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Organizing for Effective Stewardship

Collaboration and teamwork are key ingredients for managing donated funds.
University Business, Nov 2004

Financial aid officers serve many masters. They must monitor institutional compliance with federal and state regulations governing financial aid. They must ensure that institutional resources are being spent as efficiently and effectively as possible. They must be responsive to the concerns of families, but at the same time balance their needs against the needs of the institution. And finally, they must comply with the wishes of alumni and friends who have donated money for scholarships and grants. Although in some sense all of these activities can be classified as stewardship, it is the latter that traditionally comes to mind when that term is used.

In order for stewardship of donated funds to be managed effectively, it is critical that financial aid, finance, and development officers work closely together. They need to understand each other's goals, timelines, and challenges and agree on an approach that can effectively serve all parties. Without such an understanding, institutions run the risk of raising funds for financial aid that cannot be spent efficiently; disappointing donors; frustrating students; and significantly adding to the workload of all the offices involved.

For example, development officers are sometimes unaware of all that is involved in identifying eligible students. Stewarding some donated funds can be far more time consuming than the dollars involved would justify. One favorite example is a fund that granted a $1,000 scholarship annually to one student. This fund not only required that a student be of Italian heritage (a category not captured in the student system), but also required an application and an essay. Consequently, the financial aid office had to first identify and send applications to potentially eligible recipients, then collect the completed applications and send them to the donor. Once selected, the recipient not only had to write a thank you letter, but also had to attend a formal ball that served as an annual fundraiser for the scholarship. The cost of the required attire could likely exceed the award amount!

While this is an extreme example, it is very common for financial aid officers to invest considerable time in managing literally hundreds of endowed funds and annual gifts with specific awarding restrictions. Often these requirements are not captured in the institution's database, and so it is not a simple matter to identify eligible students. In some cases, the requirements are so restrictive that it is impossible to spend the funds in a given year. For example, we are aware of one institution that has an endowed scholarship for students who are members of a particular church congregation. Although the institution advertises every year at that church, many years can pass when no eligible students are enrolled. Consequently, it is critical that financial aid officers be given an opportunity to review donor criteria before an agreement with a potential donor is signed.

Whenever offices must rely on
each other to provide information
or to move a process to the next
step, natural tensions emerge.

Timing can also be a significant issue. In order to use the funds most effectively from an institutional perspective, donated funds would ideally be awarded to students who would have otherwise been eligible for unfunded student aid. However, award letters are typically sent in early spring, often before the funds available to award have been determined by the finance office. Moreover, because the awarding time frame is typically compressed, with the bulk of awards being done in a one or two-month period, it is challenging to find the time to identify eligible students and build the donated funds into the award letter. For new students this challenge is exacerbated by the fact that some of those offered donated funds may not enroll. Consequently, many aid officers simply used endowed funds and annual gifts as add-ons to a student's regular package, awarding those funds in the fall once students are on campus. Endowment officers like this, because the student clearly sees the benefit to them, and is more willing to write a thank you letter. For institutions with significant amounts of endowed funding, however, this often means that net tuition revenues are not being maximized. A compromise position is to initially award institutional scholarships or grants under a generic name, noting in the original letter that these funds are made available through the generosity of donors and that assignments to specific donor names will be made later. Even with this upfront explanation, however, students can be confused when they see the exchange being made, and wonder why they can't keep both awards.

Then there is the question of how to best make donor and recipient feel connected. Endowment officers often feel that the more contact the better. However, there are some cautionary steps to take as these connections are made. For example, some institutions hold annual events that bring together donors and students. This is a great opportunity but the institution has to do its homework to be sure that such face-to-face events result in the expected chemistry--surprises are usually not good for donor or institution. Other institutions require that recipients write thank-you letters, but again, there are cautions to consider. Most institutions now have students send these letters to the development office, rather than directly to the donor for several reasons. First, it allows a system for ensuring that the letters are sent. Second, it provides an opportunity to check the quality of the letter. Third, it enables the institution to protect its donors from unwanted contacts. Still other institutions simply provide the donor with some basic information about the student and the value of the award granted. Again a caution--FERPA rules limit how much information can be provided without a specific release from the student.

Whatever approach your institution takes, be sure that the roles of all offices involved in these processes are clearly understood and that there are good systems in place to extract the necessary information and follow-up when necessary. Whenever offices must rely on each other to provide information or to move a process to the next step, natural tensions emerge. The endowed scholarship processes offer multiple opportunities for such tensions. As was mentioned earlier, the financial aid office must rely on the development office to limit the restrictions on endowed scholarship funds in order to ensure that the funds can be efficiently spent, but at the same time development wants to match the donors interests closely in order to encourage them to make the gift. The development office must rely on financial aid to provide timely and accurate information about fund recipients in order to efficiently fulfill stewardship obligations, but at the same time financial aid must be adjusted throughout the year as fund budgets and students' circumstances, statuses, and awards from other departments change. Financial aid must rely on information from admissions, athletics, and academic departments regarding merit and talent award offers in order to ensure institutional compliance with federal and state regulations regarding over awards and the packaging of funds; however, the timing of departmental awarding processes does not always match well with the need-based awarding cycle. The finance area must rely on financial aid to spend restricted funds rather than unfunded monies whenever possible, thus limiting unfunded expenditures, but matching students to specific endowed funds is time consuming and has the potential to delay the timely delivery of aid packages to students.

Tensions can be exacerbated when there is little cross-office understanding of all the steps involved in establishing, awarding, and stewarding endowed scholarships. Documenting the processes and sharing that documentation with all involved can help reduce the tensions.

Tensions can also be aggravated when multiple databases are involved in endowed scholarship processes. It is not uncommon to have at least four different systems involved: the development system often houses data on donors and fund criteria; the finance system houses information on the funds themselves; the student system contains demographic and academic information related to eligibility; academic departments may keep separate records of the funds they control; and if a separate foundation is involved, keeping its own records--watch out! The more data can be passed between such systems, or used to update a system that all can share and use, the lower the risk of confusion about which funds are available; what the criteria are; who received the award; etc.

Finally, it is important to have all of the appropriate parties involved in policy decisions relating to donated funds. For example, some institutions still allow endowed scholarships to be established at a fairly low threshold. An endowed scholarship of $10,000, however, at a spending rate of 5 percent, will only generate a $500 scholarship, not a very significant amount, given today's prices. Other institutions lack universally understood priorities for institutional aid funds that would guide both the use of current endowed funds as well as the development of new funds. Some academic departments may use their funds to reward continuing students while others use the endowed funds they control to support recruitment efforts. Meanwhile, the budget office may set a priority on using endowed monies to replace unfunded aid. While all of these are valid goals, the lack of clarity on institutional priorities can result in ongoing tensions between departments regarding the use of funds. Having a teammembers with multiple perspectives can help an institution arrive at policies that represent the best possible balance between donor wishes, departmental goals, and institutional needs.

In short, donated funds, without interoffice leadership, management, collaboration, and communication, can be as much a curse as a blessing. Working together can ensure that institutions obtain the maximum benefit in the most efficient manner.

Kathy Kurz and Jim Scannell are partners in the enrollment management consulting firm, Scannell & Kurz, Inc. (

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