose.

A period of performance is not specified or required. It may specify funding periods.

Formal financial accounting is not required. A general report to the donor stating the utilization or impact of the gift is appropriate, and may be desirable, especially in the case of memorial or scholarship gifts.

What IS NOT a gift: A sponsored project, sometimes called a grant or contract, is not a gift. It is a payment to the University for a specific project that binds the University to a specific scope or area of work. There is always a signed, legally enforceable document involved.

    If the document includes one or more of the following attributes, it is probably a sponsored project and not a gift:

The source of the payment is a government agency

A required item must be provided, such as a technical report of data collected, or the specific results of a project, a curriculum or training program, or a sample product

Primary benefits are to the sponsor

Patent rights or copyright language is discussed

Punitive damages can be assessed

A requirement for record retention or a provision for an audit

Specific start and end dates for the funded project

A detailed project description or discussion of the scope of work to be performed

There is a limitation on the use or publication of project data beyond the donor simply wanting recognition

Requirement for disposition of property, whether tangible or intangible that may result from the project (equipment, inventions, copyrights, etc.)

Authority over the project resides with the sponsor rather than with the University

Unused funds must be returned

Provision for reimbursement of indirect costs

1. Complete the online Gift Report/DDF form. This form is a combination Gift Report and Distribution of Deposit Form and must be used for ALL UA and UAF gifts. The form is available at giftddf.html.
    
2. If the gift is greater than $5,000, an authorized departmental employee must choose one of the following development fund financing methods:

1. 6% upfront from another appropriate account.
2. Scholarship pass through. If a scholarship will be awarded from the gift within 12 months of receipt, the gift is exempt from funding the development fund.
3. Transferred from an affiliated foundation. If the gift is transferred from an affiliated foundation, the development fund contribution has already been applied to the gift, or the gift was exempt.
4. Exempt because the gift was pledged before Nov. 15th, 1999.
5. Exemptions granted under the University Development Fund. Three blanket exemptions include student-raised funds for student activities, gifts to purchase identified equipment, and funds contributed by University Medical Center (includes University Physicians Healthcare with supporting documentation identifying a fund B designation) to units of the Arizona Health Sciences Center.

3. The gift and financing method must be approved and signed by appropriate departmental personnel.
    
4. Send six copies of the Gift Report/DDF, all supporting documentation and the check to the appropriate office:
   • Scholarships - Scholarship Development
   • All other gifts – Information Services Office
    
    
5. The documentation will be reviewed and the funds forwarded to the Bursar's Office for deposit. The Gift Report/DDF will be distributed to the designated areas, including a signed form to FM-University Development Fund Financing in order to comply with development fund financing requirements for UA gifts over $5,000.