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How do I set up distribution rules?

This article will help explain how Fundriver handles spending distributions and options for client set up.  It will also provide recommendations for handling different distribution configurations.  

The distributions data is initially imported as part of the initial data load via the Spending Exceptions tab on the Data Load Template. Additional rules can be set up as funds are created.

Distributions are set up by fund through the ORGANIZE tab (if they weren't set up during original data load).

Distributions are set up by fund through the ORGANIZE tab (if they weren't set up during original data load).

Initial client distribution information (that requires special handling) is uploaded on the Spending Exceptions tab of the Data Load Template.  Only funds that have split distributions, donor directed reinvestment, or special exceptions (such as fixed amount rules) should be listed on the spending exceptions tab.

Once loaded, distribution information can be added or edited on the FUND PROFILE.  Click on FUNDS to get a full fund list and then click on (or search for) an individual fund name to access the FUND PROFILE.

Once loaded, distribution information can be added or edited on the FUND PROFILE.  Click on FUNDS to get a full fund list and then click on (or search for) an individual fund name to access the FUND PROFILE.

DISTRIBUTION ACCOUNT is located directly under the FUND PROFILE section for a specific fund.

DISTRIBUTION ACCOUNT is located directly under the FUND PROFILE section for a specific fund.

In this view the FUND PROFILE is collapsed, as are the DISTRIBUTION ACCOUNT and DOCUMENTS sections.  To expand, click on the white arrow on the right side of the section.

To set up a REINVEST THRESHOLD, enter a dollar amount in the field below.  You can also set an authorize date, if one has been specified in the donor agreement or as board spending policy (for example, a fund may need to accumulate 3 years of appreciation prior to spending). The reinvest threshold will determine if spending can occur, if populated and a fund meets the threshold it will begin participating in spending (as long as its assigned a spending rule).

To set up a REINVEST THRESHOLD, enter a dollar amount in the field below.  You can also set an authorize date, if one has been specified in the donor agreement or as board spending policy (for example, a fund may need to accumulate 3 years of appreciation prior to spending). The reinvest threshold will determine if spending can occur, if populated and a fund meets the threshold it will begin participating in spending (as long as its assigned a spending rule).

Reinvest Threshold:  Limits spending from fund until minimum dollar threshold for historic gift or market value has been reached.  The default setting on this is for principal/historical gift, but client can choose to reset for market value.  This change is custom and requires contacting Fundriver Support. Note: If the reinvest threshold remains populated and the setting looks at market value, then if a fund drops below the threshold it will cease distributing. If a client needs this threshold to only be met once, then this would need to be configured.

If a fund has an AUTHORIZE DATE, the fund is not able to make distributions until that date has passed.  

If a fund has an AUTHORIZE DATE, the fund is not able to make distributions until that date has passed.  

The program default uses the current posting period as the date to compare to the authorize date.  If current posting period is greater than the authorize date, the fund is eligible to make distributions.

If a fund has both an Authorize Date and a Reinvest Threshold set, then by Default the fund will only need to meet one condition for spending to occur.

It is possible for a client to customize this function to look at both criteria before spending can occur.  Contact your Client Support Specialist if you would like to explore this option.

 

On the DISTRIBUTIONS screen, the three fields on the right are not commonly used.  Most clients will likely not have data to populate INCOME ACCT, GAIN ACCT and INVEST ACCT.  At this time, these field labels cannot be changed.

On the DISTRIBUTIONS screen, the three fields on the right are not commonly used.  Most clients will likely not have data to populate INCOME ACCT, GAIN ACCT and INVEST ACCT.  At this time, these field labels cannot be changed.

The DESTINATION ID field is used to house the spending account number where the distributions are transferred as income for spending.

The DESTINATION ID field is used to house the spending account number where the distributions are transferred as income for spending.

On the FUND PROFILE, click on ADD DIST. RULE button to set up distribution rules.  This is located on the bottom of the Distribution Account screen.

On the FUND PROFILE, click on ADD DIST. RULE button to set up distribution rules.  This is located on the bottom of the Distribution Account screen.

There are four choices available.  See below for examples of how to use each ACTIVITY TYPE.  

There are four choices available.  See below for examples of how to use each ACTIVITY TYPE.  

Definitions of ACTIVITY TYPE:

Distribute = Distributes all earnings based on Spending Rule applied.

Reinvest to Market = External transfer in.  Records as a transfer.  Increases temporarily restricted as long as fund is above water.

Reinvest to Principal = Impacts cost and gets recorded as a gift.  Impacts permanently restricted net asset.

Add to Unspent Allocation = Fund accumulates spending in a bucket. Does not impact cash until it is spent.  Does not get reset each year; the cash builds up.  Not common.

Below are 6 examples of different distribution rules and how their application affects distributions.  The examples will explain how the fields in the screen capture below should be populated in each scenario.  Check out this attached spreadsheet for more examples! 

Below are 6 examples of different distribution rules and how their application affects distributions.  The examples will explain how the fields in the screen capture below should be populated in each scenario.

Example 1:  Making a simple distribution for the full amount

Example 1:  Making a simple distribution for the full amount

Make an entry in the distribution screen for a distribution of the full amount.

  1. Click the add button
  2. Select Distribute as ACTIVITY TYPE
  3. Select All as CALC TYPE (the system ignores the amount)
  4. Optional: Enter a note and a Destination ID or internal account

Cash flow impact: Cash flow out of the pool for the amount of the distribution.

Example 2: Making a distribution for a partial amount (in this example, we will be distributing 50% of the calculated amount and the rest will remain in the fund).

Example 2: Making a distribution for a partial amount (in this example, we will be distributing 50% of the calculated amount and the rest will remain in the fund).
  1. The spending formula results in a $500 calculated distributable amount.
  2. User enters item in the distribution screen to distribute 50% of the allocation.

Result: Distribution created for half of the calculated distributable amount. Fundriver will only create a distribution transaction for 50%, leaving the rest in the fund/pool.

Cash flow impact:  Cash flow out of the pool $250

 

Example 3:  How to reinvest a percentage of the distribution (You will need to create two distribution entries.)

Example 3:  How to reinvest a percentage of the distribution (You will need to create two distribution entries.)

First, make an entry in the distribution grid for a distribution of the full amount.

  1. Click the add button
  2. Select Distribute ACTIVITY TYPE
  3. Select All CALCULATION TYPE (the system ignores the amount)
  4. Optional: Enter a note and a Destination ID or internal account
  5. SAVE.

Create a second entry to tell the program to reinvest a percentage of the earnings back to principal.

Create a second entry to tell the program to reinvest a percentage of the earnings back to principal.
  1. Make a second entry for the amount to reinvest
    1. Click the ADD button
    2. Select Reinvest to Principal ACTIVITY TYPE
    3. Select Percentage CALCULATION TYPE
    4. Enter the percentage you want to distribute in the amount cell

NOTE: Be sure to enter percentage as a whole number.

Assume the spending formula results in a $500 calculated distributable amount.

Result: Two transactions are created:

1. A distribution transaction for the full calculated distributable amount ($500)  

2. A reinvestment transaction for 25% of the calculated distributable amount ($125).

The net cash flow on the reconciliation will be a cash flow out for the remaining 75% of the calculated distributable amount ($375).

Example 4:  How to distribute a fixed amount

Example 4:  How to distribute a fixed amount

Make an entry in the distribution screen for a distribution of a fixed amount.

  1. Click the add button
  2. Select Distribute ACTIVITY TYPE
  3. Select Fixed Amount CALCULATION TYPE
  4. Enter the amount you want to distribute in the amount cell

Optional: Enter a note and a Destination ID or internal account.

Result:  A single distribution transaction will be created for the fixed amount.

If you are set up with the New Spending interface, enter the annualized fixed amount.  If you are set up on the Old Spending Interface, enter the amount you want to post each period (if you post monthly, enter the monthly amount; if quarterly, enter the quarterly amount, etc.)

Example 5: What happens if there is no entry in the distribution grid?

Result: The system creates a distribution based on the fund's assigned Spending Rule (via the Fund Profile Section).

Example 6: How to retain the entire distributed amount as undistributed income

Example 6: How to retain the entire distributed amount as undistributed income

Make an entry in the distribution grid for a distribution of the full amount.

  1. Click the add ADD button
  2. Select Unspent Distributions ACTIVITY TYPE
  3. Select CALC TYPE of ALL (the system ignores the amount)
  4. Optional: Enter a note and a Destination ID or internal account

Net cash flow impact: None

NOTE:  Reinvest rules only work if there is a DISTRIBUTION RULE set up.  Destination ID, Fund, Project all need to be added to rule if that information is needed on the transaction record.

NOTE:  Reinvest rules only work if there is a DISTRIBUTION RULE set up.  Destination ID, Fund, Project all need to be added to rule if that information is needed on the transaction record.

Other things to note when setting up distributions:

If a client's setup has distribution activity impacting unit price rather than units, all funds in that pool need to participate in the same spending rule. If not all funds participate in the spending, then this will unequal distribution will be shown in unrealized gain (loss) allocation.

If a client has an AUTHORIZE DATE and REINVEST THRESHOLD populated and the AUTHORIZE DATE criteria has been met, that overrides the REINVEST THRESHOLD criteria.

A client's REINVEST THRESHOLD is based on historic gift.  Fundriver can customize this option to be based on pooled market value.

When setting up a CALC TYPE of Percentage, setting up two rules (one as a Distribute ALL and one as your percentage) will ensure that all pennies are accounted for.  Setting up two percentage rules (ex. 50% and 50%) might overlook pennies due to rounding.

All of the fields in the box below will pull onto the transaction record when the distributions are processed.

All of the fields in the box below will pull onto the transaction record when the distributions are processed.

If these fields are needed as part of the transaction record, the client will need to create distributions as part of the automated method in Fundriver (wouldn't be able to use a report).  Using automated distribution process, all of the fields above will populate the transaction record.

The automated process is done through ACTIVITY DISTRIBUTE.  

If distributions are going to two or more destinations, multiple rules will need to be set up.

If distributions are going to two or more destinations, multiple rules will need to be set up.

For fixed amount rule, you want to set up a distribute all and then the fixed amount to make sure the entire distribution is accounted for.  If you only did fixed amount it would just pull that amount, and not apply the full distribution amount.

To check to make sure distributions processed properly, run the DISTRIBUTION ESTIMATED SPENDING REPORT.

If you are set up with the New Spending interface, the reports are located in the SPENDING reports suite.

To check to make sure distributions processed properly, run the DISTRIBUTION > ESTIMATED SPENDING REPORT.
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