Sponsored vs. Gifts vs. Sales & Services Accounts – Navigating the Issues

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• Goal for session

• Account Structures

• Definitions & examples

• The real questions/problems

• Discussion

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• Session Goals

– Guidelines & things to consider– Reality is a continuum, not a checklist– Don’t get bogged down in terms (gifts, grants, etc)– Understanding why one account range is more

appropriate than another, even when it “costs” more

– Be flexible: You can do everything right and still be foiled by the agreement we receive

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• Account Structures

Fund Account Range

Designated 2XXXXXX

Auxiliary 16XXXXX-19XXXXX

Sponsored Projects 3XXXXXX-4XXXXXX

Other Restricted 13XXXXX-5XXXXXX

Endowments 7XXXXXX

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• Definitions

Designated Funds: Included are funds received from the sale of products or services that are not more appropriately classified as auxiliary enterprises. For example, sales of by-products of instructional, research, or public service activities, such as the sale of produce by the College of Agriculture, or the sale of hearing aids by the Speech and Hearing Science Department, are accounted for as designated funds.

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• Clarifying points:– Associated with core UA business (i.e., by-product

as mentioned above) – Offered to multiple clients on a recurring basis – Payment basis may be per unit or service – like

assays, DNA sequencing, etc. – Recover actual costs – DO NOT create new knowledge – Is not meant to be self-sustaining for the long-term

(auxiliary) – Anything else may expose the institution to

Unrelated Business Income Tax (UBIT)

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• But…• The complications here are the activity

vs. the agreement• Activity may meet the definition of sales

& service (byproduct of research, instruction, outreach) and may not be creating new knowledge

• Agreements terms may mean we have no choice but to classify as sponsored

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• Common Examples:

– Dendrochronology services from UA Tree Ring Lab

– Sales of tomatoes grown by the CEAC

– Landscape architecture services for municipalities • In this example, we had one where the City

funding the work was to be heavily involved. This and other terms led to it being SP.

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• Definitions

Other Restricted Funds: Current operating funds received from outside sources with specific restrictions on how the monies are to be spent that are not more appropriately classified as sponsored projects. Included are restricted gifts, governmental grants for student aid, and private grants and scholarships.

Gifts: Voluntary transfer of items of value without expectation of material value in return. Gifts are motivated by charitable intent, are irrevocable, and may require both financial and progress reporting (stewardship).

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• Clarifying points: – Non-profit organization (donor) may require that

the applicant be a 501(c)3. Sometimes the UA’s tax status will be sufficient

– May share criteria with sponsored projects, like budgets, activity, proposal/award format

– The line between charitable grants and sponsored grants is not straight or even clear

– Many institutions are dealing with this issue– Main points are expectations/relationship with

donors

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• Common examples:

– Funds awarded for support of a department, researcher, lab (general departmental)

– Funds awarded to 501(c)3 for a proposed project – Competitive prizes/awards from non-profit

organization – In some cases, the terms of the award mean that

the funds are in a sponsored account:• Significant budget/financial requirements • Costs that cannot be charged to gift accounts

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• Definitions

Sponsored Project Grant and Contract Funds:  Funds received from Federal, State or other governmental agencies or private organizations that are provided on a contractual or grant basis with the restriction that the funds be used for a specific purpose. These funds may only be used for the intended purpose and must be spent in accordance with terms specified in an agreement established between the sponsor and the University. If not, the funds may revert to the sponsor.

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• Clarifying points:

– Creating new knowledge (the opposite of sales & service)

– Project involved protocol/compliance review– Project contains intellectual property terms – Project may result in publications– Results of work are customized, involve creative

effort – Complex financial/budget requirements

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• But…

• Agreements in other categories – things that start out as a proposed sales & service will end up in SPS accounts

• Proposals that go through the UA Foundation for tax/relationship reasons may end up in gift OR SPS accounts, depending on the situation/terms

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• Common Examples:

– NASA grant to study the mysteries of the universe• (often “basic” research)

– Clinical trial to assess the efficacy of a drug or device

– NPS award where UA staff and NPS staff work to preserve the Petrified Forest

– IPA/IGA– NIH grant to train grad students/postdocs

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• The Real Questions & Issues

– Why sponsored or UAF monitoring is necessary

– Issues with sales & service accounts

– Shopping around for lower administrative fees (F&A vs. Gift Fee vs. Admin Service Charge)

– The changing world of charitable giving, and donor issues

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• Why SPS monitoring may be necessary

– Audit threshold (contrasted with UA Foundation) – Export control (sponsor and/or project info) – Research administration management of account

• Separate accounts/sibling accounts• Budget monitoring beyond cash balance• Financial reporting • Payment schedules • Sponsor approvals & expenditure monitoring

– Risk of losing current future funds if terms not met

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• Why UA Foundation/development monitoring may be necessary

– Maintenance of donor relationships– Maximizing possibilities from new/existing donors –

the total portfolio is important – Stewardship of funds– Non-profit/charitable grant compliance

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• Issues/Restrictions with Sales & Service– Funds are on deposit in a single account– Lose trackability/reporting – Standard grant/contract terms & conditions are

problematic: • Refund clauses• Financial reporting• Budget deviations • Start/end dates • Involvement of sponsor (coop agr)

– Avoiding UBIT

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• Shopping for fees…

– …will always get someone in trouble

– Fees represent real costs to administer these funds

– Funds should be deposited according to UA account structure and policy to maximize fund accountant expertise and minimize risk

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• Evolving world of charitable giving

– Non-profit grantmaking looks more like traditional sponsored proposals & awards than ever before

– Donors require (prefer) 501(c)3 status

– The difference between a donor and a sponsor• Who are the decision-makers? • What are the goals of the funder?

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• How do you avoid the pitfalls?

– Contact the relevant office (SPS, CRS, FSO, UAF) early for guidance – many of these items are more easily solved at the proposal/bid stage

– Understand the risks, and work with us on solutions when the unexpected happens

– Communicate this to the people who perform these activities and/or make deals on their own (yikes)

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• Questions?