1.0 Policy Purpose
The purpose of this policy is to set forth principles and procedures to ensure Brown University (“the University”) properly manages and administers its Endowment and Current-Use Spendable Gift funds. This policy is intended to comply with federal and state law, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and the specific contractual obligations of individual Gift Agreements.
2.0 To Whom the Policy Applies
This policy applies to all University employees with financial, administrative, and reporting responsibilities for Endowment and Current-Use Spendable Gift funds, including the University departments spending Endowment and Current-Use Spendable Gift funds.
3.0 Policy Statement
The University is legally obligated to honor donor restrictions. The University follows the First Dollar Principle - donor-restricted gifts must be used for purposes consistent with donor intentions and must be the first source of funding (i.e., used prior to unrestricted funding) for expenses meeting the specified donor restrictions.
3.1 Endowment Spending Policy
As approved by the Corporation, the University invests its Endowment funds and allocates the related return for expenditure in accordance with the total return concept. The Endowment Utilization is determined in accordance with the policy adopted by the Corporation. This policy fixes the spending rate between 4.5% and 5.5% of the average fair value of applicable Endowments over the prior twelve quarters, with the objective being to hold the spending rate to no more than a 5% average over time. Applicable Endowments include Corporation‑designated and Donor‑restricted Endowment Funds.
Associated Program Costs (APC) are included as part of the gross Endowment Payout. 20% of the Endowment Payout distributed from each endowed fund is spent directly to support associated program costs (e.g., administrative costs, computing, and libraries). Endowments that are designated for scholarships are exempt from the APC.
3.2 Endowment Purchases, Payout, and Utilization
New donor Endowment and Corporation-approved Endowment will purchase units in the Endowment pool at the prior month Endowment pool share price.
Endowments will receive an annual Endowment Payout in the fiscal year following the fiscal year in which the Endowment gift was received and every year thereafter. The Endowment Payout is effective on July 1. The fiscal year Endowment Payout is finalized once the Investment Pool valuation for June 30th of the prior fiscal year is complete.
Departments must spend their Endowment Payout in accordance with the donor designation per the Gift Agreement. In accordance with the First Dollar Principle, the Endowment Payout must be utilized prior to any University appropriation.
3.3 Current-Use Spendable Gift Utilization
Departments must spend their Current-Use Spendable Gift fund in accordance with the donor designation per the Gift Agreement. In accordance with the First Dollar Principle, the Current-Use Spendable Gift must be utilized prior to any University appropriation.
3.4 Deficit Management
Cost Center Managers are responsible for ensuring that Endowment and Current-Use Spendable Gifts are not overspent. In the event an Endowment or Current-Use Spendable Gift remains in Deficit at the end of the fiscal year, funds will be transferred from another source (generally the Cost Center’s operating budget) to make the gift whole.
4.0 Definitions
For the purpose of this policy, the terms below have the following definitions:
- Corporation-Designated Endowment Funds:
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Corporation-approved funds invested in the Endowment.
- Current-Use Spendable Gift:
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A gift restricted by the donor that is expected to be spent in the current year, or when the donor-imposed restriction is met.
- Deficit:
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A negative balance in an Endowment or Current-Use Spendable Gift resulting from overspending.
- Donor-Restricted Endowment Funds:
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An Endowment fund where the donor designates the use of the Endowment Payout (income) generated from the fund. The fund is held in perpetuity unless designated as a term Endowment by the donor.
- Endowment:
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Includes both Donor-Restricted Endowment Funds and funds designated by the Corporation to function as Endowments.
- Endowment Payout:
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The portion of investment earnings made available for spending at the beginning of each fiscal year in accordance with the University’s Spending Policy.
- First Dollar Principle:
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Accounting guidelines stipulate that an Endowment or Current-Use Spendable Gift must be used to pay for an expense for which it is earmarked, before any unrestricted money is used for the same purpose.
- Spending Policy:
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The University invests its Endowment funds and allocates the related return for expenditure in accordance with the total return concept. The Endowment Utilization is determined in accordance with the policy adopted by the Corporation. This policy fixes the spending range between 4.5% and 5.5% of the average fair value of applicable Endowments over the prior twelve quarters, with the objective being to hold the spending rate to no more than a 5% average over time. Applicable Endowments include Corporation‑Designated and Donor‑Restricted Endowment Funds.
- Uniform Prudent Management of Institutional Funds Act (UPMIFA):
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A legal framework that sets guidelines for the prudent management of funds held by charitable institutions and nonprofit organizations. UPMIFA provides rules for investment decisions, spending policies, and Endowment management and is codified in Rhode Island state law.
5.0 Responsibilities
All individuals to whom this policy applies are responsible for becoming familiar with and following this policy. University supervisors and employees with student oversight duties are responsible for promoting the understanding of this policy and for taking appropriate steps to help ensure and enforce compliance with it.
Advancement: Building relationships with donors and producing Gift Agreements.
Controller’s Office: Overseeing compliance with the policy by reviewing the Gift Agreements associated with new Endowments and Current-Use Spendable Gifts, reviewing and approving direct charges to Endowments and Spendable Gifts, and monitoring Deficits.
Cost Center Managers Authorized to Spend from Restricted Funds: Managing Endowment and Current-Use Spendable Gift spending and ensuring timely and appropriate application of funds consistent with donor intent.
6.0 Consequences for Violating this Policy
Failure to comply with this and related policies is subject to disciplinary action, up to and including suspension without pay, or termination of employment or association with the University, in accordance with applicable (e.g., staff, faculty, student) disciplinary procedures.
7.0 Related Information
Brown University is a community in which individuals are encouraged to share concerns with University leadership. Additionally, Brown’s Anonymous Reporting Hotline allows anonymous and confidential reporting on matters of concern online or by phone (877-318-9184).
The following information complements and supplements this document. The information is intended to help explain this policy and is not an all-inclusive list of policies, procedures, laws and requirements.
7.1 Related Policies
7.2 Related Procedures
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7.3 Related Forms
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7.4 Frequently Asked Questions
7.5 Other Related Information
Policy Owner and Contact(s)
Policy Owner: Vice President for Finance and Administrative Services & Chief Financial Officer
Policy Approved by: Vice President for Finance and Administrative Services & Chief Financial Officer
Contact Information:
Policy History
Policy Issue Date:
Policy Effective Date:
Policy Update/Review Summary:
N/A
Previous policy version(s) superseded by this policy:
- Management of Restricted Gifts, Effective Date: May 4, 2022