University of Saskatchewan

Financial Services (FS)

Financial Reserves Procedures

Effective Date: May 1, 2015
Authorized By: Provost’s Committee on Integrated Planning
Purpose:  University Policy “Financial Reserves” establishes a requirement for academic and administrative unit managers to annually undertake an assessment of risks, opportunities and commitments and to evaluate the appropriateness of General Fund balances available to address operational requirements and plans. This procedure provides guidance to unit managers in balancing the need to spend resources in support of current mission critical teaching, research and service activities with the need to hold funds on hand to mitigate risk and take advantage of future opportunities.

Procedure:

Year-end surplus/(deficits) that arise from General Fund activities  carry-forward to the subsequent year and are available for Academic /Administrative units 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:

  1. Complete an assessment of risks, opportunities and commitments, and
  2. Identify all General Funds balances as either Risk Reserve, Academic Opportunity Reserve, or Designated Funds.

As an outcome of the assessment, the academic/administrative manager must prepare a report for Senior Management (as currently represented by the Provost’s Committee on Integrated Planning (PCIP). This report will outline the proposed level of financial reserves (comprised of a risk reserve and an academic opportunities reserve) compared to actual financial reserve balances.

On an annual basis, normally as part of a meeting to discuss the academic/administrative unit strategic plans, member(s) of Senior Management will meet with the planning unit manager to discuss the report and its alignment with unit and university plans.

A template (provide website link) has been developed to assist unit managers in this assessment.  It is intended to stimulate strategic thought regarding risks and opportunities for academic and administrative units and to assist in strategic planning and financial sustainability for the long term.  Each academic and administrative unit’s activities and circumstances will vary, and accordingly the Risk Reserve and Academic Opportunity Reserve ranges will vary by unit.  The target, range and actual reserve levels may change over time in response to environmental factors.

It is expected that the Risk Reserve for the university as a whole would be in the range of 1% to 4% of the university’s total annual expenditures (across all funds).  It is expected that the Academic Opportunity Reserve for the university as a whole would be in the range of .5% to 2% of the university’s total annual expenditures. Because the risk and opportunity assessment requires a comprehensive view of operations, the base against which to assess the level of reserves is total annual expenditures.

Student aid funds (3-ledger), Research Funds (4 ledger), Endowment funds (6 ledger) and Capital Funds (8-ledger) are considered restricted funds within the university’s accounting structure.  Therefore those funds are excluded from consideration of funds available.  However, those balances should be periodically reviewed to assess whether there are opportunities to utilize funds more effectively.

Definitions:  Refer to the policy for definitions relevant to these procedures.

Part 1.0 Development & Assessment of an Academic/Administrative Risk Reserve

Risk Reserves represent fund balances available to mitigate risk and maintain business continuity. This type of reserve is not linked to a specific project or commitment. 

An assessment and review of risks and sufficiency of the reserve should be completed on an annual basis by each unit manager.

Consideration of risk exposure and determination of an appropriate reserve level, needs to be informed by an understanding of the specific institutional financial responsibilities versus those assumed by academic/administrative units.  In those cases where an academic/administrative unit manages expenditures or revenues on behalf of the university, those revenues or expenditures should not be included within the unit assessment of risk or fund balances.  (Examples include, utilities expenses managed by Facilities Management, or legal expenses managed by Corporate Administration).  However, the assessment of risk and volatility associated with these expenses would be taken into consideration when assessing the level of Risk Reserve required centrally.

Steps to determine & assess sufficiency of a Risk Reserve

Step 1 - Identify the risks including but not limited to:

Step 2 - Consider the impact of the risk, including the following:

Step 3 - Estimate the overall cost of the risks

Step 4 - Tabulate the results of the foregoing and determine the proposed risk reserve as a % of Total Expenditures

Step 5 - Compare the proposed Risk Reserve to the actual risk reserve balance available at year-end.

Step 6 - Consider the results and document any rationale for any variances from the proposed range and describe future plans which may impact the level of Risk Reserve.

Part 2.0 Development & Assessment of an Academic Opportunity Reserve

Academic Opportunity reserves represent the fund balances held to capitalize on opportunities and support unit and 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.   Some level of reserve should be held to allow academic/administrative units flexibility to direct funding to priorities and opportunities such as graduate student funding, faculty, staff and student recruitment, research seed money and curricular renewal.  Each unit would identify their major priorities in a similar manner to that described in Part 1.0.

Part 3.0 Review & Identification of Designated Funds

Designated Funds include: funds 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).  Designated Funds held for specific commitments should align with unit and institutional priorities and relate to initiatives under development or planned in the future.  Examples include planned equipment purchase and renovations, approved projects such as a commitment to funding a Chair.  The accumulation of these funds may span multiple fiscal years in order to achieve the goals for which they are intended.

The nature of commitments, and their magnitude will vary greatly among units because of the diversity of funding sources, operations, and funding responsibilities.  It is not possible to specify a desired range, nor an upper or lower limit.  However, Designated Funds should be reviewed annually to ensure that commitments remain valid and provide an opportunity to direct the funds to other unit priorities if the commitment has changed.

Annual Process for Senior Management Review

Once year-end results are known (typically by June 30 of each fiscal year), unit managers should complete their Financial Reserves & Designated Funds review and assessment. Following that review, completed assessments should be submitted by September 15 to the Provost and to the VP (Finance & Resources), with a copy to the Controller.

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. The AVP (Financial Services) will ensure that an assessment and report is completed for all university level Financial Reserves and Designated Funds.

During the fall of each year, normally as part of the annual budget/planning meeting, member(s) of Senior Management will meet with individual planning unit managers to discuss the assessment report. Subsequent to this discussion, Senior Management will determine the extent of funds, if any, to be realigned and any adjustment to the target ranges.

Any funds recovered from academic/administrative units or from university level Financial Reserves will be directed to high priority projects that alleviate mission critical needs as recommended by Senior Management and approved by the Board.

In the event of a negative overall Financial Reserve, the unit manager and senior management should agree on a plan to build Financial Reserves up to the minimum required level.

On an annual basis, Senior Management will assess whether the Financial Reserve range for the university as a whole is appropriate and will recommend any changes to the Board.

On an annual basis, Senior Management will ensure that a report is prepared outlining the status of Financial Reserves and Designated Funds.

Transition Year

The policy and procedure are effective May 1/2015, for application to General Fund balances as at April 30, 2015. Recognizing that it will take some time for all units to fully implement the procedure, the initial year, 2015/16, will be a “learning year”, with the intention to fully implement and operationalize the policy and procedure for application to fund balances as at April 30/2016.

Annual Review Procedure Timetable:

The following schedule provides guidance regarding timing of activities on an annual basis:

June to September - Unit Managers in collaboration with finance officers complete assessment and review (based on previous year’s results) and provide a report to senior management.

September to December - Senior management meets with unit managers as part of annual review and planning session.

January to March - Senior management considers results of the review and any required realignment of funds. Senior management also recommends any realignment of funds and changes to the overall Financial Reserve levels to the Board.