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Risk Tolerance Policy
Purpose
One of the key financial risks faced by the Research Foundation (RF)
is campuses incurring accounts receivable beyond what they can cover. As part
of our ongoing effort to mitigate key financial risks, the RF has established
an accounts receivable tolerance policy for all campuses effective July 1, 2008.
Measures
The accounts receivable tolerance takes into account three measures
which will be monitored quarterly:
| Step | Action |
|---|---|
1 |
The ratio of at-risk receivables at a campus to the campus’s total working capital. “At-risk receivables” is the total of: budgets of at-risk sponsored awards + amount in payroll suspense + expenditures over award budgets (agency, corporate and sponsored). A campus’s total working capital is their total unrestricted cash balance. The tolerable range for this measure is 20%. |
2 |
The ratio of at-risk receivables at a campus to the campus’s total sponsored program expenditures as displayed in the Sponsored Program Activity Report (SPAR). The tolerable range for this measure is 5%. |
3 |
The ratio of at-risk receivables at a campus to the campus’s total expenditure activity, including sponsored, agency and corporate. The tolerable range for this measure is 4%. |
Process
The risk tolerance process will work as follows:
| Step | Action |
|---|---|
1 |
At the end of each fiscal quarter, central office will compile the data to show where each campus stands in terms of its at-risk receivables. |
2 |
If a campus is in an intolerable range in all three measures, central office will ask the OM to review the circumstances and identify how long the campus expects the at-risk receivable level to remain at the intolerable level. The OM will also provide details on how the campus would pay a potential loss back to the RF. |
3 |
If a campus reports that the at-risk receivable level will remain in the intolerable level for two more quarters, central office will bring the situation to the Board Finance Committee for review. |
4 |
The Board Finance Committee will determine if the situation warrants stopping the campus from incurring further receivables or not. |