(Approved by the Executive Board, November 2013)
The American Anthropological Association is a 501(c)(3) corporation under the IRS tax code that defines not-for-profit, charitable, tax-exempt organizations. Since AAA is the legal entity under which all of our sections operate, it has the fiduciary responsibility to ensure the financial health of the organization and to ensure that resources are used for legitimate purposes and in legitimate ways.
Sections may pay for section awards, scholarships, and prizes from section annual operating budgets. However, if they wish to fund an award, scholarship, or prize from an interest-bearing account, sections must establish a permanent endowment, term, or quasi endowment for the award, scholarship, or prize. Such endowments must follow the guidelines of the American Institute of Certified Public Accountants (AICPA), the regulatory body responsible for generally accepted accounting practices.
– The AICPA defines a permanent or term endowment as funds that are restricted by a donor (or donors) for a specific purpose such as an award, scholarship, fellowship, etc. Permanent endowment refers to funds that have been contributed by a donor (or donors) for a specific purpose in perpetuity; term endowment refers to funds that have been contributed by a donor (or donors) for a specific purpose with the understanding that at some future time or upon the occurrence of a specified future event, the resources contributed become available for some other use. Donor-restricted funds (i.e., permanent or term endowment) must be segregated from operating funds (i.e., quasi endowment) because funds must be returned to a donor in the event of termination of an endowment.
– Under AICPA accounting principles, a board cannot use unrestricted operating funds (such as fund balances, membership dues, subscription fees, etc.) to establish permanent or term endowments. Furthermore, a board cannot use unrestricted operating funds to add to the balance of existing permanent or term endowments. However, a board can use unrestricted operating funds to establish a quasi endowment fund. This board-designated fund or quasi endowment will accrue interest, and this interest can be used to fund an award.
All endowments, whether permanent, term, or quasi, must meet the following AAA Guidelines for the Establishment and Administration of a Permanent, Term, or Quasi Endowment to ensure consistency in their establishment, administration, and termination:
GUIDELINES FOR THE ESTABLISHMENT AND ADMINISTRATION OF A PERMANENT, TERM OR QUASI ENDOWMENT
1) Purpose of the Endowment: The purpose of a permanent, term, or quasi endowment must be consistent with AAA’s mission (statement of purpose as defined in the AAA organizational documents) and its Long Range Plan (e.g., for an award, scholarship, fellowship, etc.).
2) Fund Corpus: Only funds raised or given for a specific purpose may be used to establish a permanent or term endowment. Boards may designate portions of general-purpose operations revenues (i.e., fund balances, funds from dues, advertising, subscriptions, etc.) to establish a quasi-endowment. In accordance with the AAA policy prohibiting sections from spending more than 50% of their fund balance in any given year, transfers from operations to a quasi-endowment fund will not exceed 50% of section fund balances. If a Board designates funds for a specific purpose from their general funds these funds will need to remain in the quasi-endowment for a minimum of five years. If the funds are transferred back to the general purpose funds there will be a five-year waiting period for establishing another such fund. The request to terminate a section quasi-endowment fund must be made in writing to the AAA Treasurer. Funds designated for an endowment must reach a minimum corpus requirement of $10,000 within five years of its approval. Upon request, the AAA Executive Board may approve one two-year extension to this five-year term. The endowment will be terminated if it does not meet the minimum corpus requirement and/or is inactive for five years. Inactive is defined as no donations received or awards paid out from the fund. Donors will be consulted about the disposition of all funds remaining on a terminated account.
A minimum corpus of $10,000 must be maintained. As such, expenditures will not be made: a) until the minimum endowment corpus is achieved; or b) if such expenditure, including general and administrative fees, would reduce the corpus below its minimum requirement. Interest will accrue on all types of approved endowments.
3) Endowment Management: The AAA is responsible for the financial management of all endowments. Interest will accrue on a monthly basis to each endowment established by AAA. The Payout Rate will be established within AAA’s Financial Guidelines, but will not exceed 5% per year.
4) Request to Establish an Endowment: The request to establish an endowment must be submitted to the Finance Committee to be reviewed for compliance with these guidelines, and for subsequent review by AOC and other committee structures, as appropriate and final approval by the Executive Board.
5) Endowment Agreement: The agreement to establish an endowment must specify, at a minimum:
- The purpose and name of the endowment;
- The amount and frequency of the award, scholarship, fellowship, etc.;
- A written process for nominating and selecting award, scholarship, and/or fellowship winners, including eligibility and selection criteria.
- The criteria for terminating an endowment. The criteria can be more, but not less, restrictive than AAA’s policy defined above.
- Terms of office for the selection committee; recommend minimum terms of office for three (3) years, and members of the selection committee shall not designate their own successors.
6) Agreement Changes: The Finance Committee must recommend, and the Executive Board, approve all changes to an endowment.