Restricted Funds

What is a restricted fund?

Restricted funds are resources whose use is restricted by donors (as opposed to
resources over which the organization has complete discretion). A donor may restrict a
gift for a specific use (purpose restriction) or period of time (time restriction). Restricted
funds may be permanently restricted (as in endowments) or temporarily restricted.

Generally there are two types of temporarily restricted funds where spending occurs:

1. The spendable portion of endowment funds. These funds generally begin with
an “ER”.

2. Restricted funds where the donor has designated that 100% of the gift may
be used for a specific purpose or over a specific period of time. These funds
generally begin with an “RC”.

How do ER funds receive money?

See Endowment Funds below for information on how ER funds receive money.

How do RC funds receive money?

An RC fund is created when a donor or group of donors give a gift for a restricted
purpose. As with all contributions, the gift is directed to the Advancement Office where
it is processed and then fed to the general ledger. Once the gift is in the general ledger,
it may be used for the donor’s intended purpose.

Please note, RC funds are meant for donor restricted gifts only. Such gifts must be
processed by the Advancement Office and may not be deposited through the FAS
Cashier window in Reynolda Hall.

How is money spent from ER and RC funds?

When a qualifying purchase, expense, or award is made, that item is charged directly to
the ER or RC fund. All expenses charged to the fund must meet Wake Forest University
Accounts Payable standards and must meet the business purpose specified in the
fund. See Invoices and Reimbursements for a complete list of policies and procedures
surrounding payment.

Transfers to and from ER and RC funds are not allowed except by prior approval from
the Provost Office and FAS Office. This is to ensure that funds are used in accordance
with donor stipulations and to provide audit support for the specific use of the fund.

Please note that effective March 1, 2012, most gifts to RC funds will incur a 12%
associated program cost when used. This cost, also known as APC, is booked via a
monthly journal entry. See Associated Program Costs for more information.

What happens if not all gifts to an ER or RC fund are not spent within the fiscal year?

Accounting guidelines stipulate that a restricted gift must be used to pay for an expense
for which it is earmarked, before any unrestricted money is used for the same purpose.
With this in mind, every effort should be made to use all available restricted funds
before using unrestricted funds.

However, if the donor restriction has not been met, the restricted fund obviously may
not be spent. In this case, the gift money will remain in the ER or RC until it the donor
restriction has been satisfied and it may be necessary to roll the funds balance over
from one fiscal year to the next.

What happens if an ER or RC fund is “overspent”?

RC funds should not be spent until a gift is received and processed.

ER funds may not spend more than their beginning balance plus their expected
distribution for the fiscal year.

The Financial Manager of the fund (generally the Department Head) is responsible for
ensuring that the fund is not overspent. To the extent that a fund is overspent as of
June 30, money will be taken out from a another unit/department funding source to
make the fund whole.

How does an ER or RC fund share an expense with another fund?

Money from an ER or RC fund may be used to support the activity of another
department as long as the function the fund is supporting satisfies the donor restriction.
However, funds may not be transferred to support the function. Instead, a specific
invoice or part of an invoice from the function should be coded directly to the restricted
fund.

If the function is complete and all of the invoices associated with the function have
been processed, then the restricted fund may be charged through a journal entry. In
this case, a copy of the processed invoice being charged to the fund as well as a copy
of the ledger showing where the invoice was initially charged should be included with
the journal entry. The journal entry should credit the account where the invoice was
initially charged and debit the restricted fund in the same account.