Simplifying Endowment Management with Fund Accounting Software
Tip Sheet
Endowments are critical to the sustainability of your institution, but without the right tools, you can spend 10 hours a day reconciling gifts with expenses, understanding available spend, and generating reports for your stakeholders.
Imagine how much time you’d save—and how many fewer headaches you’d have—if you were able to manage your endowment in a single piece of software designed for restricted funds.
By using a fund accounting system with subfund capabilities for managing your endowments, you create a transparent and integrated system for tracking your restricted funds, improving compliance.
Step 1: Donation
A donor makes a permanently restricted contribution to a private university to help fund scholarships for students earning a degree in nursing. This donation will be part of the school’s endowment, with the intention of providing these scholarships in perpetuity.
Step 2: Recording the Donation
The university’s advancement or fundraising department receives and acknowledges the donation in the CRM or fundraising software. They provide the details of the donation so it can be recorded in the financial system, including the amount, donor information, and any specific restrictions or instructions associated with the donation, such as a focus on nursing students interested in pediatric care.
How fund accounting software simplifies this step:
Through an integration with the school’s fundraising software, the details of the donation are passed directly to the fund accounting system. In the fund accounting system, the department creates a record specific to this endowment and uploads the gift documentation for easy reference when expenses need to be applied to the fund. Each endowment-specific records hold equity and allow the finance team to run a full set of financial statements by endowment.
Step 3: Investment Management
The university’s finance or investment team adds the donation to the endowment’s pooled investments. The investment managers make decisions on how to allocate the funds across various investment vehicles to maximize returns while managing risks and adhering to any specific investment policies or guidelines.
How fund accounting software simplifies this step:
Through the fund accounting software, the finance team can record the donation’s original corpus and appreciation over time. The fund accounting system’s allocation module also should support tracking and managing these pooled investments, so returns can be allocated back to each participating fund.
In Blackbaud Financial Edge NXT®, users can set up transaction codes to easily build a balance sheet that filters based on these codes. You can see at a glance the accumulated earnings less the spendable amount released.
Step 4: Income Generation
As the endowment fund’s investments generate returns, such as dividends, interest, and capital gains, the fund’s value increases. The income generated by the investments provides funding for the university’s operations, research grants, faculty support, as well as the scholarships for nursing students specializing in pediatric care.
How fund accounting software simplifies this step:
Through the reporting capabilities, the university’s finance team can see the returns on each fund and how much income is available for each specific use case. They know they can fund four scholarships for nursing students, based on the original donation.
Step 5: Disbursements
Using their spending policy as a guide, the university determines the amount of funds available for disbursement from the endowment’s income. These funds are then allocated to various programs and initiatives according to the university’s priorities.
How fund accounting software simplifies this step:
The finance department can establish internal controls into the fund accounting system to make sure disbursements are used according to the donor intent and the spending policy. The team can cut checks directly or send the file to other areas of the organization for disbursement.
Step 6: Ongoing Monitoring
The finance department continues to monitor the endowment fund’s performance, investment activities, and compliance with any restrictions or guidelines imposed by the donors.
How fund accounting software simplifies this step:
By tracking each restricted fund as a separate record in the system, the finance and development teams can see beginning and ending balances of the fund, any donations, investment income and capital appreciation in addition to the expenses generated by the fund. They can also see the dollars still available to be spent. This provides the transparency donors are looking for and enforces the accountability the organization needs.
Want to see how fund accounting software could help you with your endowments? Check out this video on campus-wide
stewardship to see Financial Edge NXT in action.
