Distribution Types and Calculations

Written by Nick Miles

Last published at: June 1st, 2021

Overview

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

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.

  • 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).

 

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.

  • 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).

"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).

For step-by-step instructions, please search the WalkMe 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).

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).

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.

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.

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).


GL Transaction Detail (TransID Link)


Spendable Transaction Detail (Amount Link)

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.