Trust Fund Training

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Trust Fund Training

• Presented By Trust Fund Operations Committee
• October 25, 2005
• 9 am -12 pm

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Agenda

• Trust Fund Overview 900 - 910
• University Advancement 910 - 925
• Administrators Role 925 - 945
• Accounting Trust System 945 - 1015
• Break 1015 - 1030

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Agenda

• Investment Pool 1030 - 1045
• Trust Fund Website 1045 - 1100
• Donor Reporting 1110 - 1125
• Annual Review 1125 - 1135
• Questions Answers 1135 - 1150

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Trust Fund OverviewWhat is a trust fund?

• Donation or bequest received by the University
  that has conditions and/or legal requirements for
  use
• Conditions/requirements are agreed upon by the
  donor and the University, or terms for use are
  established by the University
• Various types of trusts

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Types of Trust Funds

• Long Term
• General perpetual trusts - only income from
  capital can be expended
• General long term -both capital and income can be
  expended

• Short Term
• Specific trusts -
• to be spent in the current year for some
  specific purpose designated by the donor

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How McMaster Manages Trusts

• People / positions
• Policies / procedures
• Committees and Councils
• Systems
• Attestations and donor reporting

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People / Positions

• Trust Fund Accounting Assistant
• Trust Fund Administrators
• Financial Services Staff
• Development Officers
• Treasury Staff and External Managers
• Financial Aid and Scholarships Staff
• Graduate Studies Staff
• Staff in Various Faculties

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Policies / Procedures

• Charitable Giving Policy
• Prospect Clearance Policy
• Operational Procedures
• Investments Policy
• Expenditure Policy
• Cash Control Policy

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Committees and Councils

• Trust Fund Management
• Chaired by AVPs Admin Advancement
• Sets policies procedures for managing trust
  funds
• Accountable for annual Trust Funds Review and
  Attestations
• Responsible for TFAIS
• Submits reports to Board Finance Committee

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Committees and Councils(continued)

• Trust Fund Operations
• Reports to TFMC
• Operationalizes policies and procedures
• Approves new trust funds
• Coordinates flows between departments
• Deals with problem trusts (e.g. inactive, too
  small, overspent)
• Ensures centralized files kept

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Committees and Councils(continued)

• Undergraduate and Graduate Councils
• Sets policies and procedures for managing
  scholarships and bursaries
• Approves terms for new trust funds dealing mainly
  with scholarships and bursaries

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Systems

• Financial Accounting System (FAS)
• Financial Aid Scholarship System
• Advancement System
• Trust Fund Accounting Information System (TFAIS)
• Summary of information from Advancement,
  Scholarship and FAS systems

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Attestations Donor Reporting

• Key component of the Annual Review of Trust Funds
• Attestations are obtained from administrators
  confirming terms of trusts have been upheld
• Annual statements are sent to donors to provide
  information on their trust account(s)

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Overview

• End of Overview
• Any questions before we go on?
• Next the role of Advancement

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University Advancement

• Development
• Public Relations
• Alumni Advancement
• Advancement Services
• Decentralized Advancement

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Development

• Solicit donations from private sources
• Handle incoming calls related to donations
• Provide donors with naming opportunities
• Draft gift agreements that document expectations
  of the University and the Donor
• Holds gift announcement functions
• Stewards donors ensuring a long term
  relationship, one tool is the annual Endowment
  Fund and Chair Statement

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Developments Role in Trusts

• For scholarships / bursaries, or issues related
  to the establishment of new trusts, Senior
  Development Officer is the key liaison with
  donor, TFOC, Adv. Serv., Financial Services, SGS
  and Office of Student Financial Aid
  Scholarships
• Discuss with Donors terms / conditions / policies
  regarding trusts
• With Donor, and in cooperation with fund
  administrator, develop terms of reference for new
  trust

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Developments Role in Trusts

• Move establishment of new trust through TFOC
  process
• Request the opening of a new trust fund including
  name of fund, terms of reference, type of fund,
  funds available and donor contact
• Note As a result of audit, gift agreements are
  currently being updated to better reference
  University policies related to trusts

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Advancement Services

• Acts as processing unit for all areas in
  University Advancement

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Donations

• Verifies that every gift is for a university
  approved project
• Ensures every gift qualifies as a charitable
  donation according to CRA
• Records all donations on Advance system
• Generates all tax receipts for income tax purposes

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Donations

• Appropriately acknowledges all donations
• Produces financial accounting information
• Correspond with Investments regarding estate and
  securities donations
• Produce pledge reminders to donors, for review
  and mailing by Development Officers

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Gift Restrictions

• Cashing a cheque can be construed as accepting a
  donors conditions
• If we accept a cheque, the funds must be used as
  the donor expects
• CRA will audit to ensure that donors funds are
  spent as the donor indicated

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Accounting Practices

• Produce month-end report to trigger monthly
  transfers to trust funds
• Donations are transferred to FAS via journal
  entry

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Allocations

• Every allocation represents an approved project
  or university type expenditure
• The name on the allocation appears automatically
  on the tax receipt
• Each allocation has an FAS account number
  attached to it
• If the funds from more than one allocation are
  deposited to a general FAS account, then the
  administrator is responsible for monitoring the
  expenditures

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Types of Allocations Requiring Trust Accounts

• Endowed Chairs (2 million required)
• Endowed Research Projects (under 2 mil)
• Endowed Scholarships / Bursaries (min 20K)
• Non-Endowed Scholarships/Bursaries (minimum 5
  year commitment _at_ 1K/yr)
• Other funds to be held long-term, with interest

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Advancement Services Donations Role

• Deposit funds into a Campaign/Annual Fund revenue
  account
• Set up an allocation flagging administrator and
  trust account number
• Produce monthly Donations Notification
• Provide Trusts Assistant w/ Designated Report
• Ensure all revenues transferred according to
  University transfer policy

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University Advancement Web Sites

• http//www.mcmaster.ca/ua/alumni/giving/
• http//www.mcmaster.ca/policy/
• http//www.mcmaster.ca/policy/develop.htm
• http//www.mcmaster.ca/ua/policy/
• Prospect20Clearance20Policy.htm
• http//www.mcmaster.ca/ua/policy/
• CHARITABLEGIVINGPOLICY.htm

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University Advancement

• End of University Advancement
• Any questions before we go on?
• Next the role of Trust Fund Administrators

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Trust Fund Administrators Role

• Context
• Trust funds approximately 1,400
• Trust fund administrators 38
• Total value of trust funds approximately 250
  million
•  

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Trust Fund Administrators Role

•  
• Purpose of trust funds
• Student awards
• Chairs
• Professorships
• Library and Art Gallery acquisitions
• Other

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Trust Fund Administrators Role

• Key role of trust fund administrators
• Participate in the appropriate initial set-up of
  the fund
• Administer and care for the fund
• Report on use of the fund
• Budget fund resources
• Steward the fund and its donors

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Trust Fund Administrators Role

• Policies and Procedures Guiding
• Trust Fund Management
• http//www.mcmaster.ca/bms/policy/finance/opguide.
  htm
• (under review)
• http//www.mcmaster.ca/bms/finance/
• (how to set up a trust fund)

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Trust Fund Administrators Role

• Initial set-up
• Terms that can be administered in perpetuity
• Collaboration between all stakeholders
• Approval process
• Signed Gift Agreement or Pledge of Support
• Open trust fund how to
• Promote gift in appropriate publications
•  

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Trust Fund Administrators Role

• Ongoing administration
• Determine annual allocation (4)
• Ensure match between terms and allocations
• Monitor activity, inactivity, deficits, problems
• Reporting
• Update TFAIS re recipients
• Review TFAIS data prior to printing of Endowment
  Fund
• Maintain donor files

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Trust Fund Administrators Role

• Budgeting
• Account for annual interest
• Account for expenditures
•  Stewardship role
• Donors and student thank-yous
• Special attention files
• Revisions to terms

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Trust Fund Administrators

• End of Trust Fund Administrators
• Any questions before we go on?
• Next Accounting

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Cash Control Policy

• http//www.mcmaster.ca/bms/policy/finance/
• cashcont.htm
• Proper segregation of duties
• Cheques must be stamped for deposit only
• Independent person reviews the deposit
• Deposits agreed to FAS statements

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Cash Control Policy

• Funds collected to be held in locked, fireproof
  cabinets
• A cheque log should be prepared
• Written procedures should be developed
• Deposits should not be put through the
  Universitys Mail Services
• Internal Audit is available for consultation on
  this policy

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Accounting

• Standard Subcodes for Trust Accounts
• Specific Trusts
• 0484 Donation Revenue
• 0997 Over/Under Exp Cfwd
• 2200 Trust Fund Awards
• General Trusts (0 side)
• 1100 Claim on Cash
• 2500 GT Unexp Cap May 1
• 2501 GT Unexp Cap Cur/Yr

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Accounting

• General Trusts (continued)
• 2502 OSOTF I Donation
• 2503 OSOTF Donation Cur/Yr
• 2504 OSOTF I Gov Cont
• 2505 OSOTF Gov Cont Cur/Yr
• 2506 OSOTF II Donat May 1
• 2507 OSOTF II Govt May 1
• 2508 Cap Pres Prior
• 2509 Capital Preservation
• 3700 Trust Funds Other

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Accounting

• General Trusts Subsidiary Ledger (7 side)
• 0484 Donations Rev
• 0625 Invest Inc Allocated
• 0997 Over/Under Exp Cfwd
• 2200 Trust Fund Awards
• 2201 Trust Fund Transfers
• 2205 Trf to Other Ledgers

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Transfers Between Trusts and Other Ledgers

• Should not be done, except under exceptional
  circumstances.
• eg. required by Gift Agreement, Endowed Chairs,
  or PVP approved
• All expenditures should be made from the trust to
  ensure they are following the terms and
  conditions of the trust (excepted are Chairs
  Professorships)
• All deposits into trusts must be processed
  through University Advancement

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Chairs and Professorships

• Must have a corresponding 2 account
• All budget matches, faculty contributions and
  expenditures must be recorded in the
  corresponding 2 account
• Should spend from 2 account first, transferring
  expendable income from the 7 account when
  necessary
• April final balances in 2 accounts must be
  carried forward each year

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Trust Fund Accounting Information System

• Preview of system
• TFAIS Manual available

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Break

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Investment Pool

• The financial objective of the fund is to earn a
  real return of 5.25 over the long term
• Real rate of return is net of inflation
• Example 8.25 Total Return - 3.0 CPI
  5.25 Real Return
• 5.25 real return per annum is required for
  spending
• 5.25 4.0 (spending) 1.0 (administration)
  0.25 (fees)

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Investment Pool

• Preserve real value of capital
• Focus on total return
• i.e. interest dividends realized
  gains/losses unrealized gains/losses

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Investment Pool Current Structure(Policy)
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Investment Pool Asset Summary at June 30 , 2005
20
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Historical Performance - Combined Fund Analysis
(June 30, 2005)
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Development of Capital Market Assumptions

• Bonds
• Bond yield model assumes current yield reverts to
  a long-term equilibrium value over time
• Equities
• Equity risk premium is key assumption
• Belief that equities will outperform bonds over
  the long term
• Premium is 3 p.a.
• Assume equal returns for all equity markets
• Reasonable statistical basis based on Russell
  research

Expected
Return
Universe Bonds
5.1
Long Bonds
5.8
Real Return Bonds
6.0
Canadian Equity
8.1
Global Equity
8.1
Real Estate
6.1
For a 10-year time horizon
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McMaster UniversityInvestment Pool Rate of
Return for 2004/05
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Treasury

• End of Treasury
• Any questions before we go on?
• Next Finance

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Trust Fund Website

• http//www.mcmaster.ca/bms/finance/
• Definition of Trust Funds
• Trust Fund Policies
• Trust Fund Management Committee
• Trust Fund Operations Committee
• How To Open A Trust Fund
• Trust Fund Guidelines Procedures
• Related Offices University Calendars
• TFAIS

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Donor Reporting

• An important stewardship commitment to donors who
  establish endowed trusts
• Sent out annually in the fall
• Endowed Trust Fund Statements (approx 600/yr)
  produced from TFAIS
• Endowed Chair Statements (approx 60/yr) prepared
  manually
• Reporting began in 2000

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Endowed Trust Fund Statement (regular)
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Endowed Trust Fund Statement (Chair)
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Annual Review of Trust Funds

• Attestation of Operational Guidelines
• www.mcmaster.ca/bms/policy/finance/opguide.htm
• Signing Authority Report including Designation
• Deficit Report
• Inactive Report
• A package will be sent to all trust fund
  administrators on November 3, 2005 with a
  deadline date of November 18, 2005.

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Questions Answers