U.S. Senators want to know why college endowment funds are growing at double digit rates, while spending from those endowments amounted to less than 5% per year. A study by the National Association of College and University Business Officers looked at 785 schools. On average, the endowments earned a 17.2% rate of return on investments for the last year. And the value of the schools' endowments grew by 21% in the last year.
Congress wants schools spending more of their endowments to help make college more affordable for students. Yet, on average, the schools in the study spent only 4.6% of their endowment assets. Observers are surprised that the payouts from the endowments didn't at least reach 5% - the amount that private foundations are required to spend each year in order to maintain tax-exempt status. School endowment funds have no such requirement, but many believe that they should voluntarily spend at least 5%.
College personnel say it's not so easy, especially when large chunks of their endowment funds are reserved for specific purposes. I can see how this is an issue, as many donors specify what their funds can be spent for. On the other hand, it seems that it wouldn't be too hard for schools to shuffle funds to both use endowment money for its stated purpose and help make tuition more affordable for students.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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