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ISSN- 2394-5125 VOL 7, ISSUE 17, 2020 THE ROLE OF ENDAUMENT FUNDS IN FINANCING SOCIAL EXPENSES

Kasimova Gulyar Akhmatovna

Associate Professor of "Budget Accounting and Treasury" Tashkent Institute of Finance Republic of Uzbekistan, Tashkent city, Amir Temur street 60 A, 100000

Received: 22.04.2020 Revised: 24.05.2020 Accepted: 19.06.2020

ABSTRACT The article reveals the scientific and theoretical basis of financing the social sphere,investigates foreign experience in the use of endowment funds and, identifies its specific features. And also, recommendations have been developed for the establishment of endowment funds to finance social expenditures in Uzbekistan. Keywords: social sphere, state trust funds, endowment, endowment funds, health, education, budgeting, financing, taxation, forms of ownership.

INTRODUCTION "Establishment of extra-budgetary state trust funds in the social sphere, attraction of foreign grants, use of endowments, technology parks and health in the financing of health and education, as well as the use of" performance-oriented budgeting "in education and health will give good results"1. "Endowment" is a trust fund, which is intended for non-profit use in education, health and culture. Targeted capital fund is a new source of funding for research and innovation programs. Endowment - trust funds are widespread in foreign countries and have been operating for a very long time, the Nobel and Harvard funds are very large funds. When the Nobel Prize Fund was established in 1900, it had 31.0 million Swedish kronor, and in 2017 it increased to 3.1 billion Swedish kronor. According to the data, the target capital of another world-famous Harvard in 2018 exceeded $ 32.0 billion2.

LITERATURE REVIEW M.B. Gerard argues that public-private partnership combines the attraction of private capital and sometimes the attraction of public capital to improve the quality of social services or the management of public assets. According to A. Primer for Endowment Granmakers, published by the Ford (which is also an endowment fund), potential donors include: national and international government donors; national and international non-governmental (private) donors; national and international corporate donors. In many countries, the development of the endowment system is encouraged by the state through tax measures. For example, in the United States, Canada, and the United Kingdom, income from an organization's investment in an endowment fund is not taxable, and other tax benefits apply. For example, the amount or part of the contribution to the endurance fund is not taxed, thus increasing the interest of donors to the endurance fund. “The electronic encyclopedia (Wikipedia) defines a financial endowment as the transfer of money or any other property to an organization on the condition that the gift is invested and the main (initial) part of the gift is left untouched. This will have a positive effect on the preservation of the donation, rather than its immediate use"3. Concepts such as endowment, financial endowment, endowment fund are used in the same sense in foreign literature. In general, endowment means funds, assets. In other words, an endowment is the income that a fund raises as a resource donated or donated to an organization, group, or individual4. “The concept of„ endowment ‟can also be understood in the sense of setting up a fund at the expense of various property (property rights), including gifts and inheritance. Assets transferred to the trust fund (ownership

1Raxmonov D.A. Theoretical and methodological bases of financing the social sphere in Uzbekistan. www.interfinance.uz. \\ Electronic journal "International Finance and Accounting". -Tashkent. 2017. -№5. October. 2Bokareva E.V. Non-profit organization target capital: global experience of use and normative regulation in modern Russia. // Financial analytics: problems and solutions. 2013. No.15. –P.43-47. 3http:// en. Wikipedia. оrg/ wiki/ Financial endowment. 4http://financial-dictionary.the freedietionary. сom/ endowment. 2848

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ISSN- 2394-5125 VOL 7, ISSUE 17, 2020 right) are assets. These assets and the proceeds will be used to meet government responsibilities and support budget organizations, mainly to pay for , , as well as scholarships”1.

RESEARCH METHODOLOGY The methodological basis of the research is the laws and principles of financing the social sphere. It is based on the collection, processing and analysis of data on endowment funds in the financing of social sector expenditures. Methods such as generalization, logical analysis, synthesis, induction and deduction, and systematic approach analysis were used in the research work.

ANALYSIS AND RESULTS An established endowment is a trust fund that must include2:  long-term - confidence in the sustainability of funding;  Target - the fund can not perform any other functions, only to finance research work;  strategic - should be focused on supporting the scientific activities of the higher education system, not on the implementation of any unforeseen projects;  Simple to use. It should be noted that in the United States, "endowment" means a donation to a or university. "The main document in the management of endowment funds in the United States is the unified law on institutional funds"3. (The Uniform Management of Institutional Funds (UMIFA) -1972); The new version of 2006 is called The Uniform Prudent Management of Institutional Funds Act (UPMIFA)4. The fund is established by the Institute for the purpose of donation. "According to UPMIFA, an endowment fund is an institutional fund or a certain part of it, and the donation (according to the donation agreement, not all funds are spent on current expenses of the institute")5. “The need for the artisans of the trust fund is a guarantee of transparency in the use of donated funds. In addition, the funds are not used for one year, but for a long time. The donor must be convinced that there is an institutional basis for the lifelong operation of these funds"6. From the above, it can be concluded that endowment, more precisely, endowment fund is an English term that means giving money to an organization, a particular group, an individual to use as a source of income or donating various other property. Proceeds from these will be used for purposes of public importance (to support the operation of hospitals, libraries, universities, colleges). An endowment fund is established on the basis of the received property. Basically, there are two conditions for the establishment of an endowment fund from the donor's funds: first, the gift must remain intact or the principal amount of the gift must not be used permanently or for a specified period of time; second, the funds donated must be invested.

Table 1 Procedure for formation and use of endowment funds (target capital) in the USA and the Russian Federation7 Federation7

Indicators Russian Federation United States Target capital- An endowment is money or property Endowment funds funds that are a part of the property donated to a nonprofit, provided that (target capital) definition of a non-profit organization, given to the funds or property are a non-profit organization for income subsequently invested and the

1http:// columdia.the freedietionary. сom/ endowment. 2Leonov A.V. Endowment as a tool for long-term financing of higher education. // Modern science: actual problems of the theory of practice. 2012. No3. –S.18-20. 3http:// en. Wikipedia. оrg/ wiki/ Financial endowment. 4According to Annex 1 of UPMIFA, the American model of the endowment fund is indicated. 5The Uniform Prudent Management of Institutional Funds Act, july 7-14. 2006. DEFINITIONS- 2. 6 Shekova E.L. Endowment capital as a new source of financing the activities of non-profit organizations. // Management in Russia and abroad. 2012. No4. -FROM. 92-102. 7Leonov A.V. Endowments: a place in the system of financing higher education and application experience in the world and in Russia / A.V. Leonov // Modern studies of social problems (electronic scientific journal), No. 1 (09), 2012. - www.sisp.nkras.ru 2849

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on a trust basis, used to finance a principal amount is retained in its non-profit organization, as well as in original condition. the form of donations, donations Forms of investment of endowment Cash, securities, real estate and other Cash funds assets Endowment fund 3 mln.rub. $ 25,000 (target capital) minimum amount Endowment fund 10 years Not listed (target capital) minimum service life Endowment fund (target capital) to use their own Not allowed Allowed funds to form 1) endowment funds; 2) trust endowment funds - (funds used in whole or in part of the donation in the event of a certain situation or Endowment funds - (funds received after the expiration of the specified Endowment funds from external donors on the period); types of (target capital) condition that the donated principal 3) quasi-endowments - funds amount can be stored and not used) (university fund, which is not calculated or received from outside donor funds, the university decides to use as permanent capital) Provision of endowment grants to the public sector financed from the Not listed Allowed budget Within 3 years after the Every year after the endowment Deadline for submission of reports establishment of the endowment fund is established fund (then not required) Endowment fund funds may be Sanctions for misuse of funds Liquidation of the target capital fund included in the donor‟s tax base 1) evaluation system of the grant Endaument is a condition for recipient organization management;

receiving fund funds 2) grant application, with an appendix to the marketing plan Board of Directors, or Investment Endowment fund governing bodies Target Capital Use Council Commission Terms of transfer of target capital to Mandatory Optional, but it can be the case the management company “The need to diversify sources of funding for education and find optimal mechanisms for attracting private funds to reduce public spending is urgent. In world practice, the establishment and operation of endowment funds is a mechanism for financing educational institutions. According to foreign experience, an endowment is a trust fund set up to finance education, culture, and health care facilities and used for non-profit purposes. In the U.S., endowment funds generate 40-50.0 percent annual revenue and are the most important source of funding for the current needs of universities. One of the first and largest endowments is the Fund, which in 2013 had a fixed capital of $ 32.7 billion, and in 2014 had a fixed capital of $ 36.4 billion. USD»1. "Currently, there are more than 85 organizations established in the Russian Federation to support non-profit organizations, education, science, health, culture, physical culture and sports, arts, archives, social protection, environmental protection, free legal aid and legal education. registered target capital (endowment funds)”2. Unlike ordinary charitable foundations, endowment funds have their own characteristics1. First, the investment income obtained as a result of the inviolability of fixed capital and only the investment of the authorized

1Analysis of expenditures of the state budget of the Republic of Kazakhstan for 2008-2012 //http://www.predictor.kz/?p=603 2Leonov A.V. Endowments: a place in the system of financing higher education and application experience in the world and in Russia / A.V. Leonov // Modern studies of social problems (electronic scientific journal), No. 1 (09), 2012. - www.sisp.nkras.ru 2850

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ISSN- 2394-5125 VOL 7, ISSUE 17, 2020 capital is spent. As a rule, investments are made by specialized companies - professional management companies on the basis of a working management contract. Second, it is set indefinitely. Third, donors are entitled to determine the purpose of spending the proceeds from the investment of donor funds. “Many foreign countries use a complex system of methods and mechanisms called„ ‟to divert funds from non-state sources. Fundraising is the process of raising funds from external donors (legal entities and individuals) for the implementation of certain social projects. These include legal entities (enterprises, institutions) engaged in material and intangible production in the sectors of the economy, including the social sphere (science, education, health), as well as individuals. This experience has a long history spanning several decades, and this experience has shown its positive aspects in practice.2.

Figure 1. Scheme of the organization of the work of the endowment fund, in which the educational institution is the owner of funds3

Figure 2. Scheme of the organization of the work of the endowment fund when the specialized fund is the owner of the funds4

1Shekova E.L. Endowment capital as a new source of financing the activities of non-profit organizations. // Management in Russia and abroad. 2012. No4. -FROM. 92-102. 2Semeko G.V. Fundraising and endowment funds as an alternative source of financing education. 2016. https://cyberleninka.ru/article/n/fandrayzing-i-fondy-tselevogo-kapitala-kak-alternativnyy-istochnik-finansirovaniya- obrazovaniya 3 Author's development on the basis of scientific research. 4 Author's development on the basis of scientific research. 2851

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“The main mechanism of fundraising, fundraising - is an endowment-fund or a simple endowment (visual endowment - contribution, gift, charity). Typically, this trust fund is intended for funding educational, health, and cultural organizations and for non-profit use. It is formed mainly at the expense of charitable funds and special purpose contributions. The distinction between an endowment fund and an ordinary is strictly targeted, and the goal is to generate income by investing these donated funds. Typically, an endowment is created to support an organization, such as a university”1. "Because Russian educational institutions are non-profit organizations under Russian law, they use endowment as a way to raise funds for their own financing - as one of the fundraising mechanisms, a long- established and successful tool for co-financing the social sphere, including education"2. The purpose of the endowment fund is to provide long-term and sustainable financing of non-profit activities based on the achievement of partial independence from one-time donations through guaranteed income. The advantage of the endowment fund's activity is the clarity and transparency of its activities. The endowment fund cannot be used to minimize taxes because it can only be directed to an organization set up to support it, the tax is not reduced due to the cost of charitable activities, this applies to countries that are not taxed on charitable activities. The endowment provides the following3:  partial independence in the use of one-time donations and other voluntary receipts;  financial stability through guaranteed income;  Formation of a long-term source of financing for a particular non-profit activity. "Craftsmanship (craft activity) is a sponsorship activity carried out by individuals and legal entities in the field of culture and art, as well as science, education, enlightenment and other activities related to the development of culture and art"4. Craftsman - a natural or legal person engaged in craft activities. Craftsmen and recipients of craft support are the subjects of craft activities. Craftsmanship assistance is property provided by artisans to recipients of craft assistance on the basis of non-discriminatory or preferential terms, as well as works, services and other types of support provided to them. Craftsmanship activity is carried out on the basis of a contract for the provision of craft assistance, concluded between the craftsman and the recipient of craft assistance. The purpose, form, conditions, terms and scope of technical assistance, the responsibility of the parties for non-performance or improper performance of contractual obligations, the procedure for resolving disputes, details of the parties, the date and place of the contract, as well as legislation for such contracts or other important conditions under which an agreement must be reached at the request of one of the parties. The requirement to mention the name of the craftsman, the means of personalization, and the designation of such a form of reminder may be a condition of the agreement on the provision of craft support. The agreement on the provision of patronage assistance may establish mechanisms to control the targeted use of patronage assistance. “Patronage support cannot be provided at the expense of the State Budget of the Republic of Uzbekistan. The rights and legitimate interests of the subjects of patronage are guaranteed by the state. Restriction of the right of the craftsman to choose the forms of carrying out of handicraft activity is not allowed. The state supports craft activities through:5:  granting benefits and preferences to craftsmen on taxes and other obligatory payments and tariffs;  awarding craftsmen with state awards or other prizes;  Immortalization of the names of craftsmen.  Support of state artisanal activity in other ways in accordance with the legislation. In modern conditions, one of the problems in ensuring the competitiveness of the social sphere in Uzbekistan is the incomplete financing of social spending. One of the ways to solve these problems in foreign countries is to establish

1Semeko G.V. Fundraising and endowment funds as an alternative source of financing education. 2016. https://cyberleninka.ru/article/n/fandrayzing-i-fondy-tselevogo-kapitala-kak-alternativnyy-istochnik-finansirovaniya- obrazovaniya 2Barashkov O.A. Endowment as a source of financing the activities of higher educational institutions. http://www.sciencebsea.bgita.ru/2011/ekonom_2011_1/barashkov_skvorcova.htm 3Barashkov O.A. Endowment as a source of financing the activities of higher educational institutions. http://www.sciencebsea.bgita.ru/2011/ekonom_2011_1/barashkov_skvorcova.htm 4 Law of the Republic of Uzbekistan "On Craftsmanship". 2019. 16 October. Article 4 Basic concepts. 5 Law of the Republic of Uzbekistan "On Craftsmanship". 2019. 16 October. Article 12 State guarantees of the rights of subjects of craftsmanship and state support of craftsmanship. 2852

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ISSN- 2394-5125 VOL 7, ISSUE 17, 2020 endowment funds. Endowment - the establishment of trust funds has for many years been an important and widespread tool of self-financing of the social sphere. Hence, the endowment is a contribution, investment, a certain part of financial resources, which is understood to be used for a non-profit organization on certain terms. These funds can be donations or a specially collected targeted contribution or a non-profit organization can independently accumulate the necessary amount from various sources to form an endowment. The endowment is then placed by the on shares or other securities in financial institutions to receive annual interest, retaining the bulk of the capital. As a rule, the interest received from the endowment is used to cover current expenses in order to ensure the financial stability of the organization, the non-profit organization raises additional funds from various sources in order to implement priority projects. In our opinion, it would be expedient to establish special-purpose capital funds to support budget organizations in the social sphere in the Republic of Uzbekistan. We propose the formation of school endowments in preschool education institutions. In shaping school education endowments, school principals need to find and persuade the first artisans, understand how to use the target capital, recruit potential people who can invest in the endowment, find the foundation‟s initial funding, and many people will not accept these ideas all at once. The formation of school education endowments requires the personal interest of the leader, a team of like-minded people, a supportive team (parents, teachers, students, alumni) and confidence in long-term outcomes. School principals need financial literacy to negotiate with potential artisans in the formation of school endowments, be able to express their views on the stock market, securities, stocks, dividends, and the involvement of school graduates and active parents in this work gives good results. “Today, university funds around the world accumulate a lot of money. Thus, the target capital accumulated in the hands of 25 leading universities in the Shanghai ranking among the top 500 universities in the world is estimated at $ 170 billion. In this case, the volume of the endowment is 172 million at the University College London in the UK. $ 37 billion at Harvard University in the United States. The U.S. dollar fluctuates. The average endowment in this group of universities is 6 billion. USD. In addition, US universities (average $ 6.1 billion) received more donations than universities in other countries (average $ 2.2 billion)1. “In general, endowments in Western universities provide 40-50 per cent of annual income, so it is the most important source of funding for their current needs. Since mid-2008, the situation with education financing has deteriorated sharply and has become the most devastating in the aftermath of the financial and economic crisis following the Great Depression of 1930. Everywhere there was a decline in production and an increase in unemployment, a sharp decline in GDP growth. Most governments have responded to the crisis by cutting public spending, including higher education allocations. Thus, Eastern European countries have taken the path of reducing budget expenditures for higher education. In particular, Estonia reduced funding for universities by 3.0%, Hungary by 7.0%, Poland by 6-7.0% and Lithuania by 10.0%. Many developed countries, such as several states in the United States, have undertaken to implement similar measures”2. "Compared to previous years, the funds collected at many universities in the 2008-2009 academic year, in particular at Harvard University - decreased by 29.8%, Yelda - by 28.6%."3. “The five largest university funds have officially announced the loss of large investment funds in 2008-2009. Thus, the return on capital fell by 27.3% at Harvard University, 25.0% at , 27.0% at , 23.0% at and 22.6% at the University of Texas at Austin. This means that endowment funds may also lose investment income”4. It can be concluded that endowment should not be considered as the main tool that solves all the problems of budget organizations at once, but as one of the means of adequate attention by the state with additional funding for education, health, cultural organizations. Endowment funds are used to finance strategic projects, in other words, they represent public-private partnerships. In order to develop the activities of trust funds, it is necessary to coordinate common and private interests, so that private business understands the interest of non-profit organizations in the trust fund5.

1Massive accumulation of endowment wealth by the world‟s top-25 universities // http://www.allaboutuni.com/site/ serv_publications.php?type=P&pub=12. 2Varghese N.V. Higher education and the global economic crisis // http://www.iau-aiu.net/newsletters/iaunew16-1- en.pdf 3College and university endowments over $250-million, 2009 // http://chronicle.com/article/CollegeUniversity/123952/ 4Blumenstyk G. Average return on endowment investments is worst in almost 40 years // http://chronicle.com/article/Average-Return-on-Endowment/63762 5Kharlamova EE, Podolskaya A.P. Endowment capital as a source of financing for a non-profit organization. // Accounting in budgetary and non-profit organizations. 2016. No2. –C.22-31. 2853

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CONCLUSION According to the results of the study, in the future in Uzbekistan co-financing of the social sphere, financing and philanthropy of science, education and health in Uzbekistan can be done on the basis of the creation of endowment funds. However, with its implementation, it is necessary to find a form for the Uzbek endowment that will allow the use of endowment funds around the world, and at the same time be consistent with the legal and tax system in the country. This is the most important issue in the creation of endowment funds, the incentive feature of endowment funds. In our opinion, it would be expedient to develop and implement the Law of the Republic of Uzbekistan "On Endowment". In our opinion, it would be expedient to develop and implement the Law of the Republic of Uzbekistan "On the procedure for the formation and use of target capital in budget organizations."

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22. Semeko G.V. Fundraising and endowment funds as an alternative source of financing education. 2016. https://cyberleninka.ru/article/n/fandrayzing-i-fondy-tselevogo-kapitala-kak-alternativnyy-istochnik- finansirovaniya-obrazovaniya 23. The Uniform Prudent Management of Institutional Funds Act, july 7-14. 2006. DEFINITIONS- 2. 24. Titov V. Endowment funds in the system of higher education of the Russian Federation / V. Titov, D. Endovitsky // Higher education in Russia. - 2007. - No. 11. - S.9 - 17. 25. Primer А. for Endowment Granmakers Ford Fountion. March 12. 2001. http: // www. ford found. оrg/ elibrary/ documents/ 5016/ toc. еfin -paje 26. Kharlamova EE, Podolskaya A.P. Endowment capital as a source of financing for a non-profit organization. // Accounting in budgetary and non-profit organizations. 2016. No2. –C.22-31. 27. Shekova E.L. Endowment capital as a new source of financing the activities of non-profit organizations. // Management in Russia and abroad. 2012. No4. -FROM. 92-102. 28. http://financial-dictionary.the freedietionary. сom/ endowment. 29. http:// columdia.the freedietionary. сom/ endowment. 30. http:// en. Wikipedia. оrg/ wiki/Financial endowment.

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