2238 Donor-Restricted Net Asset Management and Release Policy

This policy establishes the framework for the classification, management, and subsequent release of donor-restricted net assets at the University of Pennsylvania. Its primary objectives are to ensure that the intentions of our valued donors are consistently honored, that these dedicated funds are utilized in a manner consistent with their stipulations, and that the University’s financial reporting accurately reflects the status and activity of these restricted resources.

Net Asset Classification: Upon receipt, gifts are classified as:

• Unrestricted: No donor restrictions.
• Temporarily Restricted: Subject to donor-imposed time or purpose restrictions.
• Permanently Restricted: Principal maintained in perpetuity; income usable.

Fund Accounting: UPenn uses these primary fund accounts:

• Operating (01xxx): General operations.
• Capital: Long-lived asset acquisition/improvement.
• Endowment: Perpetually held assets; income for specific purposes.
• Suspense: Temporary holding pending classification.

Operating Gift Funds: Unrestricted gifts to schools/departments are are deemed unrestricted immediately and recorded as unrestricted, allowing immediate use.

Restricted Gifts: Donor-restricted gifts are directed to specific funds (60xxx, 62xxx, 65xxx)

Endowment Income Management: Endowment income is initially temporarily restricted and reclassified annually based on how UPenn expects to meet donor intent:

• Automatic (A): Restrictions met through normal operations (e.g., scholarships).
• Manual (M): Specific restrictions requiring direct expenditure tracking.
• Time-based (T): Restrictions fulfilled by time or event.

Release of Temporarily Restricted Net Assets: Restrictions are released to unrestricted when met:

• Automatic: Released at month end as revenue is earned.
• Manual (Expense-Driven): Released upon qualifying expenditures.
• Time-Based: Released upon the passage of time or event. These releases are manually recorded.

Once donor restrictions are satisfied, accounting entries record the release of funds from the Temporarily Restricted to the Unrestricted Net Asset Class using specific reclassification object codes (48XX), as mandated by accounting standards (SFAS 116 & 117).

These include:

481X – Revenue Reclassifications
4810 Reclassification, endowment income
4811 Reclassification, operating gifts
4812 Reclassification, capital gifts
4813 Reclassification, overhead

Additionally, any discounts or refunds received should be applied to the original object code where the expense was initially recorded to unrestricted general operating funds (0xxxxx)