Divisonal Operating Reserves

Calculating the Divisional Operating Reserves in FIS

Overview

The University’s current practice is to allow a division to manage the spending of operating funds assigned to it and to bring forward any unspent funds or overspending to the next budget year. The unspent budget amount is commonly referred to as the divisional operating reserves.

Causes of underspending

There are various possible causes, e.g.:

delays in filling vacant positions
unanticipated increases in divisional income
planned attempts to accumulate funds for major acquisitions of equipment or building alterations.

Causes of overspending:

new programs
unforeseen events
poor planning

University Policies and Procedures

Underspending
It is generally expected that budgeted funds carried forward will be expended in the ensuing year. The policy is not intended to provide for excessive accumulation of surplus divisional operating funds over time.

Exceptions to this would include:

a reserve for a specifically identified capital construction or renewal expenditure, e.g. equipment or alterations/renovations, or
contingency reserves for future operating expenditures in accordance with sound management practices.

Overspending
Deficits in divisional operating budgets are brought forward to the next budget year and applied as a first charge against the next year’s operating budget allocation. A detailed explanation of how the deficit will be eliminated without impacting academic programs and operations must be submitted to the Financial Services Department upon request.

Use of the operating reserves
Divisions should have deliberate plans for using brought forward budgeted funds and for eliminating deficits. They should not customarily be used to support continuing operating expenses, particularly salary expenses.

Stewardship reporting of the divisional operating reserves
Early in May, the Financial Services Department requests all divisions to provide pre-defined categorized plans with respect to their operating reserves. The total operating fund reserves, including the divisional plans are included in the University’s annual financial statements which are reported to the Business Board.

Calculating the Divisional Operating Reserves in FIS

Calculation
At the end of April, the divisional operating reserve amount for each Operating Funds Center is calculated as the net of:

over/under spending against the expenditure budget, and
surplus/shortfall in meeting revenues/recoveries budget targets

Reporting
In May, the divisional operating reserve amount is posted as either a positive budget allocation for underspent amounts or as a negative budget allocation for overspent amounts. This amount is posted against the expenditure budget in the same Funds Center that generated the over/under spending.

Within FIS the Budget Carry Forward Report provides details of the budget operating reserve (carryforward) amount(s) for a funds center or a funds center hierarchy and the Funding: Funds Center or Fund Report can be used to verify or calculate the divisional operating reserve for a funds center.

For more information on calculating the divisional operating reserves in FIS and understanding how the unspent/overspent budget is reflected in FIS, refer to the reporting course Year End Operating Reserves, or contact your FAST Team Representative.

Divisional Operating Reserve Report

As part of the year end reporting prepared by the Financial Services Department, divisions are required to submit a report on the planned utilization of any operating reserve funds. This report facilitates a year-end analysis and reporting of divisional operating reserves to senior management and the University’s Audit Committee, and is published in the Annual Financial Report.

This report should be grouped by financial statement class and be broken down into the following five categories:

1. Infrastructure Reserve – This category is intended to capture funds that have been reserved by the division in anticipation of new building construction, renovations to facilities, infrastructure upgrades such as computer networking, equipment replacement, etc. This reserve category can only be used if the division has received Decanal approval (or Principal approval for UTM and UTSC campuses).

2. Research Funds – Funds reserved for research are to be included in this category. This includes funds allocated to Principal Investigators as a result of the expense reimbursement program for Faculty and Librarians, overheads, research allowance or start-up funds. Also included are funds reserved for Canada Research Chairs and any related research allowance.

3. Student Assistance – This category captures all funds reserved for scholarships, bursaries and other student assistance.

4. Endowment Matching Funds – This category captures all funds reserved to match future external donor contributions. The division must have a written plan that defines what type of contributions it will match (i.e. chairs and professorships, student aid, academic programs and research), with a set limit for the matching. The plan must be approved by the Provost before it can be reported in this category.

5. Operating Contingency Reserve – This category is intended to capture divisional operating contingency reserves. Funds in this category include reserves for anticipated budget reductions, voluntary early retirement payouts, increases in university wide costs, and fluctuations in revenues due to enrolment shortfalls and lower investment returns. The total operating reserve contingency would normally fall in range of 5% to 10% of the division’s total operating expense budget. Divisions with greater distributed risk (i.e. large international enrolment, significant growth, high levels of external revenue, etc.) may establish larger operating contingency reserves.

The financial statement class is stored within the master record of the Funds Centre and is included in the download of the Budget Carry Forward Report in FIS. For most departments the financial statement class will be academic. For divisions with various non-academic departments under its reporting hierarchy (i.e. UTSC, UTM, VP Provost, etc.) the operating reserve will first need to be subtotaled by each financial statement class grouping and then allocated across the five reserve categories above.

For more information on preparing the divisional operating reserve report, refer to the reporting course Year End Operating Reserves, or contact your FAST Team Representative.

Last revision February 2014