Financial Services Manual (FIN)

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Effective: 11/1/2009

Revised:     

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FIN 130: ASU-Affiliated Entity Policy

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Purpose

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To describe the policy for an ASU-affiliated entity, including the organizational requirements, financial and accounting controls, and various required compliances

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Sources

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Government Accounting Standards Board, Statement No. 39
University policy

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Contents

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ASU “Recognition” of Affiliated Entity

Organizational Requirements for Affiliated Entity

Financial and Accounting Controls

Insurance and Indemnification

Provision of Administrative and Other Services by ASU for the Affiliated Entity

Acceptance of Gifts by Affiliated Entity

Conflicts of Interest Policies

Reports to be Submitted by the Affiliated Entity to ASU

Additional Affiliated Entity Activities on Behalf of ASU

Miscellaneous

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Policy

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ASU “Recognition” of Affiliated Entity

Recognition by ASU

ASU must officially “recognize” the affiliated entity in order for the affiliated entity to:

  1. receive certain ASU-provided services
  2. use “Arizona State University,” “ASU,” or any other registered ASU name in the name of the affiliated entity or in carrying out the activities of the affiliated entity

    and

  3. use any ASU logo/trademark or derivative thereof.

If ASU terminates the “recognized” status of the affiliated entity, the affiliated entity will cease using any and all ASU names, logos, and trademarks, except that the affiliated entity may continue to use ASU names, logos, and trademarks for a reasonable time not less than 90 days to provide an orderly transition.

Government Accounting Standards Board Statement No. 39 (GASB 39) generally requires that ASU’s affiliated entities be treated as “component units” for financial reporting purposes.

Compliance with this Policy

In order to obtain ASU “recognized” status, the affiliated entity must formally agree to abide by this (and any future) policy regarding ASU’s relationship with affiliated entities, including, without limitation, any additional policies referred to in this policy (collectively, this “ASU-Affiliated Entity Policy”). Generally, it is the position of ASU that its affiliated entities are not subject to the Arizona Public Records Act (Arizona Revised Statutes §§ 39-101 through 39-161), the Arizona Board of Regents Policy Manual, audit by the State of Arizona Auditor General, State of Arizona conflicts of interest laws (Arizona Revised Statutes §§ 38-501 through 38-511), or any other laws, regulations or policies applicable to ASU because of its status as a State of Arizona entity.

Periodic Review of “Recognized” Status

ASU will periodically review the “recognized” status of the affiliated entity for compliance with this “ASU-Affiliated Entity Policy.” ASU will conduct the review every ten years in accordance with procedures established by ASU. ASU may terminate an affiliated entity’s “recognized” status if it determines that the affiliated entity is not complying with this “ASU-Affiliated Entity Policy” and if the affiliated entity fails to remedy such noncompliance within a reasonable time, not less than 90 days and not more than 120 days after notice from ASU.

Noncompliance with this Policy

If between periodic reviews, ASU becomes aware that the affiliated entity is not complying with this “ASU-Affiliated Entity Policy,” ASU may give notice to the affiliated entity and require that it remedy such noncompliance within a reasonable time, not less than 90 days and not more than 120 days after notice from ASU. If the affiliated entity fails to do so, ASU may terminate the “recognized” status of the affiliated entity.

Adverse Reputational or Financial Events

If an event occurs relating to the affiliated entity that in the reasonable judgment of ASU has a significant adverse reputational effect or a significant adverse financial effect on ASU, ASU may terminate the “recognized” status of the affiliated entity. Termination may be immediate or may be after a period of time as reasonably determined by ASU.

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Organizational Requirements for Affiliated Entity

Benefit ASU

In order to be officially “recognized” by ASU, the affiliated entity must hold economic resources, and conduct activities, entirely (or almost entirely) for the direct benefit of ASU. To that end, the affiliated entity must be organized and operated for the purpose of:

  1. supporting ASU

    and/or

  2. conducting activities that further the mission of ASU.
The affiliated entity must include such purposes in its articles of incorporation or other organizational document. The affiliated entity will deliver to ASU copies of its articles of incorporation (or other organizational document) and all subsequent amendments thereto and copies of its by-laws (or other governing documents) and all subsequent amendments thereto. As a condition precedent to “recognition” by ASU, the affiliated entity must submit to ASU a statement of the affiliated entity’s purposes.

Arizona Nonprofit Corporation

Unless otherwise agreed by ASU, the affiliated entity must be organized and maintained as an Arizona nonprofit corporation.

Tax-Exempt Status

Unless otherwise agreed upon by ASU, the affiliated entity must apply for, receive, and maintain both federal and state income tax-exempt status.

Dissolution of Affiliated Entity

The articles of incorporation or other organizational documents of the affiliated entity must provide that upon dissolution of the affiliated entity, all assets will be distributed to ASU or to another “recognized” affiliated entity approved by ASU for receipt of the assets.

No ASU Control of Affiliated Entity; ASU Representative(s) on Board of Affiliated Entity

ASU’s involvement in the composition of the affiliated entity’s board of directors (or other governing body) and in the selection of the affiliated entity’s executive director or chief executive officer and other senior staff:

  1. may vary from affiliated entity to affiliated entity
  2. will respect the independence of the affiliated entity
  3. will be consistent with applicable legal requirements and the mission of the affiliated entity

    and

  4. will be based on achievement of effective communication and cooperative action between ASU and the affiliated entity.

At a minimum, ASU will have at least one representative as an ex officio (either voting or nonvoting) member of the affiliated entity’s board of directors (or other governing body).

Liaison between ASU and Affiliated Entity

ASU shall designate a liaison for each affiliated entity. The liaison shall have overall responsibility for coordination between ASU and the affiliated entity. The ASU Financial Services Office shall maintain a listing of the ASU liaison for each affiliated entity. All reports that need to be submitted by an affiliated entity to ASU must be sent to the affiliated entity’s liaison and any other ASU department that has been designated to receive the report. The ASU liaison may be an ex officio member of the affiliated entity’s board of directors.


Financial and Accounting Controls

Sound Accounting and Business Practices

The affiliated entity must use sound fiscal and business practices and follow generally accepted accounting principles.

Annual CPA Audit

The affiliated entity must be audited on an annual basis by an independent CPA firm approved by ASU or a firm that meets criteria established by ASU if ASU wishes to establish such criteria. Copies of the audited financial statements, the audit report, the management letter, the responses to management letter, and such other documents as ASU may require from time to time will be provided to ASU by the affiliated entity on a timetable determined by ASU. Provided that the affiliated entity can meet the date for delivery to ASU specified below, the affiliated entity may elect to hold delivery of the management letter until management’s responses can be sent.

Prior to the annual audit, the affiliated entity will ask ASU if there are any matters that ASU would like the auditors to look into. If so, the auditors will do so and may include the matters in their management letter. ASU will cooperate with the affiliated entity’s auditors by providing any information needed for performance of the audit. Likewise, the affiliated entity will cooperate with the ASU auditors in carrying out their auditing function for ASU.

ASU is required to include certain financially related organizations in its annual audited financial report. In order for ASU to assure timely issuance of its financial report, the completed, audited financial statements from each related organization must be delivered to the ASU Financial Services Office by late August or early September of each year and by a date that is set each year by the ASU Financial Services Office. Accordingly, the affiliated entity is required to deliver its completed, audited financial statements to the ASU Financial Services Office on or before the date specified by that office for the respective year.

Annual Budget

The affiliated entity must create on a timely basis an annual budget in such detail as is appropriate for its scope of operations. The affiliated entity will deliver to ASU a copy of its final annual budget promptly after adoption by its board of directors or other governing body.

Affiliated Entity Compensation

All compensation paid by the affiliated entity to its directors and officers must be approved by its board of directors or other governing body.

Affiliated Entity—ASU Monetary Transfers

All transfers of funds between the affiliated entity and ASU must be pursuant to written policy. Except for transfers for appropriate consideration and other transfers permitted by law, there will be no transfers of funds by ASU to the affiliated entity.

ASU Employees Opening Accounts at the Affiliated Entity, Depositing Funds to the Accounts, and Making Disbursements from the Accounts

If such accounts are opened by ASU employees on behalf of ASU or an ASU unit, and ASU employees wish to make disbursements from such accounts with an affiliated entity, the affiliated entity needs to establish written procedures for the opening of any such accounts and the making of disbursements from the accounts. The procedures need to be consistent with the procedures established by the ASU Foundation and approved by the ASU Financial Services Office. Such procedures are available from the ASU Foundation or ASU Financial Services Office.

ASU and the affiliated entity will follow the policy and procedures in FIN 301–02, “Deposits—ASU-Approved, Financially Related Organizations,” when an ASU employee wishes to deposit funds to an account at the affiliated entity.


Insurance and Indemnification

Indemnification of ASU

The affiliated entity will indemnify ASU and hold ASU harmless from any damages or liabilities that ASU may incur as a result of the affiliated entity’s acts or omissions.

Insurance

The affiliated entity must obtain and maintain commercial general liability insurance, property casualty insurance, commercial/business automobile liability insurance, and directors’ and officers’ liability insurance in no less than an amount determined reasonable by the affiliated entity’s board of directors or other governing body unless ASU agrees that such insurance is not needed. Unless otherwise approved by ASU, the general liability insurance and the automobile liability insurance will be not less than $1,000,000 per occurrence and the property casualty insurance will be not less than $100,000 per occurrence. ASU will obtain and maintain general liability insurance and automobile liability insurance in an amount of at least $1,000,000 per occurrence and property casualty insurance in an amount of at least $100,000 per occurrence.


Provision of Administrative and Other Services by ASU for the Affiliated Entity

ASU Services for Affiliated Entity

In consideration of the activities of the affiliated entity on behalf and for the benefit of ASU, ASU will provide certain services for the affiliated entity as ASU determines to be reasonable and appropriate and as agreed by ASU and the affiliated entity from time to time.

Services may include use of university space, equipment, furniture, and administrative/financial services and staff in the performance of the affiliated entity’s functions and such other rights, services, or benefits that ASU may authorize.

All transactions between the affiliated entity and ASU (including, without limitation, the rights to use ASU names and logos) shall meet the normal tests for ordinary business transactions, including proper documentation (including a written agreement) and approvals.

Conflicts of Interest

ASU personnel are subject to State of Arizona conflicts of interest laws and ASU conflicts of interest policies. If an actual or potential conflict of interest involving the affiliated entity arises for an ASU employee, the ASU employee will advise his or her ASU superior of the matter and the matter will be resolved by ASU and the affiliated entity.


Acceptance of Gifts by Affiliated Entity

Restricted Gifts

If a restricted gift to the affiliated entity imposes a commitment, obligation, or responsibility on ASU, the affiliated entity will consult with ASU and will not accept the gift until ASU has approved the gift or the prospective donor withdraws the gift or withdraws the ASU commitment, obligation, or responsibility.

Coordination with ASU Foundation

In soliciting and accepting gifts, the affiliated entity will consult and coordinate with the ASU Foundation or ASU’s contractor for the operation of its Development Office.

Reports of Gifts

The affiliated entity will agree with ASU on a reasonable and appropriate arrangement for periodic reporting to ASU of gifts to the affiliated entity.

Fund Raising Solicitations

All fund-raising solicitations by the affiliated entity must clearly indicate that the affiliated entity is the intended recipient of funds. Please refer to FIN 301–02, “Deposits—ASU-Approved, Financially Related Organizations” for additional requirements.

Receipt of Gifts

The criteria for determining which gifts go to ASU and which gifts go to the affiliated entity are set forth in FIN 301–02, “Deposits—ASU-Approved, Financially Related Organizations.”


Conflicts of Interest Policies

Policies Required

The affiliated entity must have in place conflicts of interest policies covering:

  1. relationships between the affiliated entity and its directors, officers and employees

    and

  2. relationships between the affiliated entity’s directors, officers, and employees and persons doing business with the affiliated entity.
Officers and staff members of the affiliated entity must be bonded in amounts determined to be appropriate by the affiliated entity’s board of directors or other governing body.

Payments to ASU Employees

The affiliated entity may not make any payments to or for the benefit of an ASU employee unless approved in advance by ASU. The affiliated entity may reimburse an ASU employee for expenses incurred in activities on behalf of the affiliated entity. The procedures for such ASU approval, for such reimbursement and for any other matters relating to payments by the affiliated entity to an ASU employee will be in an operating agreement between ASU and the affiliated entity or in a procedural memorandum between ASU and the affiliated entity.

Noninvolvement in Decisions

An affiliated entity director, officer, or employee having a personal interest in an affiliated entity transaction may not be involved or participate in the decision as to whether the affiliated entity should enter into the transaction.

Transactions between the Affiliated Entity and Its Directors, Officers, and Employees

All transactions between the affiliated entity and its directors, officers and employees must be approved by the affiliated entity’s board of directors or other governing body.

Affiliated Entity Scholarships

No affiliated entity scholarship or fellowship award may be made to any relative of a person participating in the selection process.


Reports to be Submitted by the Affiliated Entity to ASU

The affiliated entity must file reports with ASU covering the following items:

  1. Annually, a list of the members of the affiliated entity’s board of directors or other governing body and of the officers of the affiliated entity.
  2. Annually, a copy of the affiliated entity’s Form 990, if any, except portions that the affiliated entity is permitted to withhold from public disclosure under the Internal Revenue Code and regulations thereunder (public availability of the Form 990 on the internet shall be deemed to satisfy this requirement).
  3. As specified above, copies of materials relating to the annual CPA audit of the affiliated entity, provided in any event, that the audited financial statements of the affiliated entity covering the affiliated entity’s fiscal year ending on each June 30 and accompanying audit report shall be delivered to ASU by late August or early September of each year and by a date that is set each year by the ASU Financial Services Office.
  4. Periodically, as agreed by ASU and the affiliated entity but at least annually, a reconciliation of all monetary transfers between ASU and the affiliated entity, including, without limitation, a list of all monetary transfers from ASU to the affiliated entity.
  5. Copies of the minutes of all regular and special meetings of the affiliated entity’s board of directors or other governing body after approval of the minutes by the board.
  6. Copies of amendments to the affiliated entity’s articles of incorporation, by-laws, or other organizational documents; copies of annual reports to the Arizona Corporation Commission; and copies of any other filings required to maintain the legal existence of the affiliated entity.

Additional Affiliated Entity Activities on Behalf of ASU

The affiliated entity may pay for goods or services under a contract between ASU and a third party entered into on behalf of and in the name of ASU by an ASU employee acting as an ASU employee and on which ASU is obligated. In such cases, the ASU employee must comply with procurement policies and procedures applicable to ASU.

The affiliated entity may transfer funds to ASU for use by ASU to pay for goods or services under a contract between ASU and a third party entered into on behalf of and in the name of ASU by an ASU employee acting as an ASU employee and on which ASU is obligated. In such cases, the ASU employee must comply with procurement policies and procedures applicable to ASU.

When requested and approved by ASU, the affiliated entity may enter into a contract with a third party to purchase goods and services for the benefit of ASU using the affiliated entity’s funds. Such transactions will be in the name of the affiliated entity and not ASU. The contract will be executed by a person authorized to sign on behalf of the affiliated entity. The ASU request and approval must be in writing signed by an ASU employee who is authorized to direct the disbursement of funds from an affiliated entity account. The affiliated entity will be obligated to perform the contract and be liable for a breach of the contract and for any claims arising out of the activities under the contract. The affiliated entity will enforce the obligations of the other party under the contract (for example, a failure to perform or a breach of warranty). The affiliated entity will include in the contract a provision that ASU is not a party to the contract and ASU has no obligation or liability relating to the contract.  Some examples of the type of transactions that ASU may request the affiliated entity to enter into are the following:

  1. hotel reservations and other expenses associated with national and international conferences hosted by ASU
  2. expenditures for alcohol at ASU-sponsored events
  3. special expenses associated with the promotion and advancement efforts for academic programs (e.g., receptions, dinners, trips)
  4. transactions and events associated with fund-raising activities
  5. honoraria and other arrangements for speakers

    and

  6. expenditures that ASU is not permitted to make with ASU funds (e.g., first class travel).

Miscellaneous

Affiliated Entity Courses and Seminars

The affiliated entity may not offer any course or seminar in which the name of ASU is used without first obtaining ASU’s permission.

Maintaining the Distinction between ASU and the Affiliated Entity

The affiliated entity must take appropriate steps in dealing with third parties to ensure that such parties understand whether they are dealing with ASU or the affiliated entity. This includes making clear to such parties that the affiliated entity is a separate legal entity. Some appropriate steps include, but are not limited to, separate business cards, letterhead, appropriate identification of the entity when answering the telephone, telephone directory listings, signs on buildings and on offices within buildings, filing systems, and files. A complicating factor exists when an ASU employee is carrying out activities on behalf of the affiliated entity, especially if the same employee performs the same activities on behalf of ASU.

Persons Authorized to Act for ASU and the Affiliated Entity under this Policy

The formal arrangement between ASU and the affiliated entity will designate the persons authorized to act for ASU and the affiliated entity as to the formal arrangement and this “ASU-Affiliated Entity Policy.”

Lobbying and Political Activities

The affiliated entity may not engage in lobbying or any other political activity, except to the extent agreed by ASU. In any event, all lobbying and political activity must be in compliance with applicable law.

No Agency, Partnership, or Joint Venture

The affiliated entity is not the agent of ASU and shall not represent or imply that it operates under an agency, partnership, or joint venture relationship with ASU. Although ASU has approved the nonprofit corporation as an affiliated entity and the purposes of the affiliated entity, and although ASU may pay the affiliated entity for services or make ASU goods or services available on an in-kind basis, the affiliated entity is not controlled by ASU and the affiliated entity has no authority to act for or to obligate ASU. All contracts and other relationships with third parties will be solely in the name of the affiliated entity.

Nonexclusivity

Nothing in this “ASU-Affiliated Entity Policy” restricts the authority of ASU to enter into affiliation arrangements with outside organizations that are not considered “component units” under Government Accounting Standards Board Statement No. 39, on such terms as ASU deems appropriate.

Diversity

ASU strongly encourages diversity both to represent the broader community constituents as well as diverse subject matter expertise among the board members of the affiliated entity’s board of directors or other governing body.


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