A Performance Audit
An Audit Report on Endowments at Selected Higher Education Institutions
August 2021
Summary Analysis
The higher education institutions audited had policies for overall endowment management that incorporated principles consistent with the Uniform Prudent Management of Institutional Funds Act (Texas Property Code, Chapter 163) and Texas Education Code, Chapter 51.
University of Houston and Midwestern State University, complied with their endowment management and investment policies, including selecting investment managers, quarterly review of investment performance, and income payout policies. Additionally, University of Houston investment managers stayed within their targeted asset allocations. Midwestern State University’s investment manager exceeded targeted allocations for three of five quarters during the scope of the audit.
University of North Texas at Dallas reviewed quarterly investment performance; however, that review did not include performance measures, benchmarks, or changes in market values. Additionally, the institution had limited processes in place to verify the information that the foundation provided.
The three institutions had documentation of donor agreements or equivalent support to record donor intent. University of Houston and Midwestern State University used endowment funds in accordance with donor restrictions. University of North Texas at Dallas did not monitor available balances for expendable funds and did not expend those funds from September 2019 through January 2021.
The University implemented and complied with policies that are consistent with state requirements. The policies focused on long-term growth, paying out a prudent portion of income, and using outside investment managers to mange endowment assets.
The University recorded donor intent within agreements and spent endowment income in accordance with donor restrictions.
The University implemented policies that are consistent with state requirements. The policies focus on long-term growth, balancing the need to make spending distributions with preserving the purchasing power of the fund, and employing outside investment consultants to manage endowment funds. The University complied with a majority of these policies.
The University recorded donor intent within agreements and spent endowment income in accordance with donor restrictions.
The University did not have adequate processes and controls in place to manage its endowment funds in compliance with applicable requirements. Specifically:
- The University had limited processes in place to verify the information that the entity responsible for managing its investments, the University of North Texas Foundation, Inc. provided.
- Quarterly reviews of University investments did not adequately address performance measures, benchmarks, or changes in market value.
- The University did not have a formal investment management agreement with the Foundation until December 1, 2020.
The University did not use earned income on donor intent from September 2019 through January 2021 during the scope of the audit and was not adequately accounting for income distributed as expendable funds.
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