1. 6 Classification of Funding

Revised 1/30/03

Correct classification is important to assure a university’s ability to comply with any terms specified by the sponsor/donor, meet the government’s reporting and accounting requirements, properly recover costs [both direct and facilities and administration (F&A)], and monitor the nature and extent of research in various units. 

 Classification of a given award requires the exercise of some judgment if its characteristics are such that the true nature of the award is not immediately clear.  Each award must be considered in its totality, rather than focusing on any single characteristic.  Sponsors/Donors often use the terms “gift” or “grant” in ways inconsistent with the objectives of the University.  Therefore, the terminology used by the sponsor or donor should not determine the classification of the funds.  It should be kept in mind that the distinction between a sponsored project and a gift is not clean cut.  They exist in a continuum and in some cases, it is a judgment call.

1.6.1 Definitions

1.6.1.a Gifts (also included are donations, endowments and bequests)

A gift may be defined as “any money from private sources, whether solicited directly or not, for which the donor does not retain any future interest or cannot be expected to receive any material, unique, or preferential benefit from the act of donating funds.”  This definition follows guidelines established by the Internal Revenue Service as well as practices of other universities and nonprofit organizations. 

Expanding on that definition the following criteria identify a gift (usually more than a single criteria needs to apply, although all do not have to be met):

A. Contractual requirements are not imposed. However, objectives may be stated and use of the funds may be restricted to a particular purpose such as a professorship, scholarship or research in a defined area.

B. No commitment of resources or services other than, possibly, committing to use the gift as the donor specifies.

C. Award is irrevocable.

D. A period of performance is not specified although a end date may be used as a convenience in tracking use of funds.

E. Formal financial accounting is not required and there is no requirement to return unexpended funds (negotiations may be needed if unexpended funds cannot be spent for the purpose of the gift, i.e. specialized scholarships, etc).  However, a report to the donor on the utilization and/or impact of the gift may be requested, and this report may include expenditures and fund balances.

F. Generally, funds received from individuals, closely held corporations, and private family foundations will be classified as gifts: and funds received from corporations, corporate foundations and major foundations may be classified as gifts, depending on the circumstances.

G. Government Support – Federal, state, local or foreign governmental support is not considered a gift.  For example, money from Davis County or the Navy would not be considered gifts.

H. As a condition of the gift, no regulatory issues are involved, such as human subjects or animal care. 

I.   The sponsor has no audit rights. 

Gifts are handled through the Development Office and are deposited into activities specifically designed to manage the gift. .Gifts are deposited into accounts (6000 fund) specifically designed to manage the gift.  Often they are called development accounts and have few restrictions other than those placed on them by the donor.  They are also usually interest bearing accounts. 

Charitable Grants

One example contrary to one of the stipulations for gifts is when funds are awarded by local governmental entities such as tourism councils and arts endowments (when no federal funds are involved) to benefit public service programs of the university. Charitable grants may be classified as a gift when all other criteria for identification as a gift are met.  A charitable grant is a gift when 1) it is awarded for program support; 2) the value or benefit ultimately accrues to the university without accountability; and 3) the control, use, and disposition are completely vested with the university.  Charitable grant deposits are then handled similar to gifts.

1.6.1.b Sponsored Projects

The U.S. Government in OMB Circular A-21 characterizes sponsored research in its Definition of term’s section as follows:  

1. Major functions of an institution refer to instruction, organized research, other sponsored activities and other institutional activities as defined below:

a. Instruction means the teaching and training activities of an institution. Except for research training . . .

(1) Sponsored instruction and training means specific instructional or training activity established by grant, contract, or cooperative agreement. For purposes of the cost principles, this activity may be considered a major function even though an institution's accounting treatment may include it in the instruction function.

(2) Departmental research means research, development and scholarly activities that are not organized research . . .

 b. Organized research means all research and development activities of an institution that are separately budgeted and accounted for. It includes:

(1) Sponsored research means all research and development activities that are sponsored by Federal and non-Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.

(2) University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds. University research, for purposes of this document, shall be combined with sponsored research under the function of organized research.

c. Other sponsored activities means programs and projects financed by Federal and non-Federal agencies and organizations which involve the performance of work other than instruction and organized research. Examples of such programs and projects are health service projects, and community service programs. However, when any of these activities are undertaken by the institution without outside support, they may be classified as other institutional activities.  

These types of activities generally include a contract, grant, cooperative agreement or other type of agreement.  In general, the following criteria identify a sponsored research project (usually more than a single criteria needs to apply, although all do not have to be met): 

A.     The award carries terms on the use of funds as specified budgetary restrictions; 1) objectives to be achieved by use of the funds; 2) the program in which the work will be carried out; 3) the individual responsible for completing the work.
 

B.     The award is subject to formal conditions outlined in a contractual instrument signed by both parties.  The university incurs a legal obligation and an authorized institutional signature is required.
 

C.     The sponsor places specific restrictions or requires specific deliverables on the award, i.e., there is a definitive time period for the project and the sponsor requires one or more progress reports, a final report, a financial or other types of reports.  A closing audit may be required.
 

D.     The sponsor often places more restriction upon expenditures allowed in the pursuit of the activity.
 

E.      Often there is intellectual property, confidentiality, and/or publication conditions associated with receipt of the funds.
 

F.      The source of funding is usually a government entity, corporation or company.
 

G.     Financing may be on a cost-reimbursable basis, although the University tries to arrange some method of advance funding where possible.  Some fixed-price contracts may provide for lump-sum payments as work progresses. 
 

H.     F&A costs are usually included in the funding, and there is a commitment of university facilities, personnel, or other resources.
 

I.        The sponsor retains authority to withhold funds pending satisfactory completion of project objectives.  Unused funds may be returned to sponsor (unless the contract is fixed price).
 

J.       The sponsoring organization receives a direct benefit from their funding.
 

K.    Request for funding may be used for fulfilling a matching or cost sharing commitment on another sponsored project or may require a matching, cost sharing or other financial commitment from the university. 

Sponsored project funds are deposited into research fund accounts (5000 fund).  These accounts are generally not interest bearing accounts.  They are highly restrictive based on governmental regulations and contractual stipulations.  They are overseen and administered by the principal investigator, a research accounting office, a sponsored project office and sometimes the department or college.  For the purpose of clarification further detail is given about the different types of agreements including grants, cooperative agreements and contracts in Section 5, Award Management.