Setting the Stage for Endowment Compliance

A vice president for advancement who read something our firm wrote several years ago on conducting an endowment compliance audit contacted us recently. She mentioned this is a present concern for her institution because it had not been a priority of those who preceded her.

Unfortunately, throughout the years, there have been numerous public cases where donors or their heirs believed that the terms of an established endowment were not carefully followed. Most notably the case at Princeton involving the A&P grocery chain heirs, and their very public case against Princeton University.

Search the term “endowment misuse” and links to a number of articles will appear. It is wise to carefully monitor endowment funds, not only for investment growth, which is often the primary concern of boards or investment committees, but also to ensure the intent of the donor is at the forefront.

For institutions with a low threshold for endowment creation, over the years, the number of funds grows much faster than the staff monitoring the use of funds. Automation helps with labeling and categorization of line item expenditures, but human oversight from time to time is invaluable.

Providing good stewardship for endowments requires advance work. Here are several steps to keep in mind:

  • Set policies that define all standards for endowments including investments, designation options, etc.
  • Develop detailed procedures for establishing endowments including templates for documentation, keeping restrictions to a minimum.
  • Ensure that documentation clearly articulates donor intent.
  • Educate all staff responsible for soliciting major gifts on the policies, procedures.
  • Provide for endowment review ensuring spending compliance.