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  • Distribution Types and Calculations

    Overview

    Distribution Types (i.e. spending policies) define how the spendable balance of an endowed fund (or quasi-endowed fund) is calculated.

    distribution_types_and_calculations_1.png

    As a reminder, endowed funds are funds with a principal balance and a spendable balance (i.e. a certain amount of money that can be granted out every year). Quasi-endowed funds are non-endowed funds that do not have an actual spending limit, but are given a spending policy for management or other purposes. 

    For the purpose of this article, we'll be looking at distribution types in the context of traditional endowed funds.

     

    Components

    There are three main components to Distribution Types: the Type (i.e. how the spendable balance is calculated), the Percent (i.e. how much of a fund's balance can be spent), and the Calculation Base (i.e. the type of fund balance that will be used to make the calculations).

    Type

    The Type field defines the type of calculation that will be used to calculate the spendable balance of a fund. The type that you select dictates which fields need to be completed in the Options area.

    distribution_types_and_calculations_2.png

    • Average Per Quarter (avg_per_qtr) looks at quarter ending balances over a set number of quarters.
      • This option is often used for funds with large balance fluctuations because it has the affect of "smoothing" out the calculation.
      • If average per quarter is selected, enter the number of trailing quarters in the Trail Quarters field within the Options section.
        • You must leave the Trail Years field blank.
    • Average Per Year (avg_per_yr) calculates the average of year-end balances over a set number of years. The average is then multiplied by the percent field.
      • If average per year is selected, enter the number of trailing years in the Trail Years field within the Options section.
        • You must leave the Trail Quarters field blank.
    • Percent takes a percentage of the fund balance.
      • This option does not use averages, and instead calculates as a spot time.
      • If Percent is selected, you must leave the Trail Quarters and Trail Years fields blank within the Options section.

    There is currently a known bug related to the Average Per Year -> Trail Years field, in which CommunitySuite considers the first year as year "zero". For example, if you were to enter 5 (to look back 5 years) in the Trail Years field, and select a Calculate Date of 12/31/2020 when processing distributions, the system would consider 12/31/20 as year "zero" and look at five subsequent years when calculating the average per year. This means that you would end up with a 6 year average instead of a 5 year average. Please take this into a consideration when building your distribution type(s). 

    The Average Per Quarter -> Trail Quarters is not affected by this bug and works as intended. For example, if you want to look back 12 quarters from 3/31/20, the system would consider 3/31/20 as quarter one. 


    Percent

    The percent field defines the percentage of a fund balance that can be spent. This must be defined for all types (avg_per_qtr, avg_per_yr, & percent).

    distribution_types_and_calculations_3.png 

    Calculation Base

    The Calculation Base refers to the type of fund balance that the system will look at when calculating the spendable balance of a fund.
    distribution_types_and_calcuations_4.png

    • Bank and Investment Balance looks at fund assets that are specifically held within bank and investment accounts.
      • For example, if you had an illiquid asset (such as a life insurance policy) held within Other Current Assets, you could use the Bank and Investment Balance option to exclude the Other Current Assets account from the calculation, and prevent your distributions from being inflated by the illiquid asset.   
      • Unless another option is selected, Bank and Investment Balance will be used by default (not to be confused with the actual Default Balance option).
    • Principal Balance looks at the endowed portion of a fund.
    • Default Balance looks at the retained earnings of a fund. 
    • Total Balance looks across all asset accounts (as opposed to the Bank and Investment Balance option).

    If you do not have all four choices available in the Calculation Base drop-down, please contact your CSM to discuss restrictions. 

     

    Assign to Funds

    Once created, distribution types can be assigned to a fund(s) by editing the fund and selecting the desired distribution type from the Distribution Type drop-down in the Restrictions section of the fund. You should also check the box next to Track Spendable.

    Distribution types can also be assigned from the bulk edit feature on the main funds page).

    distribution_types_and_clacuations_5.png

    "Track Spendable" tells CommunitySuite to show the "Spendable Balance" on the fund (in addition to the regular Fund Balance). As a best practice, the Track Spendable box should be checked for any fund that has a spending policy assigned (i.e. Distribution Type).

    distribution_types_and_calculations_6.png

    For step-by-step instructions, please search the Foundant Help Menu for "Create Distribution Types" and "Bulk Edit Funds"

    Example

    As previously discussed, there are three Distribution Type options, and four Calculation Base options. For the purpose of this article and examples, 12 distribution types were created: one for each combination of Type and Calculation base options (see image below).

    distribution_types_and_calcuations_7.png

    As a reminder, there is currently a known bug affecting the Avg_Per_Year -> Trail Years field, in which CommunitySuite considers the first year to be year "zero". While the Average Per Year distribution types (seen above) show two Trail Years, these actually represent three trail years, since CommunitySuite considers the first year as "year zero".

    To make a clear distinction between each distribution type and the resulting calculations, 12 endowed funds were also created- one for each combination of Type and Calculation base options. They are named "Endowed Fund" followed by the name of the their assigned distribution type (see example below).

    distribution_types_and_calculations_8.png

    Donation data was imported to each of the endowed funds and deposited within specific accounts (see image below). Some things to note about the donation data:

    • Donations were made from three profiles (Rick Rambus, John Majors, and Bull Mountain).
    • Each of the three profiles made one donation per quarter over the span of three years.
    • Donations from Rick Rambus and John Majors were deposited in the Default Checking account, and donations from Bull Mountain were deposited in the Default Investment account.
    • Each $1000 donation from Bull Mountain was applied directly to the spendable amount of the relevant funds, while donations from Rick Rambus and John Majors were not.

    distribution_types_and_calcuations_9.png

    For the purpose of this example, we also added a vendor profile (named "Investment Company"), created statement vouchers for each year (2018, 2019, and 2020) and applied them to the Investment Income account. Revenue Share was then processed and applied to the Default Investment Asset account. This was done to ensure that distribution types with a "Default Balance" calculation base had data to calculate. 

    Results

    The example below shows the resulting transactions from processing distributions for the funds and distribution types that we discussed earlier in this article. Distributions were processed with a Calculate Date and Post Date of 12/31/2020.

    Before processing, the review screen displays detailed information about the transactions that will take place.

    distribution_types_and_calculations_10.png

    Once the distributions are reviewed and posted, you can view the GL detail of each distribution by selecting the TransID, or view the spendable transaction detail by clicking distribution amount in the Amount column (see below).

    distribution_types_and_calcuations_11.png

     

    GL Transaction Detail (TransID Link)distribution_types_and_calculations_12.png


    Spendable Transaction Detail (Amount Link)
    distribution_types_and_calculations_13.png

    For the purpose of this article, we are only showing GL and Spendable Transaction detail for the "Endowed Fund (Avg_Per_Qtr - Bank & Investment Balance)" example; however, the functionality will be the same across all funds/distributions. 

  • Process Distributions
    1. Select Distributions from the Home page.

      ProcessDistribution1.png

    2. Click Create.

      ProcessDistribution2.png

    3. Enter the Calculate DatePost Date, and check the box(es) next to the Distribution Type(s) that you want to include; then click Next.

      ProcessDistribution3.png

    4. The following table shows the distributions that will be applied to each fund. These are calculated based on the parameters you set for each Distribution Type and Interval.

      ProcessDistribution4.png

    5. If needed, check the box next to a Fund to exclude that fund from the distribution, or edit the amount for a distribution.

      ProcessDistribution5.png

    6. Click Create Distributions.

      ProcessDistribution6.png

    7. To view the details of each distribution (Spendable Transaction Detail), click a distribution Amount.

      ProcessDistribution7.png

    If your foundation uses the Donor Portal, fund advisors will see the resulting distribution in their spendable balance when they log into the Donor Portal. The fund's spendable balance will be available for granting, however, if the funds remain unused you can clear the unspent amounts and/or create spendable grants for the fund's beneficiary list.
     

     

  • Distribution Intervals*

    If a Distribution Interval is quarterly, then the distribution date has to be at the end of a quarter. If you try to run it on the 19th of February, you wouldn’t be able to. You’d have to run the distribution on either March 31st, June 30th, September 30th, or December 31st. 

    Distributions with a yearly interval actually have to be run on January 1st, not December 31st.

  • Edit Distribution Types
    1. Navigate to Distributions from the Home page.
    2. Select Distribution Type from the left-side menu.
    3. In the Distribution Types window, click the Distribution Type ID that you want to Edit.
    4. Click Edit from the left-side menu.
    5. Make any edits and click Save.
      • Note: To post Distributions to an Account other than your Spendable Account, select an Equity Account from the Equity Account drop-down.
  • Clear Unspent Spendable Balance

    If a fund’s spendable balance is not spent it will remain in the spendable balance and it will be calculated as part of the Fund's assets. Follow these steps to clear any unspent distributions.

    1. Select Distributions from the Home page.



    2. Select Clear Spendable.



    3. Enter the As Of Date (date that the unspent spendable balance will be reset to zero), and a Reason for clearing the spendable balances.



    4. Click Review.



    5. Check the boxes next to each fund with a spendable balance that you want to reset to zero.

       

    6. Click Clear Checked Balances.



    Notice the transactions that make up the total spendable balance and the final entry removes that amount, so the fund now has a spendable balance of zero (0). The system makes a reversing entry to back out the spendable amount.

    If you clear the spendable amount by accident you will need to manually add the money back to the spendable balance.

  • Manually Adjust Spendable Balance
    1. Navigate to Funds from the Home page.
    2. Select the desired Fund.
    3. Click Manual Distribution from the left-side menu.
    4. In the Manual Distribution Entry window, enter a:
      • Post Date
      • Description
      • Amount
    5. Click Create.

    Note:

    • CommunitySuite limits you to one Manual Distribution per Fund per day.
    • To use the Manual Distribution feature, Track Spendable Balance must be turned on.
  • Create Distribution Types
    1. Navigate to Distributions from the Home page.
    2. Select Distribution Types from the left-side menu.
    3. Click Create.
    4. In the Create Distribution Type window, enter the following:
      • Name
      • Type - Type of calculation you use to determine the amount to be dispersed.
        • Percentage (percent)
        • Average Per Quarter (avg per qtr)
        • Average Per Year (avg per year)
      • Percent - Distribution percent
        • Enter as a decimal (Ex: .03 = 3%)
      • Trail Quarters
      • Trail Years
    5. Click Create.

    If you selected Average per Quarter or Average per Year in the Type field, and your spending policy requires that the distribution percentage be calculated on the average balance of a fund over a period of time longer than one quarter or one year; enter the number of past quarters or years to calculate the distribution from.

    • If you selected Average Per Quarter, enter the number of quarters in the Trail Quarters field.

    • If you selected Average Per Year, enter the number of years in the Trail Years field.