The Catholic University of America

Reserve Funds Policy

Approved by: President
History: Issued   -- October 31, 2014
  Revised --
  Additional History
Related Policies: Financial Transaction Authority Policy; University Budget Policy
Additional References:  
Responsible Official: Associate Vice President, Financial Planning, Institutional Research and Assessment tel. (202) 319-5012
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I.          Introduction 
Reserve funds are established by departments for one of two primary purposes.  A reserve fund can be created to hold the income and expenses for a specific activity that occurs outside of the normal operating budget process.  Other reserve funds are created to hold the general savings of a department to be used in cases of unexpected events or to fund strategic one-time investments.  Reserves should be used to fund temporary problems or events and not structural financial issues. 
Just like any other expenses of the University, all income and expenses in reserve funds are included in the University’s total income and expense.  For example, if a department accumulates a large amount of savings in its reserve fund and spends a significant portion of it in one fiscal year, the University’s financial reporting of its total operating expenses would include that large amount in that year.  Therefore, to properly steward, project and report our financial activity, the University has established spending guidelines for reserve fund orgs. 
II.         Definitions  
A.     Org:  An org is a University cost center that holds the financial activity, including revenues and expenses, of a specific department, project, gift, or other financial activity segregated for reporting and tracking purposes. 
B.    Reserve Fund:  Reserve funds are held in funds 18 and 19.  A reserve fund holds the revenues, expenses and net assets from a specific source or sources.  The balance of the fund remaining at the end of one year carries into the next year.  There is no annual funding or budget replenishment in a reserve fund. Once the money is spent, it is gone. 
III.         General Reserve Fund Spending Guidelines 
Any reserve fund spending is included in total operating expenses.  It does not occur “off balance sheet” or outside of normal fiscal year financial reporting.  Therefore, department managers should plan and project their spending from these funds with the same diligence used in projecting operating (Fund 11) expenses.  Examples of allowable reserve fund expenditures include: 
·       Funding for capital projects
·       Strategic initiatives
·       Accreditation initiatives
·       Expenses for a specific activity from which income has been accumulated in the reserve fund (e.g. a conference)
·       Funding for deficits in fund 11 orgs.  If a fund 11 org goes over budget, expenses should be transferred to fix the deficit and then charged for the rest of the year to a reserve fund. 
Even though some reserve funds are established as discretionary funds for Vice Presidents, the Provost and Deans, expenditures from those funds are University expenditures and are therefore subject to the same policies and procedures as all other University spending.  Reserve funds cannot be used for the following types of expenditures:   
·       Permanent employee salaries and wages.  Only temporary employees with a documented end date can be funded from a reserve fund.
·       Recurring annual expenses
·       Expenses prohibited by other University policies
·       Expenses without an explicit University business purpose 
IV.        Fund 18 versus Fund 19 Spending 
Fund 19 orgs are created for a particular project or spending purpose.  Expenditures from a fund 19 org must be related to the particular purpose for which the org was established.  The responsibility for spending according to the designated purpose is the responsibility of the org’s fund manager.  If the project or event has ended, then the remaining balance of the org should be transferred to the fund 18 org for the relevant Vice President, Provost, Dean or Department Chair.  Fund 19 orgs will be reviewed annually by the Budget Office for recommended consolidation and closure. 
Fund 18 orgs hold discretionary undesignated money for a Vice President, the Provost, Dean or their designee to spend.  The primary sources of funding for a Fund 18 org are the portion of operating surplus that is kept by a division or department after the fiscal year end according to budget policy, the remaining operating net from an academic new program, or unrestricted non-endowed gifts.  Spending of these funds is at the discretion of the fund manager, subject to the limitations noted previously. 
V.         Budgeting of Reserve Funds 
All spending on fund 18 and fund 19 orgs must be projected and budgeted for the next budget year by Budget Office deadlines.  These projections should be based upon the area’s best estimate of its programmatic activities.  Any revisions to those budgets during the budget year should include justification and must be approved by the office’s Vice President or Provost.  The Budget Office will not approve a budget above the balance of the org without evidence that the org has pending revenue not yet received. 
VI.        Deficit Resolution  
When a department’s primary operating budget goes over budget, the department manager should immediately work with the Budget Office to resolve the deficit, including transferring expenses to available reserve funds as necessary.  At the end of each fiscal quarter, the Budget Office will notify all department managers whose fund 11 orgs are over budget.  The department manager will have thirty days to provide a written plan for clearing the budget deficit.  This plan can include consideration of tuition and fee revenue above budgeted amounts.