The foundations often receive non-gift monies that do not represent a charitable contribution. These monies fall into two categories – “Other Income” and “Refund of Expenditure”. It is important to distinguish between these two types of receipts for both tax and financial reporting purposes.
“Other Income” does not represent a charitable contribution, and is not deductible by the payor for tax purposes because it represents payment for a service or product received – that is, the payer receives some direct benefit. Some examples of foundation activities that produce other income receipts are:
- pre-football game meals for alumni who pay to participate (i.e. ‘tailgate’ events)
- alumni picnics
- sales of merchandise, such as t-shirts, cookbooks, etc. (Note: in accordance with G.S. 105-164.13(34) sales of items by a nonprofit civic, charitable, educational, scientific or literary organization are exempt from tax when the net proceeds of the sales will be given or contributed to the State of North Carolina, or to one or more nonprofit charitable organizations, one of whose purpose is to serve as a conduit through which such net proceeds will flow to the State or to one or more of its agencies. We have determined that this statute exempts the University-related foundations, but does not exempt the Alumni Association.)
1. Other Income receipts of cash and checks for the foundation should be forwarded directly to the FAI office for deposit. These should not be deposited through the University Cashier’s Office. Credit card charges for Other Income should be forwarded to Gift Processing via iModules. If Other Income and a Gift are combined in a single payment, the funds should be forwarded to Gift Processing, rather than FAI. After processing the gift portion, Gift Processing will forward the appropriate information to FAI. In addition to the Gift Transmittal, the deposit should also be accompanied by an ‘Other Income Transmittal’ form listing the information contained in the “FAI Transmittal for Other Income/Refund of Expenditures” click here.
2. Other Income cash receipts and checks forwarded for deposit must include documentation that clearly supports the fact that the activity or event generating the income was sponsored by the Foundation. This documentation should be supplied via iModules to FAI for review prior to the event. Deposits received with insufficient documentation or without pre-approved event documentation that are payable to a Foundation will be deposited and credited temporarily to a foundation clearing account. An e-mail will be forwarded to the appropriate foundation office requesting necessary support. Upon receipt of such support, FAI will reclassify the credit from the clearing account to the correct account either in the University or Foundation as appropriate based on the backup. Checks should be submitted for deposit within 24 hours of receipt, per University policy, referenced at: click here.
3. All expenses incurred related to the activity that generates the Other Income must be paid from the same foundation project into which the Other Income receipts are deposited.
4. Participants in Foundation approved events or activities that will result in Other Income for a foundation should be instructed to make their checks payable directly to the foundation, not to the University.
5. It is important to note that alumni picnics or socials, and any other activities funded through or sponsored by the foundation which produce Other Income receipts are not covered by the University’s liability insurance. The foundation should obtain “event” insurance to cover potential liability issues or board approval of acceptance of liability if no insurance is obtained.
6. FAI must review marketing materials prior to distribution to help insure that the materials will allow the funds to be deposited into a Foundation project.
Refunds of Expenditures
Refunds of expenditures are payments intended to reimburse for specific expenses and can be matched against an original charge (for example: office supplies returned to a vendor in exchange for a refund). If an individual or entity is providing monies to help defray costs (for example, a company provides $1,000 to help ‘cover’ the cost of meals at an event, those monies should be treated as Other Income, not a refund of expenditure). Often the reimbursement is from the same person/entity to which the original expense was paid to. However, occasionally reimbursement of specific expenses may come from a different person/entity (for example, if a personal expense accidentally got charged to a P-card, and had to be reimbursed by the individual, or if a company reimburses for specific expenses incurred with an event or activity).
If an individual or entity is helping to cover/defray costs by providing monies to pay for a portion of them, those monies should be treated as either Other Income or a Gift (depending on whether the individual or entity receives any direct benefit), and not a refund of expenditure. Often these would be similar to a sponsorship.
Monies forwarded to FAI which are classified as refunds of expenditures should include adequate documentation supporting the original expense payment by the foundation which is being reimbursed, and should include a Financials system screen print with copies of invoices and small purchases or purchase orders supporting that payment was made by the project being reimbursed.