Agenda
Policy Factors
Basis
Averaging
Formula
Timing
Effect
Four Things
to Teach Your Accountant
Four Things to Teach Your Accountant
1. Joint Investment Allocation
2. Fund Fees Assessment
3. Spendable Allotment
4. Fund Rebalancing
Henry A. Bromelkamp, President
Bromelkamp Company LLC
[email protected]
What Next?
1-888-290-9087
– Questions for your Board, Software Vendor, and
Accountant
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Agenda
Henry Bromelkamp
35 years service to grant makers with 240 clients
Designing flexible software that “works the way you do”
Demonstrated expertise in philanthropy
Bromelkamp Foundation
Nonprofit Experience
•
•
•
Slide 2
Africa Classroom Connection
Books for Africa
Spirit of St. Stephens Catholic Community
Policy Factors
Basis
Averaging
Formula
Timing
Effect
Four Things to Teach Your Accountant
1. Joint Investment Allocation
2. Fund Fees Assessment
3. Spendable Allotment
4. Fund Rebalancing
What Next?
– Questions for your Board, Software Vendor, and
Accountant
Slide 3
Four Things to Teach Your Accountant
Slide 4
1
Policy Factors
Basis
+ Averaging + Formula + Timing + Effect
Basis
–
–
–
–
–
Ending Balance
Daily Balance
Number of Transactions
Contribution Dollars
Grant Dollars
Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity)
Averaging
– No Averaging
– Over period of Effect (e.g. this month’s fees)
– Rolling/Moving Average (average over the last 36 months, for this month’s fees)
Ending Balance
Daily Balance
Number of Transactions
Contribution Dollars
Grant Dollars
Tip: Measure assets for
endowed funds, activity
for non-endowed funds.
Add Reductions/Adjustments
Formula
– Flat Rate (each fund pays the same amount)
– Percentage (same rate on all bases)
– Step/Graduated Percentage (small/large bases charged different rates)
(e.g. unrealized/realized, types of assets or activity)
Add Minimum, Maximum, Filters, Exceptions, Negotiated, Manual Adjustments
Timing
You can mix, such as ending
balance of Nonspendable
plus average daily balance
of Spendable
– Periodic – on a regular schedule
– Triggers – when something happens
Effect
– Transfer Now
– Set Aside for Future Use
Basis +
Averaging
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Basis +
+ Formula + Timing + Effect
Averaging
+ Formula + Timing + Effect
No Averaging (usually a manual system)
Over period of Effect (e.g. this month’s fees)
Rolling/Moving Average (e.g. average over the
last 36 months, for this month’s fees)
one month average
two-year average
If you don’t average it
may be just a holdover
from old manual systems.
Longer averaging
evens the ups and
downs.
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Four Things to Teach Your Accountant
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x 8
2
Basis + Averaging +
Formula + Timing + Effect
Basis + Averaging + Formula +
Timing + Effect
Flat Rate (every fund pays the same amount)
Percentage (same rate on all Bases)
Step/Graduated Percentage (small/large Bases get
different rates)
Add Minimum, Maximum, Filters, Exceptions,
Negotiated, Manual Adjustments
Periodic – on a regular schedule (e.g. monthly)
Triggers – when something happens (e.g. when
a contribution is received)
Exceptions and
negotiated ‘deals’ are
difficult to administer.
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Basis + Averaging + Formula + Timing +
Slide 10Slide
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Agenda
Effect
Policy Factors
Basis
Averaging
Formula
Timing
Effect
Transfer Now
(i.e. the fund loses the assets now)
Set Aside for Future Use
(i.e. the fund owns the assets until spent)
Four Things to Teach Your Accountant
1. Joint Investment Allocation
2. Fund Fees Assessment
3. Spendable Allotment
4. Fund Rebalancing
What Next?
– Questions for your Board, Software Vendor, and
Accountant
Slide 11Slide
of x 11
Four Things to Teach Your Accountant
Slide 12
3
1. Joint Investment Allocation
1. Joint Investment Allocation
typical in red
Basis
August Average Balance
–
–
–
–
–
Smith Fund
Other Funds
Ending Balance
Daily Balance
Number of Transactions
Contribution Dollars
Grant Dollars
Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity)
Averaging
–
–
–
No Averaging
Over period of Effect (e.g. this month’s fees)
Rolling/Moving Average (e.g. average over the last 36 months, for this month’s fees)
Formula
–
–
–
August Earnings
Flat Rate (each fund pays the same amount)
Percentage (same rate on all bases)
Step/Graduated Percentage (small/large bases charged different rates)
Add Minimum, Maximum, Filters, Exceptions, Negotiated, Manual Adjustments
Realized Gain
Unrealized Gain
Dividend & Interest
Investment Expense
Each fund gets a
share of earnings
based on its share of
the total pool.
Timing
–
–
Periodic – on a regular schedule
Triggers – when something happens
Effect
–
–
Transfer Now
Set Aside for Future Use
Average daily balance
is fairest but hardest
to compute.
Slide 14
Slide 13
2. Fund Fees Assessment
2. Fund Fees Assessment
Basis
Funds have
several metrics.
–
–
–
–
–
400000
Ending Balance
Daily Balance
Number of Transactions
Contribution Dollars
Grant Dollars
Funds have
several metrics.
typical in red
Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity)
350000
Averaging
Balance
Grants
Gifts
300000
250000
–
–
–
No Averaging
Over period of Effect (e.g. this month’s fees)
Rolling/Moving Average (e.g. average over the last 36 months, for this month’s fees)
Formula
–
–
–
200000
150000
Flat Rate (each fund pays the same amount)
Percentage (same rate on all bases)
Step/Graduated Percentage (small/large bases charged different rates)
Add Minimum, Maximum, Filters, Exceptions, Negotiated, Manual Adjustments
Timing
100000
–
–
50000
Periodic – on a regular schedule
Triggers – when something happens
Effect
–
–
0
Smith Family
Wilson DAF
Slide 15
Four Things to Teach Your Accountant
Transfer Now
Set Aside for Future Use
Disaster Fund
Slide 16
4
2. Fund Fees Assessment - Example
Non-endowed Fund
3. Spendable Allotment
Wilson Family Fund
– 1.5% of each contribution, charged on receipt
– $8 per grant
– $50 quarterly minimum
Nonspendable
Accumulated Earnings
Spendable
Endowed Fund (Donor Advised)
–
–
–
–
1.2% of the first $50,000 average daily balance
1.0% on $50,001-$150,000
0.8% on $150,000 and more
annual percentage rate, charged quarterly,
36mo rolling/moving average daily balance
Endowed funds
often allot 45% per year
for spending.
Manual
Endowed Fund (Scholarship)
– 2.1% of the average daily balance
adjustments
annual rate, charged quarterly, 36mo rolling average
balance
aredaily
common.
Endowed Fund (Agency Endowment)
– 1.0% on average daily balance
annual rate, charged quarterly, 36mo rolling average daily balance
Slide 17
3. Spendable Allotment
Basis
–
–
–
–
–
Ending Balance
Daily Balance
Number of Transactions
Contribution Dollars
Grant Dollars
3. Spendable Allotment - Example
typical in red
Wilson Family Fund sets aside:
5% of Non-spendable Ending Balance
4.5% of Accumulated Earnings Average Daily
Balance, 48 month rolling average
Add Reductions/Adjustments (e.g. unrealized/realized,
types of assets or activity)
(Does not include unpaid pledges or current spendable balance.)
Averaging
–
–
–
No Averaging
Over period of Effect (e.g. this month’s fees)
Rolling/Moving Average (e.g. average over the last 36 months, for this
month’s fees)
Formula
–
–
–
Flat Rate (each fund pays the same amount)
Percentage (same rate on all bases)
Step/Graduated Percentage (small/large bases charged different rates)
Add Minimum, Maximum, Filters, Exceptions, Negotiated, Manual Adjustments
Timing
–
–
Periodic – on a regular schedule
Triggers – when something happens
Effect
–
–
Slide 18
Transfer Now
Set Aside for Future Use
Some foundations
move assets out of
the fund at the time
of allotment.
Slide 19
Four Things to Teach Your Accountant
Don’t average the nonspendable, then a fund with a
big increase in assets gets to
spend sooner.
Slide 20
5
4. Fund Rebalancing
4. Fund Rebalancing
Not a formula, but a process.
Every day, funds receive gifts and award grants, which
affect their fund balance. Your system adjusts the fund
balances to recognize those changes, moving money
between funds to keep each fund in balance.
– Periodically (such as monthly)
– Automatically
Periodically (e.g. monthly) hundreds of debits/credits.
• Blackbaud
• FIMS
• Stellar
Slide 22
Slide 21
Agenda
4. Fund Rebalancing
Policy Factors
Basis
Averaging
Formula
Timing
Effect
Automatic – constantly adjust each fund’s share of the
investment pool to reflect net activity between funds.
• Pearl
Funds balances
are correct
every second.
Four Things to Teach Your Accountant
1. Joint Investment Allocation
2. Fund Fees Assessment
3. Spendable Allotment
4. Fund Rebalancing
What Next?
– Questions for your Board, Software Vendor, and
Accountant
Slide 23
Four Things to Teach Your Accountant
Slide 24
6
Questions for your Board
Questions to Ask Your Software Vendor
Do you want things easiest for the staff, advantageous
to the foundation or to the donors?
Do we want long term stability or short term
accuracy?
How are we compensated for volume of transactions
versus the fund balance?
When is the best time to realize a transaction?
Is it our intent to cover our expenses or to incent
behavior?
Which things are worth doing compared to the staff
time invested?
Can we use average daily balance as the basis?
Can we charge by transaction volume/size, such as
gifts?
Can our formula treat spendable and non-spendable
differently?
Can we use minimum, maximum, and step-rates?
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A Question for Your Accountant
Thank you!
Do we really have any restricted funds?
Q&A
Four Things
to Teach Your Accountant
Henry A. Bromelkamp, President
Bromelkamp Company LLC
[email protected]
1-888-290-9087
© 2014 Copyright Bromelkamp Company LLC. All rights reserved.
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Four Things to Teach Your Accountant
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