Operating Reserve Policy
STATEMENT OF PURPOSE
The purpose of the Operating Reserve policy for the League of Women Voters is to ensure the stability of the mission, programs, employment, and ongoing operations of the organization. The Operating Reserve is intended to provide an internal source of funds for situations such as a sudden increase in expenses, one-time unbudgeted expenses, or an unanticipated loss in funding. The Operating Reserve is not intended to replace a permanent loss of funds or eliminate an ongoing budget gap. It is the intention of the League of Women Voters for the Operating Reserve to be used and replenished within a reasonably short period of time. The Operating Reserve policy will be implemented in concert with the other governance and financial policies of the League and is intended to support the goals and strategies contained in these related policies.
DEFINITIONS AND GOALS
The Operating Reserve is an amount designated by the Board. The minimum amount to be designated as the Operating Reserve will be established in an amount sufficient to maintain ongoing operations and programs for a set period of time, measured in months. The Operating Reserve serves a dynamic role and will be reviewed and adjusted in response to internal and external changes.
The target minimum of level of the Operating Reserve is equal to three months of average operating costs. The calculation of average monthly operating costs includes all recurring, predictable expenses such as salaries and benefits, occupancy, office, travel, program, and ongoing professional services. Depreciation, in-kind, and other non-cash expenses are not included in the calculation. The calculation of average monthly expenses excludes capital purchases and expenses funded by restricted grants.
The amount of the Operating Reserve target minimum will be calculated each year by the staff after approval of the annual budget. The amount of the Operating Reserve will be reported to the Board, and included in the regular financial reports.
ACCOUNTING FOR THE OPERATING RESERVE
The Operating Reserve will be recorded in the financial records as “Board-Designated Operating Reserve.” The Fund will be available in cash, cash equivalent funds and other low-risk investment as specified in the League’s investment policies. The Operating Reserve will be commingled with other unrestricted cash and investment accounts of the organization.
FUNDING OF THE OPERATING RESERVE
The Operating Reserve will be funded with unrestricted operating funds. The Board may from time to time direct that a specific source of revenue be set aside for the Operating Reserve. Examples may include one-time gifts or bequests, special grants, or special appeals.
USE OF OPERATING RESERVES
Use of the Operating Reserve requires three steps:
1. Identification of appropriate use of reserve funds.
Management will identify the need to access the Operating Reserve and confirm that the use is consistent with the purpose of the Operating Reserve as described in this Policy. This step requires analysis of the reason for the shortfall, the availability of any other sources of funds before using the Operating Reserve, and evaluation of the time period that the funds will be required and replenished.
2. Authority to use the Operating Reserve
Authority to use the Operating Reserve is delegated to the Executive Director in consultation with the Secretary-Treasurer. The use of the Operating Reserve will be reported to the Executive Committee at their next scheduled meeting, accompanied by a description of the analysis and determination of the use of funds and plans to replenish the Operating Reserve to the target minimum amount. The Executive Director must receive prior approval from the Executive Committee if the Operating Reserve will take longer than 12 months to replenish.
3. Reporting and monitoring
The Executive Director is responsible for ensuring that the Operating Reserve is maintained and used only as described in this Policy. Upon approval for the use of the Operating Reserve, the Deputy Executive Director and the Chief Financial Officer will maintain records of the use of the Operating Reserve and plans for replenishment. Regular reports will be made to the Executive Committee of progress to restore the fund to the target minimum amount.
RELATIONSHIP TO OTHER POLICIES
The League of Women Voters will maintain investment and other board-approved policies, which may contain provisions that impact the management of the Operating Reserve.