RSS Feed

Your guide to expenses and PAFs

By Amanda Martin

 

Some AEGN members have asked us whether they can use their foundation funds for AEGN-related expenses like paying for membership, attending our conferences or field trips. Are you wondering the same?

 

I asked a few people with both professional and practical experience in this area what they think about this and here’s what I found out.

 

David Ward from Australian Philanthropic Services emphasised that PAFs cannot provide anything that might be construed as personal benefit to Founders. He directed me to the PAF Guidelines point 43, under “fees and expenses” where it says that:

 

“The trustee may apply income or capital of a private ancillary fund:

  • to reimburse the trustee for reasonable expenses incurred on behalf of the fund; and
  • to pay fair and reasonable remuneration for the trustee’s services in administering the fund.” (ref? – see above, a link?)

 

David says that “It is therefore clear that as long as the expense is “reasonable”, it can be reimbursed from a PAF”. David says that “reasonable” has two components – scope and size.

 

David explained that education of Directors to enable the compliant, efficient and effective operation of a PAF and due diligence for grantmaking are within the scope of “reasonable” PAF activity.

 

This would include:

  • Membership of an organisation or attending a conference that has grant making due diligence at its core.
  • Site visits or field trips might qualify but extra care is needed to ensure the focus is very clearly on due diligence rather than any personal benefit to Directors.

 

The second component is the size of the activity and expense relative to the project and the size of the overall PAF. David explained that this means that attending the AEGN conference for a fee of $295 or paying for membership at a cost of $500 would be generally a reasonable expense for most PAFs giving away $25,000 a year with a strong environmental project focus.

 

A rule of thumb David points to is that for most Foundations the total PAF expenses (ie including administration and other expenses) should be no more than 10-15% of grants made (give or take a bit depending on the size of the foundation).”

 

David also suggests producing a report for other directors on conferences and site visits/field trips, to record the knowledge gained and to share the learnings.

 

The key point remains, of course, that there must be no material benefit to any Director.

 

I also asked AEGN member John McKinnon (McKinnon Family Foundation) about how he approaches this issue.

 

John said that he does use a small percentage of his PAF funds to develop the capacity and effective giving of his foundation. John says, “If you have any doubts about this, check with your PAF’s Independent Director and your auditor. If you ask your auditor if you can go on a field trip or conference to help develop the effectiveness of your giving, an auditor may ask more questions, just to be safe.  But if you frame your question in line with wanting to educate your PAF directors, ensure due diligence for your grantmaking etc your auditor should be fine with this approach.  Furthermore, auditors typically only look at the total expenses, not each individual expense item.”

 

Indeed John pointed out, “We all have a responsibility to be make our giving as effective as possible and there is no better way than to join the AEGN conference or come on a field trip!”

 

I also asked Trevor Thomas from Ethinvest who is the trustee on four foundations – John T Reid Charitable Trusts, McKinnon Family Foundation, Ross Knowles Foundation and the Community Impact Foundation.

 

Trevor explains, “This issue has come up on all of the foundations I sit on. I’m very comfortable with prudent use of PAF funds to be spent on professional development. Of course this must be in line with the aims and objectives of the fund and be a reasonable amount but $500 for AEGN membership or $300 to attend a conference is fine by me.”

 

Conclusion

Please note, these statements don’t constitute formal advice but I hope you can use them to guide how you might fund membership and other AEGN activities applying due diligence according to the profile of your PAF and general guidelines.