Financial Reserves Policy

Operations and General Administration

Responsibility: Associate Vice-President, Financial Services
Authorization: Board of Governors
Approval Date: May 26, 2015

Purpose

The purpose of this policy is to promote long-term financial sustainability of the university through the effective use and deployment of financial resources, in alignment with academic/administrative unit and university strategic directions. A related purpose is to ensure financial reserves held across the university are appropriate and reasonable, and managed in accordance with university guidelines.

Principles

To ensure long-term financial sustainability of the university, all unit managers need to maintain sufficient resources to manage risks, to recognize commitments and to take advantage of opportunities.  This policy provides guidance in balancing that need with the university’s primary mission of supporting current teaching, research and service activities. The university, including the board, senior management and each of its organizational units, is committed to consistent compliance with the following principles:

-Stewardship & Accountability: As a publicly funded institution the university has a responsibility to ensure that resources are used to their best advantage for the purposes for which they were intended. The added dimension of accountability implies that resource managers are responsible for reporting on the efficient and effective use of resources.

-Subsidiarity & Autonomy: Academic and administrative unit managers are responsible for leading and directing the operations of their particular units, including the effective use and deployment of resources entrusted to them, aligned with unit plans and strategic priorities, and informed by assessment of risks, opportunities and commitments. While operating units will experience similar financial risks and opportunities, the uniqueness of each unit needs to be considered when managing reserves. The policy needs to be flexible in order to recognize variability in risks and opportunities which results from differences among units in scope and type of operations. 

-Transparency: The definitions and approach outlined in the policy and related procedure will promote the use of consistent terminology and reporting by all operating units, thereby resulting in an improved understanding of the nature of reserves, and designated funds across the organization, and of their alignment with and support for strategic priorities and risk mitigation.

-Practicality: The policy’s effectiveness lies in its clarity, ease of implementation and application.    

Scope of this Policy

The board is responsible for overseeing and directing all matters respecting the management, administration and control of the university’s property, revenues and financial affairs. Recognizing that it is not practical for the board to approve all financial decisions, authority is delegated to academic and administrative unit managers. This policy applies to all operations and organizational units of the university.  

The focus of the policy is Financial Reserves held at all levels of the university (including academic or administrative units and at the university level) at a point in time (typically at the close of the fiscal year), and the application of those reserves in achieving strategic priorities and addressing risks.

This policy does not apply to fund balances held in Restricted Fund categories.  Currently the categories of Restricted Funds include: Research, Student Aid, Capital and Endowments.

Policy

Definitions:

General Funds are primarily unrestricted and account for the university’s program delivery, service and administrative activities. General Funds currently include two broad categories, Operating and Ancillary. General Funds are classified as either Financial Reserves or Designated Funds.

Financial Reserves represent the accumulated fund balances, or “net worth” of a specific fund, or group of funds, at a point in time.  Financial Reserves are available to academic and administrative unit managers, and at the university level, to mitigate risk and to take advantage of opportunities.  These reserves are unrestricted and have not been committed for a specific purpose or project.  They are a component of General Funds within the university’s fund accounting structure.  Financial Reserves are classified as either Risk Reserves or Academic Opportunity Reserves.

  • Risk Reserves represent the fund balances available to mitigate risk and maintain continuity of operations. Examples of potential risks include: enrolment declines; equipment failure and loss of contract revenue.
  • Academic Opportunity Reserves represent the fund balances held to capitalize on opportunities and support institutional priorities. This type of reserve is not yet linked to a specific project or commitment and could apply to both academic and administrative units and at the university level. Examples of potential opportunities include: faculty recruitment; matching or leveraging donor support; technological change, and curricular renewal.

Designated Funds represent two types of funds: those which have been internally committed for a specific project or purpose (examples include accountable expense funds (APEFS) and conference funds); and externally restricted funds (examples include some donor funded activity, and some contract activity).

Policy Statements:

Year-end surplus/(deficits) that arise from General Fund activities, carry forward to the subsequent year and are available for Academic/Administrative units, and at the university level, to spend under the authority of the unit manager subject to the following requirements:

- On an annual basis, as part of the planning process, the academic/administrative manager must complete an assessment of risks, opportunities and commitments, and they must also identify all General Funds as Risk Reserve, Academic Opportunity Reserve or Designated Funds.

-Target ranges for Risk Reserves and Academic Opportunity Reserves are guidelines, which may vary among academic/administrative units depending on the type of operations and risk exposure and which may change over time.  Applicable target ranges for operational units will be determined in consultation with senior management (as currently represented by the Provost’s Committee on Integrated Planning).  Notwithstanding the foregoing, for the university as a whole (including all academic and administrative units) the lower and upper limits for the combined Risk Reserve and Academic Opportunity Reserve is expected to be 1.5% and 6%, respectively, of total annual university expenditures.

- Where Financial Reserves held by academic/administrative units are outside of that unit’s target range for Risk Reserves and Academic Opportunity Reserves, as part of an annual review process, and in consultation with the unit leader, it may be determined that there is an opportunity to realign university resources more effectively and strategically to address unit priorities, or to address shared risks and/or furtherance of common priorities.

-Because of the nature of Designated Funds there is no specified upper or lower limit.  However, to ensure that commitments remain valid and aligned with unit and university priorities, an annual review of Designated Funds is required.

Responsibilities

-Academic and administrative unit managers are responsible for annually assessing risks, commitments and opportunities and for monitoring General Fund balances to determine whether those fund balances are reasonable and sufficient to address risks, opportunities and commitments, and to determine whether there are opportunities to use funds more effectively for the benefit of current programs and activities.  In carrying out this assessment and subsequent reporting, unit managers are required to follow the approach outlined in the related procedure, and encouraged to adopt the standard reporting template.

-Senior management is responsible for ensuring that all operating units adopt a consistent approach to   monitoring and deploying General Fund balances aligned with strategic priorities and informed by risk and opportunity assessment. This ensures that across the organization, funds are used to their best advantage for the purposes for which they were intended.

-Senior management is responsible for establishing reasonable and informed target ranges for Risk and Opportunity Reserves with application to specific academic and administrative units, or to groups of units with similar operations and risks. Senior management is also required to annually provide appropriate reports to the board and university community regarding General Funds. This ensures transparency of reports and effective monitoring.

Non-compliance

In the absence of a unit manager providing a report on the status of Financial Reserves and Designated Funds, the AVP (Financial Services) will compile the information, with reliance on available data, for distribution to the academic/administrative manager and senior management.

Procedures

The AVP (Financial Services) is responsible for development, maintenance and publication of the procedures and guidelines associated with this policy.

http://www.usask.ca/fsd/colleges_depts_research/accountabilities/financial_reserves_procedures.php

 

Related Documents

There are no other documents associated with this policy.

Contact Information

Contact Person: Terry Summers, Controller, Financial Services
Email: terry.summers@usask.ca
Phone: 306-966-8305