UPMIFA Recap
By Marcus Harwood, CPA
Partner
BlumShapiro
It's been a busy year for non-profits who have had to contend with legislative and accounting changes in the midst of unprecedented turmoil in the financial markets.
The Uniform Prudent Management of Institutional Funds Act became effective at a time when most non-profits already had their hands full with a variety of challenges, including declining endowment values and more stringent 990 reporting requirements. Since most non-profits with significant donor-restricted endowment funds are familiar with the basic provisions of the Act and the related accounting ramifications, here are a few observations based on what we've seen and heard.
Prudent Management
The good news is that many non-profits have already been operationally compliant with the fundamental provisions of the Act. Many non-profits, for example, have invested their endowment funds in diversified portfolios of investments designed, over the long-term, to generate returns of 8-10%. Many of these same organizations have implemented spending policies that allow for about 5% of the value of the fund. Over time, these policies should allow for the preservation of the long-term viability of a fund intended to support the organization in perpetuity.
Tracking Activity for Multiple Funds
All organizations should keep in mind the importance of obtaining and maintaining clear and precise documentation of the donor's intended use of each fund. As many organizations have numerous endowment funds, each with a different stated purpose, organizations should be mindful of the fact that spending decisions from each fund should be prudent. In some cases, a 5% draw may be prudent for some funds, but not others depending on the purpose of the fund and the other criteria of prudent spending.
Tracking this activity on a fund-by-fund basis requires sophisticated endowment unitization schedules. As there is no statute of limitations on endowment fund management, should a legal challenge arise years in the future, any organizations that do not have unitization schedules with a level of sophistication that is commensurate with the number and complexity of the endowment funds should investigate appropriate upgrades sooner rather than later.
The Importance of Donor Intent
Donor intent is paramount. Many organizations are re-visiting their gift solicitation materials and gift acceptance policies in order to ensure that only gifts that are consistent with the mission of the organization are accepted. Given the long-term responsibilities associated with establishing funds intended to exist in perpetuity, this focus is crucial. Organizations should also be aware that UPMIFA changes the actions required to modify purpose restrictions associated with older gifts whose stated purpose may no longer be practical. Any organizations with such funds should contact legal counsel in order to determine an appropriate course of action.
This article was meant to give you a short recap of the issues many of you are currently facing regarding UPMIFA. If you have additional questions or questions specific to your organization, please contact me at mharwood@blumshapiro.comor 860.570.6474.
As a partner in our Non-Profit Services Group, Marcus has extensive experience working with colleges and universities, independent schools, foundations and healthcare organizations. In serving educational institutions, he interacts with school business managers, audit committees and boards of trustees and is responsible for audit planning, fieldwork and supervising staff. He is a frequent speaker on topics of interest to colleges and universities and has most recently made presentations on the topics of corporate governance, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and the impact of Sarbanes-Oxley legislation on non-profit organizations.
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