Are there any organizations applying a management fee to their funds or projects in order to generate operating income? We would be interested in knowing if others are doing this and how they are accomplishing it through Financial Edge.  Maybe someone is doing this in Razor's Edge instead. If so, please let us hear from you.

Thanks

Rick

We apply a mangement fees to our accounts.  It is a set percentage that is applied to each endowment based on the endowment corpus balance.  We create a manual journal entry and book the revenue to management fees in our operating fund, the expense to management fees in the fund where we track the endowment's investment income/management fees.

 Hope this helps.

We record this the same was as Karen M (revenue in fund 1 and expense to the project in fund 2).  Since this isn't actually revenue and expense in accordance with accounting rules, we then provide an audit reclass journal entry to the auditors that we don't record on our books, but since we provide it to them, it "passes muster" as not being and audit entry from them.  The reclass entry credits the revenue and debits the expense.

Hi Rick,

We are in the process beginning a program that charges fees to certain funds.  We will initially charge the funds via journal entry as mentioned in these postings.  If the volume and payment method justifies so, the Accounts Receivable module could also be used to track these fees.

Hope this helps.  I may be back here to check because we are still trying to determine how to charge for back room services in addition to regular administrative fees.  Any thoughts?

Thanks!

Dan-Community West Foundation-Rocky River, OH 

Hi Everyone,

If your management fee is a percentage of the project balance (or a percentage of a particular account or a group of accounts within the project), then Allocation Management is very helpful in determining the management fee amounts as well as creating the journal entries automatically. The accounts that define the balances are defined in the pool, and the allocation uses the percentages on a fee schedule to determine the amount of the management fee for each project. It's a nice way to create one journal entry for the management fee on all of your projects.

Thanks,

Jeff

so Jeff-

 what is Allocation Management?

Allocation Management is an add-on module to the General Ledger. Its primary focus is to assist with investment income and expense allocations across projects in an investment pool, but it also has other uses such as the management fee example I described in my post. With Allocation Management you can build a pool that can either determine the amount you'd like to allocate or it can be the basis for your allocation. If the former, then you can enter percentages or units as the basis for the allocation.

An example is probably the best way to answer your question. Let's say I have three projects: A, B, and C, and I want to allocate (i.e. distribute) investment income to those projects based on the fund balance of each project. I create a pool of those projects and define the fund balance account as the account to use to establish the relative balance of each project. Then I create what's called an allocation set, where I enter the amount of investment income I want to allocate and what dates to use to determine the balances in each project. Then the allocation creates the journal entries - typically in this example a debit to an asset account and a credit to a revenue account - for each project according to its relative share of the total project pool.

You can also use it to do percentage-based allocations. Typically we see this with investment fees, but it can be applied to just about any area where you would multiply a balance by a fixed percentage - for example when you want to charge a management fee. If I want to take 20% of the cash balance for each project within a certain group of projects (donor-advised funds, as an example), I would create a pool of those projects and set the cash account as the account to determine the "value" of each project, and then create a fee schedule with a rate of 20%. Then my allocation, instead of distributing an entered amount, would multiply the balance of each project by 20% and create the appropriate journal entries. And I can even adjust the distribution so that I debit an expense account in each of the projects in the pool, but make the credits to my general operating project, for example.

It's pretty powerful stuff, and I suggested it because typically organizations that are charging management fees are also ones that allocate investment income and therefore are likely to have Allocation Management, but as you can see that module has tremendous potential for other applications as well. (I didn't even mention indirect cost allocations here, which is another potential use for it.)

Thanks,

Jeff