Developing research foundations at predominantly undergraduate institutions.

Introduction

This article provides an introduction and overview of University Connected Research Foundations (UCRF) and developing a research foundation at Predominantly Undergraduate Institutions (PUIs). This article has been stimulated by the increase of research foundation start-ups at PUIs over the last five years, requests for information, and PUIs observing at University Connected Research Foundations annual meetings. The UCRF is a private organization serving the university connected research community.

A favorite saying around the UCRF table is: "If you've seen one research foundation you've seen one research foundation." They have been developed because of institutional needs to provide flexibility for research. The first university research foundation was established in 1925 at the University of Wisconsin. It began as a receptacle for faculty donated patents and gifts that state law prohibited the university from accepting. Purdue's research foundation was incorporated in 1930 and was devoted to university-industry relations. Five more followed spanning the country from California State University at Fresno, to Indiana University, to Ohio State University. In 1951 the Research Foundation of the State of New York was founded and today serves over thirty campuses in the system. It is the largest research foundation with annual awards nearing one billion and many services (Meadows, 1977).

These earliest and more recent foundations were separately incorporated for a number of practical reasons. The upswing in research in the late 1950s created the need to avoid restrictive state procedures, provide fiscal flexibility, facilitate contracting, encourage entrepreneurship, promote intellectual property and commercialization, and provide for accountability. For example, The University of Kansas Center for Research, Inc. was founded in 1961 to provide flexible research administration for engineering research grants. This remained the model until July 1, 1997 when the Center expanded into all sponsored projects. (Gabriel, Garton, Scuto, Artz, & Myers, 2004). Today these trends continue to prevail. Some foundations are full-service and some provide specified services.

Purpose and Structure

How do you know when the time is right to start thinking about developing a research foundation? This question is answered differently from institution to institution, but some common indicators can be listed. First, officials at PUIs must realize that a research foundation based on undergraduate and some graduate programs will be different from a foundation supporting institutions that have hard science/engineering schools. The rapid growth of external funding may cause thinking about providing added value to benefit faculty. Second, this reality may lead to the need to create a mechanism to spawn financial flexibility. This variable can increase incentives for grant and intellectual property opportunities, and instill faculty confidence, increased morale, and visibility for research. Third, the foundation can provide customized services for business and industry contracts.

Research foundations arise on campuses that are undergoing transformation of the strategic plan to become a nationally recognized institution of choice. A rule of thumb might be that external awards have risen to ten million dollars and there is an institutional desire to better serve the public good through its faculty, students and the community as part of the change. Another indicator stems from the institutional ambition to transfer technologies. The foundation can provide flexible finances to increase awards and for technology transfer. It can provide a litigation shield for the supported university. In a word, the foundation can be more responsive to both internal and external constituencies.

Whatever the reasons, a research foundation should not be developed as a "quick fix" to onerous statutes or internal obstacles. It must be part of a broader vision of the institutional strategic plan because there could not be a foundation unless there was first a university that wanted this added structure. For that reason, there must be a "top down" approach from the president, provost, CFO, deans, department heads, and research center directors. Time must be spent answering questions and concerns of various campus groups. Once buy in is achieved, the leaders need to develop a mission statement to describe how the foundation supports the university's strategic plan. It should be brief and focused. An example is: "the foundation exists to stimulate and accept the assignment of grants, and to accept and manage the resultant intellectual property, within the broad institutional mission."

Services

Benefits to researchers need to be considered in defining the services of the foundation. In addition to providing "real time" services, the foundation can offer customized contract terms and conditions to provide flexibility with business and industry. Equity interest in startup companies can be accepted. Low risk contracts can be engaged. The research foundation can create purchasing and risk management options that the university might be reluctant to pursue. Moreover, the research foundation earns interest on grants from non-federal sponsors and on indirect cost recovery dollars. The foundation can make proper payment of costs that the university considers "unallowable." For example, if an investigator with private contracts needs operating costs, the foundation can pay the invoices from the researcher's account. Moreover, deans and research or other sponsored projects directors like the interest earned on awards and non-federal indirect costs in the foundation.

Services should be planned around long-term benefits of the research foundation. Typical considerations concern whether or not leaders desire a structure to facilitate leasing or purchasing facilities for additional research space. For example, the San Diego State Research Foundation serves the university by purchasing real estate to facilitate campus expansion. Non-university employment service is sometimes a contributing purpose. Do you want your research foundation to facilitate hiring post-doctoral researchers and faculty and to be responsible for the payroll of principal investigators and their grant staffs?

Models

Based on the services the foundation will perform for the university, four university connected research foundation models exist whether the institution is public or private: the full-service stand-alone foundation with its own indirect cost rate, the foundation centered in the Office of Sponsored Programs (OSP) that uses the university indirect rate as the foundation rate, the foundation that performs specific services outside of the OSP such as intellectual property or contracts, and the State University of New York model where a single foundation serves all of the state institutions in the system.

The first model is the most separate from the institution and the most expensive to start up. The foundation has its own pre- and post-award units, and depending on its volume, a technology transfer office, purchasing unit, human resources, payroll and all of the functions of the parent institution.

The second model is currently being adopted as the structure for developing research foundations at some PUIs. This is the research foundation combined with the Office of Sponsored Programs (OSP). Because of the smaller or mid-sized dollar volume (up to $80,000,000 perhaps), all of the functions of stand-alone foundations are within the OSP, such as pre- and post-award services, intellectual property, compliance, and internal grant programs. Other services may be provided by the university such as grants accounting, payroll, insurance, human resources, use of mainframe computing, email, and purchasing. Staff members remain university employees to continue participating in the benefits plan. If the institution is public, the board of director's liability can be covered under the university's directors' and officers' policy. Research centers often purchase their own insurance under this model. This is probably the most inexpensive start up.

Still another model falls under the category of "Other." These foundations have very specific roles to play such as managing technology licensing, legal affairs, source accounting, or sponsor invoicing.

What influences the choice of a model? First the foundation can offer an alternative avenue to onerous state laws and regulations. For instance, some states require review of contracts, which is time consuming and burdens relations with business and industry. Second, the nature of the research program should be considered. PUIs will probably be more weighted to applied rather than pure research. The foundation could house such programs to provide for flexible spending and collect interest on indirect costs and awards in addition to costs collected and invoices paid out on typical federal, state, local, or private grants and contracts. Finally, the objectives of the university help determine the model. If the university wants to rapidly increase its research base, it will probably want an arms length foundation for maximum flexibility.

Despite the chosen model, many foundations offer generic services in addition to the "bread and butter" sponsored programs services. Some of the more common services focus on protection, finances, risk management and contracting. Moreover, the research foundation can serve as a litigation shield. This role enables the foundation to assume litigation responsibilities, performance liability, joint ventures, and equity interests. In finance, the foundation can maintain fluid funds by bridging fiscal years where the university could not, provide a financial float with interest and investment earnings, and assume bad debts. For example, the foundation can promote fluidity for incentive funds derived from indirect costs by not having payouts interrupted by the end of the year university audit where many accounts are frozen for a period of months over the summer and fall for audit.

On the other hand, bureaucratic burdens can emerge in the foundation to challenge its mission of providing flexibility and efficiency through a "one stop shop." For example, if risk management becomes a responsibility, the foundation must have specialized personnel to negotiate insurance to cover the risks inherent in research. The same characteristic applies to the human resources arm of a foundation. Who is to say that the HR function could not become as bound up in red tape as the university HR program? Finally, the foundation can facilitate contracting by issuing bids without going through sometimes time-consuming university or even state bid systems. But again, foundation leaders must be aware of how efficiencies can be maintained as these services evolve.

Making the Research Foundation Official

No matter how independent the university wants its research foundation, the university must complete charter documents known as the Articles of Incorporation, the Bylaws, and the Management Plan between the university and the foundation. The model adopted will be reflected in these base documents. (Western Kentucky University Research Foundation, Inc., n.d.).

There are three primary steps to official recognition. They are institutional governing board approval, state approval, and IRS approval. First is approval by the institutional governing board. Perhaps the most difficult hurdle to surmount, this step must have the leadership of the senior administration, deans, department heads and faculty leaders. The president must keep the governing board informed as the purposes and structure are developed. These reports must stress sponsored programs development and the added values the foundation can bring to students and faculty members. Universities often hire a consultant who is skilled in the development and executive administration of research foundations to explain how the foundation can help the strategic plan flow through the services discussed above and help to frame the key documents.

The second step is to obtain state recognition. Obviously, this step will vary widely between states. Planners need to become familiar with state statutes on corporations. Then they need to draft the Articles of Incorporation and the Bylaws. As a minimum the Articles of Incorporation must have the Secretary of State's approval. The Articles of Incorporation can be three to four pages to provide the name of the foundation based on state laws. For example, most research foundations are 501(c)(3) nonprofits designated as such by the Internal Revenue Service (IRS). The Articles need to conform to this IRS designation that includes support for education, fund raising and other charitable purposes for the public good. The Articles need to discuss that the foundation will manage funds, oversee finances and so forth. The Articles specify the initial board of directors and exemption requirements. These requirements are that the foundation is nonprofit, that it will not influence legislation and that it will heed IRS guidelines. The Articles also state that directors are exempt from prosecution except in cases of financial conflict of interest. The Articles must be signed and dated by a senior administrator or the executive director of the foundation. Once the Articles are signed, they are the base document for the entire enterprise. The Articles are then submitted to the Secretary of State along with that office's application form. Many states have these forms on line. There will probably be a small filing fee. In Kentucky, once the state application is approved the Secretary of State's Office will send the research foundation stamped Articles of Incorporation.

The bylaws delineate the board's composition that is critically important to the foundation's mission and how closely affiliated the supported university wants its research foundation to be. There are questions with significant political overtones and control matters to consider. Will there be a majority of university directors or a majority of community-at-large directors? Will the executive officers be all from the university or partly from the university and partly from the community? Will the chairperson (or president) of the board and the other executive officers be from the university or the community?

When there is more outreach to business and industry, several community officials will serve as executive officers and also a number of them will serve on the board. This board composition implies a largely independent foundation. If this is the case, particularly clear relations must be written between the senior leadership of the university and the board's leadership, especially if a community director presides.

In addition, the bylaws must define terms of office, committee structure, meetings, quorums, and how to amend, duties of officers, termination of directors, how vacancies are filled, and the duties of the chair, vice-chair, treasurer, secretary, and executive director. Moreover, the bylaws need to explicitly state what funds the board can accept and outline the method of collecting funds, the receipt of funds, and the location of funds (i.e., a bank). The bylaws need to define the foundation's fiscal year, indemnification, and how the foundation can be dissolved (Internal Revenue Service, n.d.).

To receive consideration for IRS recognition, the bylaws must be filed with the Articles of Incorporation to accomplish the third step of official recognition. Along with the bylaws and articles, various forms need to be completed and a filing fee of $500 paid. The SS-4 is the Application for Employer Information Number (EIN) that will be needed for grants and contracts. The Form 8718, Determination Letter Request, and Form 872, Assessment of Tax, are next completed. Form 1023, Application for Recognition of Exemption, is where you lay out the initial officers and that you are applying to be a research foundation. Based on your sponsored programs data, projections are made of financial data for the first three years of operations. These data are taken from sponsored programs' research, instruction, public service, operations, scholarship, and other grants and contracts for the previous three years at least, and projected onto the form. Next attach the bylaws. Upon submission to the IRS corporate division, an IRS official will review the application.

Formalizing Relations with the University

Research foundations exist upon the desire of the university. Thus, mutual responsibilities of this partnership must be clearly defined. The most important is the management agreement between the university and the foundation. The agreement should include the services of the research foundation, its compliance function, and define whether an audit will be part of the university audit or an independent external audit. The agreement describes the duties of the executive director and the staff (if one exists), the amount of dollars (if any) that the university will contribute annually to the foundation, who pays for the foundation's operating space if it is on university grounds, and whether or not the OSP aim other foundation staff will remain university employees.

Other critical documents that need to be drafted and agreed upon by the board are the investment plan, financial procedures with the university or within the foundation if it has an accounting unit, an intellectual property policy, a policy governing technology transfer and commercialization, and other policies deemed necessary to define the foundation's function. Auditors will request these documents as well as internal control documents such as reconciling the foundations revenues and expenditures with the university if the latter is performing the foundation's accounting functions.

Conclusion

The institutional culture with top down support is the most important reason for starting a research foundation. Such institutions believe that additional flexibility, efficiencies and funds can be secured to support students, faculty, and administration and to provide community outreach. Indeed, the establishment of a research foundation sends a signal that good teaching is linked to research. There are four models to choose from, with the OSP centered model the most inexpensive to implement. Once these steps are taken and institutional, state, and IRS recognition is achieved, the foundation becomes the fiscal agent for awards, royalties, and other revenues for the university as specified in the articles of incorporation, the bylaws, and the management plan.

Author's Note: I am grateful to the following individuals for information: Barbara Armbrister, Director, Administrative Services University of Kansas Center for Research, Inc.; Ron Bell, President, UCRF Support Associates; and Ruth Smith, Executive Director, Old Dominion University Research Foundation, Inc., as well as co-presenters mentioned in the references. Contact Phillip E. Myers, PhD, Executive Director, Western Kentucky University Research Foundation, Inc., and Director, Office of Sponsored Programs, Western Kentucky University, 106 Foundation Building, Bowling Green, KY 42101 3576, USA. Ph: [phone]. Fax: [phone]. E-mail: [e-mail]

References

Gabriel, F., Garton, J., Scuto, D., Artz, D., & Myers, P. (2004). University Research Foundations: What Are They and How Do they Work? Paper presented at the meeting of the National Council of University Research Administrators, San Diego, CA.

Internal Revenue Service. (n.d.) Application for Recognition of Exemption. Retrieved May 12, 2005 from http://www.irs.gov/charities/article/0,,id=96109,00.html

Meadows, L. K. (1977). NCURA University Affiliated Research Foundation: The Old, the New, the Simulacrum. In University-Connected Research Foundations, NSFRANN Report (pp. 1-2). Norman, OK: University of Oklahoma Press.

Myers, P. E. (2005). Research Foundations at Small Institutions. Paper presented at NCURA Region III Meeting, New Orleans, LA. Retrieved July 7, 2005 from http://www.orga.cofc.edu/ ncura3/getdata=dbf3 &view=inc6&order skey&order =abc&index=Region III Resources.

Western Kentucky University Research Foundation. (n.d.) For More Information ... Retrieved May 12, 2005 from http://www.wku.edu/research/wkurf. htm

Phillip E. Myers

Western Kentucky University