Update on Inquiry

March 13, 2023

Official statement

We received an informal inquiry from the Attorney General’s Office that contained some misguided allegations related to endowment spending and gift accounts. We recognize the AG’s office has an obligation to look into the complaints it receives.

The College has cooperated fully, voluntarily providing all documentation requested to address the questions raised. We comply with the letter – and spirit – of all laws that govern higher education institutions. Our Board has always been a conscientious steward of the funds entrusted to the College.

We believe our response has put to rest these unfounded and misguided allegations.

Background and context

Annual Audit

The College has worked with Plante Moran for the past 12 years. Plante Moran conducts an annual audit of our financial statements, as is common with colleges and universities. An audit provides assurance that the College’s financial statements properly reflect its financial condition and conform with Generally Accepted Accounting Principles (GAAP) and American Institute of CPA (AICPA) guidelines. The most recent audit was completed for the fiscal year ended June 30, 2021, giving us an unqualified opinion concerning our financial statements. This means Plante Moran found nothing that raised concerns about the accuracy of our financial statements. In accounting terms, the College’s financial reporting received an A.

As part of its annual audit, Plante Moran reviews all significant aspects of our finances, including our endowment and the procedures we follow for accounting for the endowment and endowment spending. Again, the most recent audit, which would have covered this issue and others, came back without qualification.

Endowment Fund

Our endowment fund is comprised of donations to the College. These come in many forms – from $25 checks our alumni write to gifts of stock or real estate to multi-million dollar bequests as part of an estate plan. They come when our athletic teams host fundraisers, when a community member wants to write a check of support or as memorials to honor faculty and staff members.

Our endowment fund is divided into two primary types of funds. The first are restricted funds – these can only be used as directed by the donor at the time of the gift. The second are unrestricted funds. If we receive a donation that doesn’t have a designated purpose, it is considered unrestricted and can be used for whatever purpose the College decides. While these unrestricted funds do not need to be put into the endowment, the Board can decide to put these funds into the endowment for future use. But they remain unrestricted funds even if the Board puts them into the endowment.

Rather than letting our endowment sit in a savings account or certificate of deposit and earn minimal interest, our endowment is actively managed so we can get a better rate of return. Our endowment funds, both restricted and unrestricted, are invested and managed by a third-party professional money manager.

When the College receives an unrestricted donation, if the College does not have an immediate need or if the dollar amount of the donation is large, the Board’s practice has been to put this money into our endowment where it can be professionally managed and then used at some later time when a need is identified.

Unrestricted assets can be withdrawn and used at any time by the Board for any purpose the College determines.

Unrestricted assets included in the endowment are called quasi-endowed funds. These are funds that were donated with no donor restrictions. The Board of Trustees, rather than the donor, has determined they should be retained for future use and invested. Since these funds are internally designated rather than externally restricted, the Board has the right to decide at any time to expend the principal as well as any interest.

When the College decides to spend funds, they are moved from the endowment to operating funds according to GAAP standards. There are limits on the amount of donor-restricted assets the College can draw out of the endowment. The state of Michigan limits the amount of donor-restricted assets that may be withdrawn to an amount that is prudent, but has no specific limit on the percentage of funds that can be drawn from restricted assets in an endowment.

There is no limit or restriction on the amount of unrestricted assets in our quasi-endowed funds that can be used for whatever purposes the Board deems appropriate.

Departmental Gift Accounts

All gift funds for academic, athletic and other departments and programs are tracked as separate accounts on our general ledger. Because the balance of the funds for each department is typically not large, they are not included in the endowment.

When a department wants to use its funds to purchase something, it is approved by the department head and a request is sent so we can move the funds out of the appropriate department account into the general fund so we can then cut a check to pay the expense. This is the normal procedure under GAAP.

While departmental gifts are not included in the endowment, they are restricted and segregated by department on our general ledger. We provided the AG’s office access to our general ledger so it could review the balances of and transactions in departmental gift accounts.