Cash Reserve Policy

Responsible Unit: Finance | Executive lead: CFO 
Created: 9/2015 | Reviewed/Revised: 1/27/2023, 05/2024 | Effective: 06/2024 
Compliance: NWCCU 2.E.1, 2.E.2, 2.E.3 
Approving Body: BOT | Classification: Institution-wide 

Purpose 
This policy is to ensure the stability of the mission, programs, employment, and ongoing operations of the organization. 

Definitions and Goals   

  • The Cash Reserve Fund is defined as a designated fund set aside by action of the Board of Trustees. The minimum amount to be designated as Cash Reserves will be established in an amount sufficient to maintain ongoing operations and programs for a set period of time, measured in months. The Cash Reserves serve a dynamic role and will be reviewed and adjusted in response to internal and external changes. 
  • The minimum (floor) Cash Reserve Fund is equal to three (3) months of average operating costs. 
  • The target minimum Cash Reserve Fund is equal to six (6) months of average operating costs. 
  • The calculation of average monthly operating costs includes all recurring, predictable expenses such as salaries and benefits, occupancy, 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 also excludes expenses such as pass-through programs, one-time or unusual purchases. The amount of the Cash Reserve Fund target minimum will be calculated each year after approval of the annual budget, reported to the Finance Committee/Board of Trustees, and included in the regular financial reports. 

Policy:  

Intended Uses 

Cash Reserves are intended to provide an internal source of funds for situations such as a sudden increase in expenses, one-time unbudgeted expenses, or unanticipated loss in funding.   The Reserves may also be used for one-time, nonrecurring expenses that will build long-term capacity, such as investment in infrastructure, start-up costs of new programs or research.  Cash Reserves are not intended to replace a permanent loss of funds or eliminate an ongoing budget gap. It is the intention of PNWU for Cash Reserves to be used and replenished within a reasonably short period of time. 
  
Accounting for Reserves 

The Cash Reserve Fund will be recorded in the financial records as Board-Designated Operating Reserves. The Fund will be funded and available in cash or cash equivalent funds. Cash Reserves should be maintained in segregated bank account(s) or investment fund(s), in accordance with investment policies.  Cash Reserves may be commingled with the general cash and investment accounts of the organization, but segregated funds are preferred. 
  
Funding for Reserves 

The Cash Reserve Fund will be funded with surplus unrestricted operating funds. Unrestricted cash reserves are treated differently than temporarily restricted funds, which are set aside for specific donor-restricted purposes.  The Board of Trustees may from time to time direct that a specific source of revenue be set aside as Cash Reserves. Examples may include one-time gifts or bequests, special grants, or special appeals. 
  
USE OF RESERVES 

Use of the Cash Reserves requires three steps: 

  1. Identification of appropriate use of reserve funds.  

The President and/or Chief Financial Officer will identify the need to access the reserve funds and confirm that the use is consistent with the purpose of the reserves 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 reserves, and evaluation of the time that the funds will be required and replenished. 

  1. Authority to use operating reserves  

Upon approval of the President, the Chief Financial Officer will submit a request to use Cash Reserves to the Finance Committee of the Board of Trustees. The request will include the analysis and determination of the use of funds and plans for replenishment. The organization’s goal is to replenish the funds used within [12 months] to restore the Cash Reserve Fund to the targeted amount. If the use of Cash Reserves will take longer than [12] months to replenish, the request will be scrutinized more carefully. Requests to use funds down to the three (3) month floor may be authorized by the Finance Committee.  Requests to use funds below the three (3) month floor must be first approved by the Finance Committee, then by the Executive Committee/Board of Trustees. 

The Chief Financial Officer must receive prior approval from the Executive Committee of the Board of Directors if the Operating Reserves will take longer than [12] months to replenish.  

  1. Reporting and monitoring 

The Chief Financial Officer is responsible for ensuring that the Cash Reserve Fund is maintained and used only as described in this Policy. Upon approval for the use of Cash Reserve funds, the Chief Financial Officer will maintain records of the use of funds and plan for replenishment. He/she will provide regular reports to the Finance Committee/Board of Trustees of progress to restore the Fund to the target minimum amount. 

Procedure: 
Included with policy wording  

Related documents: 
N/A 

Policy Resources

For assistance with policies and procedures contact:

Lori Fulton
lfulton@pnwu.edu