Pledge Accrual

The university receives pledges of financial support from corporations, foundations and individuals. Revenue is recognized when a pledge representing an unconditional promise to pay is received and all eligibility requirements, including time requirements, have been met. In the absence of such a promise, revenue is recognized when the gift is received. Pledges for permanent endowments do not meet eligibility requirements, as defined by Governmental Accounting Standards, and are not recorded as assets until the related payments are received.

Unconditional promises to give that are expected to be collected in future years are recorded at the present value of the estimated future cash flows. The discounts on these amounts are computed using risk-free interest rates applicable to the years in which the promises are made, commensurate with expected future payments. An allowance for uncollectible pledges receivable is also recorded based on Office of University Development's judgment of potentially uncollectible amounts, including such factors as prior collection history, type of gift and nature of fundraising.

Prior to the implementation of DART, pledges were recorded manually only at the institutional level and for those units that received stand-alone audited financial statements on an annual basis. ​The DART system now enables the recording of pledges on a monthly basis. Separate general ledger accounts are used to record the pledge, the discount to net present value and the allowance for potentially uncollectible pledges. A list of those accounts are below:

The current list of units to have their pledges booked to their unit include:

• Alumni Association (AA)
• University Musical Society (UMS)
• William Davidson Institute (WDI)
• HHC (Hospital)
• EVPMA
• Medical School
• Student Publications
• Intercollegiate Athletics
• Dearborn and Flint Campuses

These units will see their pledges booked into the appropriate fund (30000, 8XXXX, 90000) at a single Department ID within their Department Group which their unit has previously identified, with a program of "PLDGE". Other helpful points of information are as follows:

• 'PLDGE' is the new program code created in the General Ledger as a result of the change to DART. Note: This Program should only be used for the Pledge Accrual Process.
• Pledge accrual will be processed monthly and reversed the following month; both entries will post on the last day of the month. (i.e. August accrual will post 8/31/20XX and reverse on 9/30/20XX when the September accrual then books.)
• The data for the accrual will be pulled from DART based on the gift pledges recorded in DART. Accordingly, detailed information about the gifts is available via DART and development staff in each unit should be familiar with the gifts.
• Because pledges are typically paid over multiple years they are reflected in the general ledger as current and non-current. Current pledges are those expected to be received within the next twelve months.
• Keep in mind cash flow considerations when factoring pledges receivable into budgeting and forecasting.
• For more information about the calculations related to Pledge Accrual including the discount to net present value and the allowance for doubtfully collectible pledges, follow the links below.
• Pledges for permanent endowment do not meet eligibility requirements under GASB, and are not recorded as assets until the related payments are received; however, information is available in DART. For FASB units these are recorded.
• For more information about accessing data contained in DART, contact your Development Unit Liaison
• Some gifts come in as pledges (i.e. Total of $100,000 given at $20,000 a year for 5 years).
• The process takes into consideration that a portion of pledges will not be collected. Various allowance rates are used based on the size of the pledge (standard), donor and bankruptcy history (non-standard) to book an allowance for each pledge.
• The NPV (net present value) will be recorded for the pledge (i.e. could be $98,000 instead of the $100,000 pledge).
• Per GASB Accounting Guidelines, pledges to True Endowments are not recorded and pledges to Quasi-Endowments are booked in the Gift Fund (30000). FASB units (AA, UMS, & WDI) will have pledges for True Endowments booked.

Please share the following information with other Finance and Development staff in your unit who may need to know the details behind the Pledge Accrual Process.

If you have any questions, please contact FinRpts.staff@umich.edu or 734-647-3831.

Allowance for Doubtful Collection

Allowance Rates for doubtful collection are based on the following:

• Total Pledge of $500,000 or greater - 2%
• Total Pledge of $25,000 - $499,000 - 5%
• Total Pledge of $0 - $24,999 - 14%

These are based on the experience of the Office of University Development. Individual Donors may be given an override on their rate, based on knowledge of the Gift Officer working with the donor.

The calculation used in the process is done on each payment in the Pledge, so, for example, a $100,000 pledge payable over 5 years will generally have 5 payments of $20,000. Any payments due within 1 year of the calculation date each month are considered current and those due later than one year are considered non-current. Since the Pledge in this example is for $100,000, and no override is being used, an allowance rate of 8% will be used (see list of allowance rates above).

Discount Rates

Discount Rates (for NPV Calculation) are based on the Treasury Bill Rates for the Federal Government in place at the time the Pledge is received with similar maturity (based on the next period a T-Bill is available for i.e., rates are not available for 6 years, so the 7 year rate would be used) to the overall payment schedule of the Pledge. (i.e. payments due within 3 months will use the 3 month T-Bill rate and payments due a year out will use the 1 year T-Bill rate)

The first payment is due within 3 months, and thus the 3 month T-Bill rate is used for its discount. Later payments use different rates. This process reverses the entire accrual each month and recalculates it, taking into consideration payments which have been received and due dates which have moved from non-current to current. If a pledge has payments which are over 1.5 years overdue, the entire balance of the pledge is written down to zero.

Overall Calculation

Payment #1

($20,000)	The first expected payment amount of a $100,000, five year pledge
($20,000) * .05 = ($1,000)	The allowance for doubtful collection - Current amount (reduces the gift revenue)
($19,000) * .0352 = (668.80)	The discount to net present value - Current (reduces the gift revenue)
($18,331.20)	The expected payment adjusted for allowance and discounted to present value. This amount is booked to gift revenue.
$20,000	The pledge receivable current

So the GL will have entries as follows for this payment:Fund 30000, DeptID identified by your unit previously, Program PLDGE
30000/XXXXXX/PLDGE 122155 $20,000.00
30000/XXXXXX/PLDGE 122156 ($668.80)
30000/XXXXXX/PLDGE 122157 ($1,000.00)
30000/XXXXXX/PLDGE 405210 ($18,331.20)

This process is repeated for each payment and either current or non-current will be chosen based on the due date of the payment.