Donations Policy. Finance Department policy on the financial management of donations.

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1 Purpose of Policy Overview Scope: Mandatory Policy Finance Department policy on the financial management of donations. Guidance on the financial management of donations received by the University and on the accounting treatment of donation funds. Background on the requirements of the Further and Higher education (FEHE) Statement of Recommended Practice (SORP) 2015 is provided together with the key changes between the 2007 and 2015 FEHE SORPs. The classification of donations between those that are unrestricted, restricted and those which are subject to performance-related conditions and the different related accounting treatments is explained. All finance staff that are involved with the financial management and accounting for donations. Matters related to ethical conduct, bribery, fraud, gifts, hospitality and conflict of Interest are out-with the scope of this Policy and are covered by the Ethical Fundraising Advisory Group policies which can be found at: Finance Contact Name: Role: Tel: Laura Robertson Please cc Copy Financial Accountant Financial Information, Reporting & Strategy Team (FIRST) 1

2 1. Development and Alumni Services 2. Development Trust 3. Donation General Definition 4. Donation Fund- University Definition 5. Classification of Donation funds The University Development and Alumni (D&A) department is responsible for all fundraising activities and administers donations received by the University. D&A forms part of the University Secretary s Group that also administers the Ethical Fundraising Advisory Group. Donations are initially accepted, received and acknowledged through the University of Edinburgh Development Trust prior to disbursement to the appropriate part of the university. The University of Edinburgh Development Trust (DT) was established to financially administer pledges, legacies, properties, fundraising campaigns and other donations on behalf of the University. It is a separate charity registered in Scotland with registration number SC The funds are then disbursed for application by the University in accordance with the terms of the donation or wishes of the donor. A donation is a voluntary transfer of money or property by a donor, made with philanthropic intent for the benefit of the institution. After receipt, the institution must own the donation in full and any work, project or intellectual property that results. The donor may not retain any explicit or implicit control over a gift after acceptance by an institution and there must be no contractual conditions attached to the donation. In many cases however the donor may specify their wishes as to how the funds should be applied. Funds gifted to the University should be applied for general purposes or in line with the wishes of the donor as soon as practicable or over a timeframe appropriate for the specified activity. Certain gifts or legacies may specify that the funds should be invested with the income applied in line with the donor wishes or the application of a fund over a longer term timeframe may be appropriate in view of the size of gift or legacy or for other reasons. In these cases the gift will be treated by the University as an Endowment. Please refer to the separate Finance policy on endowment funds. There are four classes of donations as follows: 1. Donations for the general use of the University or a sub-units such as a College, School or Support group are classified as unrestricted. 2. Many donations are restricted in application to a specific Estates building project. These are restricted donations for capital purposes. 3. Donations to be applied to other specific purpose within the University or by a sub-unit are also classified as restricted. 4. In certain instances these restricted donations may come with performance related conditions (see below). If the donor retains any explicit or implicit control over a restricted fund after acceptance by the University or there are contractual conditions attached then the funds will not be treated as a donation. 2

3 6. Accounting policy 7. Financial Management of Donation Funds 8. Financial reporting 9. Interest on Donated funds donations are recognised as unrestricted income when received or receivable. They will contribute to the annual accounting surplus that is credited to the University s unrestricted reserves at the year end. When donations are received with restrictions individual restricted funds are set up and restricted income is recognised when donations to that fund are received or receivable. Any unspent balance that has not been applied to the specified purpose by the year end will be retained in a specific restricted reserve for that fund. Where a donation has performance related conditions (a condition that requires the performance of a particular level of service or units of output to be delivered, with payment of, or entitlement to, the resources conditional on that performance) income will only be recognized when the funds have been applied to the specified purpose by the year end. Otherwise the fund will be prepaid as deferred income. No annual accounting surplus will arise as income will always be recognised to match actual expenditure incurred. Any unspent balance on a restricted donation will remain immediately available to apply to the specified purpose in the following year. The financial management of donations within the accounting framework is the responsibility of the relevant sub-unit of the University that benefits from the funds. The total of donation income recognised in a year by DT and the University is separately disclosed in the accounts as a separate line on the face of the Consolidated statement of Income. The total of restricted donation income and the amount of restricted donation income either applied in the year or released for capital purposes is disclosed in the accounts on the consolidated statement of changes in reserves. The disclosure and the ensuring validity of the underlying records on individual donation funds is the responsibility of the Financial Information, Reporting & Strategy Team (FIRST). Interest is applied by DT to all unspent funds they hold over 50k until they disburse the funds to the university. The University also applies interest to any unspent funds over 50k held within University reserves. 3

4 1. Key Changes Resulting from SORP 2015 Donations represent a subset of non-exchange transactions. A non-exchange transaction is a transaction whereby an entity receives value from another entity without directly giving approximately equal value in exchange. Endowments also fall under this category but are dealt with under a separate policy. Under the SORP 2015 there is a new category of reserve in the balance sheet; restricted reserve. Any unspent money on restricted donations will flow to the restricted reserve. Previously any unspent restricted donations received were deferred on the balance sheet at year end and automatically credited back into income in period 1 in the next financial year. Under the new SORP any unspent restricted donations will no longer be transferred back into income at the start of a new financial year but transferred to this new restricted reserve. Donations for the construction or purchase of tangible fixed assets will no longer be credited to deferred capital grants on the balance sheet. If there are no performance related conditions (PRCs) the whole of the donation will be recognized in the when the University becomes entitled to it. Characteristic 2007 SORP 2015 SORP Classification Recognition Classification Recognition 1. Charitable gift towards the cost of purchase or construction of a tangible fixed asset other than land 2. Charitable gift towards the cost of purchase of land Deferred capital grant Income (see SORP 153) 3. Charitable gift to be Permanent invested permanently endowment to produce an income for the benefit of the institution or any specific purpose within the institution (2007 SORP - subject to meeting the period of retention SORP - subject to meeting the endowment definition 4. Charitable gift to be retained for the benefit of the institution but where the terms enable the use of capital balances. Expendable endowment Balance Sheet Income with (when performance- PRC met) related conditions (refer to PRC definition in section 6 above) Expenditure Account STRGL STRGL Income with performancerelated conditions Recognise original charitable gift in income in the and Permanent Endowment in reserves analysis Recognise in income in the and Expendable endowment in reserves analysis (when PRC met) 4

5 Characteristic 2007 SORP 2015 SORP Classification Recognition Classification Recognition 5. Charitable gift for the general purposes of the institution this would include such general terms as teaching, research, education, facilities. 6. Charitable gift for the general purposes of a specific department. 7. Charitable gift for a specific purpose already committed or planned as part of a department s existing operations 8. Charitable gift for a specific purpose which can be fully expended on that purpose within two years of receipt 9. Charitable gift with a specific restriction where the donation is so large in relation to the spending on the purpose that it will need to be retained over a period exceeding two years. income income income Income (could be deferred) Expendable endowment Expenditure Account Expenditure Account Expenditure Account Expenditur e Account or Balance Sheet (creditor) STRGL donation donation donation Restricted Donation Restricted Donation Source: BUFDG Briefing: Guidance for higher education institutions in implementing the provisions of the FEHE SORP 2015 in respect of donations and endowments (November 2015). 5

6 2. Recognition of Donation Income Per FRS 102 an entity is required to recognise income from non-exchange transactions as follow: If there are no PRCs attached to the income it should be recognised as soon as the University receives it or is entitled to receive it. If the transaction imposes PRCs on the recipient the income is only recognized as the PRCs are met. FRS 102 defines a performance-related condition as a condition that requires the performance of a particular level of service or units of output to be delivered, with payment of, or entitlement to, the resources conditional on that performance. FRS 102 also comments that some requirements are stated so broadly that they do not actually impose a performance-related condition on the recipient. In these cases the recipient will recognise income on receipt of the transfer of resources. There may be instances of donations received with PRCs and a distinction should be made between genuine PRCs and the stipulation of milestones by the donor which do not in fact constitute a PRC e.g. the requirement to deliver a report to a funder is unlikely in itself to be a PRC. The instances of donations with PRCs are rare. BUFDG guidance on donations give two examples of donations with PRCs: Funding for a set number of scholarships in a named subject where the University is responsible for selecting suitable students and would be required to return the funding should they fail to fill the scholarships. The performancerelated condition would be incurring expenditure on the scholarships and/or teaching of the students during the year. A donation towards the costs of construction of a specific building, if entitlement to the donation is on completion of the building (performancerelated condition). The University should recognize income from donations as soon as it becomes entitled to it subject to any PRCs that existed have been met. 3. Distinction between Restrictions and PRCs A PRC is a type of restriction. Restrictions apply in many circumstances where a donor has requested a specific use of the funds which restricts the way in which the University may spend the funds. All donations with PRCs are restricted but not all restricted donations have PRCs. PRCs form a subset of restrictions and exist where the restrictions are such that the donor has stipulated the level of service or units of output on which the funds must be utilized before entitlement to the funds passed. 6

7 4. Donation Classification A restriction is defined in FRS 102 as a requirement that limits or directs the purposes for which a resource may be used that does not meet the definition of performancerelated condition. Per BUFDG guidance a donation may regarded as being restricted if: The donor specifies a particular purpose for which the funds are to be used and this is more specific than the fund being made available for the general (i.e. teaching and research objectives) use of the institution; or The donation made is for a named member of staff or sub-unit of a department as specified by the donor. For balance sheet purposes any unspent income on restricted donations should be credited to the restricted reserves. The related spend must be debit to the restricted reserve in future accounting periods. reserves are shown in general reserves in the balance sheet. 7

8 Source: BUFDG Briefing: Guidance for higher education institutions in implementing the provisions of the FEHE SORP 2015 in respect of donations and endowments (November 2015). 8

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