IX - 2.00 - POLICY ON AFFILIATED FOUNDATIONS (Approved by the Board of Regents on March 1, 1989; amended on November 29, 1990 and amended on October 1,1999) The Board of Regents of the University System of Maryland recognizes the importance of voluntary private support and encourages grants and contributions for the benefit of the University System, its constituent institutions and components (hereinafter collectively referred to as "the System") or for any or all of the educational and support activities that are operated by the System. Accordingly, the Board of Regents wishes to encourage a broad base of support from many sources, particularly increased levels of voluntary support. To achieve this goal, the System will cooperate in every way possible with the work of affiliated foundations. The Board of Regents may recognize as an affiliated foundation an organization that is created and operated in support of the interests of the University System of Maryland or one of its constituent institutions or components, and has as its purpose one or more of the following: 1. To facilitate fund-raising programs and contributions from private sources to foster and promote the general welfare of the System or one of its components; 2. To manage and invest private gifts and/or property for the benefit of the System or one of its components; or 3. To promote, sponsor, and implement educational, scientific, research, charitable or cultural activities for the benefit of the System or one of its components and to engage in activities to enhance further the educational, research or service mission of the System. A subsidiary legal entity formed or owned by an affiliated foundation may use the name or facilities of the System (including any of its institutions or components) only if it is separately recognized by the Board of Regents pursuant to this policy. Each organization recognized as an affiliated foundation shall comply with the policies listed below.* Pursuant to its statutory responsibilities, the Board of Regents may revoke its recognition of a foundation that fails to comply with these policies, in which case the foundation shall no longer be entitled to use the name or facilities of the System. Establishing a Foundation 1. A foundation may be affiliated with one of the following entities: the University System of Maryland, one of the 13 institutions of the System, or such other component of the System as the Board of Regents may determine. The following official shall be the System official responsible for relations with foundations affiliated with his or her institution; including monitoring compliance with System policies and agreements between the foundation and the System: (a) The University System of Maryland -- the Chancellor (b) The 13 institutions and any component of the institutions - the appropriate President unless otherwise approved by the Board of Regents. The officials listed above shall hereinafter be referred to as the "Responsible Official" with respect to any foundations affiliated with his or her institution or component. 2. In accordance with Senate Bill 296, Laws of Maryland, 1999, the President of a constituent institution may establish campus-based foundations without the approval of the Board of Regents. All foundations shall operate in accordance with policies adopted from time to time by the Board of Regents in consultation with the Presidents of the institutions and approved for form and legal sufficiency by the Office of the Attorney General. 3. A President shall give the Chancellor timely notification of any new affiliation with a foundation. Such notice shall include the name of the foundation, its mission statement, its initial Board members, and copies of its Articles of Incorporation and corporate bylaws. Any issue about the propriety or right to a foundation's name shall be resolved by the Board of Regents. The Board of Regents shall be notified of any change in the purposes or scope of activities of an affiliated foundation occurring after its recognition by the Board. 4. Each foundation shall enter into an annual written agreement with the System or with the component or institution with which the foundation is affiliated. The written agreement shall establish the relationship between the parties, describe the purpose of the foundation, and acknowledge the applicability of these policies, which shall be incorporated by reference therein. Written agreements must be signed by the Responsible Official and by the foundation officer authorized to sign such agreements and shall be approved by the Chancellor or the Chancellor's designee to ensure consistency with all applicable Regents' policies. 5. The written agreement between the institution and the foundation shall condition the organization's use of the institution's name or any other name, emblem, or mark to which the University has any legal right, upon the foundation's continuing compliance with the agreement and all System policies on affiliated foundations. 6. Ensuring foundation compliance with Regents' policies and reasonably prudent business practices shall be included in the President's and, if different than the President, the Responsible Official's annual evaluation. Structure and Independence 7. Each foundation shall operate as a Maryland not for profit non-stock corporation that is legally separate from the System and is recognized as a 501 (c) (3) public charity by the Internal Revenue Service. The management and control of a foundation shall rest with a board of directors. Officers and staff members of a foundation and system staff assigned to carry out functions of a foundation shall be bonded and liability insurance for directors and officers shall be obtained by the foundation, in amounts to be determined by the board of directors. 8. Presidents may only be ex-officio and non-voting members of the foundation's board of directors. System employees may serve as voting members of the board of directors of any affiliated foundation, provided that System employees do not constitute more than 20% of the foundation's board of directors. 9. With the approval of the Responsible Official, an officer or employee of the System may also serve as an officer or employee of an affiliated foundation. An employee or officer of a foundation who is also an employee or officer of the System may not represent both parties in any negotiation between the foundation and the System. a. The executive director and support staff of an affiliated foundation should be paid employees of the foundation and not of the institution. Support staff are defined to be those individuals who provide direct services to the foundation, such as clerks, secretaries, and accountants and does not include fundraisers. Should this not be practical (e.g. an institution employee provides only part- time services to the foundation), the foundation shall make a direct reimbursement to the institution for its share of the employee's salaries and fringe benefits. The foundation shall reimburse the institution for at least 33% of these costs beginning July 1, 1999, 66% beginning July 1, 2000 and 100% beginning July 1, 2001. If a foundation requires a 100% level of effort from an individual, that individual shall be a paid employee of the foundation and not of the institution. If an institution employee currently provides that level of effort and would lose benefits if transferred to the foundation, then the foundation shall hire and pay for that support when the current employee no longer provides that support. b. Alternatively, institution staff may be assigned to carry out functions of an affiliated foundation, including serving as administrative officers and support staff of the foundation without reimbursement to the institution. In any such case, the University resources so used shall be quantified, included in the written agreements, and measured against funds transferred from the foundation to the institution. Also, the written agreement shall require that the foundation's funds may be expended only by transfer to appropriate institution accounts from which they may be paid out only in accordance with donor's wishes and applicable system and institutional policies and procedures. Any exception to that requirement must be approved in advance by a member of the foundation's board of directors who shall not be a university employee and shall be reported annually to the Chancellor. 10. A foundation may use non-staff resources (e.g. space, equipment, facilities) of its affiliated institution without direct, dollar for dollar reimbursement to the institution. The resources shall be quantified, included in an annual agreement, and measured against funds transferred from the foundation to the institution, or paid by the foundation on behalf of the institution. Activities 11. Foundations may not engage in activities that conflict with federal or state laws, rules and regulations, System policies, or the role and mission of the System. Foundations shall comply with applicable Internal Revenue Code provisions and regulations and all other applicable policies and guidelines. 12. All activities of affiliated foundations shall be in conformance with Section 501 (c) (3) of the United States Code. In particular, "No substantial part of the activities (of an affiliated foundation shall be) carrying on propaganda, or otherwise attempting to influence legislation." Furthermore, no affiliated foundation shall directly or indirectly "participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office." In particular, an affiliated foundation may not make any contribution, whether in money or in kind, to any candidate for public office. The purchase of tickets to an event intended to raise money for use by a candidate in a political campaign is a violation of this policy. 13. Except with the express, prior approval of the Responsible Official, no foundation shall conduct educational or research activities (including administration of a research grant or contract) that would be considered within the normal scope of the mission of the System or any of its components. If approved, the Responsible Official must justify in a letter to the Chancellor the reasons for a federal or state contract or grant to be managed by the foundations. 14. Pursuant to State law, a foundation may not offer an educational program (i.e., an organized course of study that leads to the award of a certificate, diploma or degree) unless it has obtained a certificate of approval from the Maryland Higher Education Commission to operate as an institution of postsecondary education. A foundation shall not apply for a certificate of approval without first obtaining written approval from the Responsible Official. Business Operations 15. All correspondence, solicitations, activities, and advertisements on behalf of a foundation shall use the name of the foundation and shall be clearly identified as an activity of that foundation to ensure that the public is aware that the activities undertaken by the foundation are separate and distinct from those of the System. The letterhead of a foundation shall carry the complete legal name of the foundation (e.g., The University of Maryland Foundation, Inc.). Trademarks, service marks, logos, seals, or the name of the System or any of its constituent institutions or components may be used by a foundation only with the prior written approval of the Responsible Official. 16. In all negotiations and transactions with third parties, for fund raising, enterprise activities and all other activities, foundation officers and employees shall take care to ensure that all parties involved are aware that the foundation is an independently established and separately operated legal entity from the System. Obligations of affiliated foundations shall not be obligations of the System or the State of Maryland. 17. Foundation funds shall be kept separate from System funds. System trust funds shall not be transferred to foundations for any purpose except, when appropriate, by action of the Board of Regents after approval by the Attorney General's Office. Funds or gifts payable to the Regents, the University System of Maryland, one of its constituent institutions, or to any other system component shall not be deposited with a foundation. 18. Acceptance of gifts by the System or a foundation is subject to applicable University System of Maryland policies on gifts. Fund-raising campaigns and solicitations of major gifts for the benefit of the System by foundation personnel shall be approved in advance by appropriate System officials and should be compatible with the plans and needs of the System. Before accepting contributions or grants for restricted or designated purposes that may require administration or direct expenditure by a constituent institution or other component of the System, a foundation must obtain the prior approval of the Responsible Official. The foundation shall assure that each gift shall be used in accordance with the legally enforceable terms and conditions attached to such gift. 19. Financial activities of a foundation shall be administered in accordance with prudent business practices. Each foundation's board of directors shall adopt an expense authorization and reporting process. The process shall define the dollar threshold and nature of expenses requiring approval of a member of the board of directors, who shall not be a USM employee, and it shall define the type and frequency of expense reporting to the board of directors. 20. Should an affiliated foundation's investments underperform appropriate market indices for three consecutive years, the Regents may request from the foundation an independent review of its investment strategies along with plans for corrective action. 21. All USM affiliated foundations shall be assessed an annual overhead charge that shall be determined by the Board of Regents in consultation with the Presidents. The charge shall be transferred to the University of Maryland Foundation, Inc. (UMF) to cover certain costs incurred by UMF on behalf of the Board of Regents and the Chancellor. Audits and Reports 22. Each foundation shall be audited annually by an independent certified public accountant who is not a director or officer of the foundation and who is approved by the Responsible Official. Each foundation should conduct its fiscal operations to conform to the University System's fiscal year. Each foundation shall prepare its annual financial statements in accordance with generally accepted accounting principles. The independent audit shall be a full scope review, performed in accordance with generally accepted auditing standards. As part of the audit, the auditor shall verify a summary annual report of transfers of funds made to the System. Additionally, each foundation shall have a management letter prepared annually by its independent certified public accountant and submitted to the foundation's board of directors. 23 To ensure compliance with Paragraphs 11 and 12 of this policy, each year each affiliated foundation shall provide a separate audit of all unrestricted funds available to the Chancellor and/or the President(s). 24 Foundations shall make use of an internal auditor to strengthen their ongoing commitment to continuously improve internal operations and processes Foundation internal auditors shall possess sufficient experience and training to be able to carry out their duties in a professional manner. They must adhere to the Standards for Internal Audit published by the Institute for Internal Auditors, Inc. 25. From time to time, the directors and chief officers of each foundation should review their responsibilities and the business and operational risks facing the foundation. The Director of Internal Audit of the USM shall coordinate meetings with the presidents, foundation boards, directors and principal managers of each foundation to discuss these risks and the potential impact on the foundation. These meetings may also take place at the request of the Chancellor, president, or the foundations' board of directors, but shall occur at least every three years. Such reviews shall include such topics as engagement letters from outside auditors, review of tax laws as they impact foundations, best business practices, internal control structures, and the experiences of similar foundations throughout the country. 26. A foundation shall permit the Responsible Official or his or her designee to inspect, at reasonable times, the following documents: the foundation's books and records; its most recent federal and state tax returns; and a list of employees, consultants, and legal counsel for the fiscal year. 27. Within 120 days after the close of the System's fiscal year, each foundation shall provide the Responsible Official with copies of the following: · annual financial audit report; · annual audit report of transfers made to the system; · annual audit report of unrestricted funds available to the Chancellor and/or the President(s); · a list of foundation officers and directors; · a list of System employees who received compensation or other payments from the foundation during the fiscal year and the amount of that compensation or payment; · a list of all state and federal contracts and grants managed by the foundation; and · an annual report of the foundation's major activities. 28. Should the foundation not submit the required reports within the required time period, the Chancellor and the responsible official shall issue a joint warning to the foundation. Should the foundation not demonstrate satisfactory progress toward immediate compliance, the Board of Regents may revoke its affiliated status or take other appropriate action. 29. The Chancellor may request from the Responsible Official information on affiliated foundations according to the schedule and format specified by the Chancellor. 30. At the request of the Chancellor or the Chairperson of the Board of Regents, the foundation shall permit the internal auditors of the Board of Regents access to all books and records of the foundation. 31. The Chancellor shall annually send any revised Regents' policies, foundation audits and other reports required by the Board of Regents in this policy to the Legislative Reference Office within 180 days of the end of the USM fiscal year. 32. The Board of Regents shall issue an annual report to the Legislative Joint Audit Committee regarding the operations of the affiliated foundations. The report shall be available no later than 180 days after the end of the System's fiscal year. · Note: Clinical practice plans and alumni associations are not covered by this policy, but shall be governed by a separate policy. The following provisions of this policy do not apply to the University Research Corporation International: 1) second sentence of #8; 2) #9a and b; and 3) #13.