This document provides guidance to campuses on the recommended practice of creating a campus reserve to cover losses.
The Research Foundation's "Responsibility for Losses Policy" states
“Each campus or other designated operating location is responsible for losses on any Research Foundation activity incurred as a result of action or inaction on the part of that location.”
Losses may be funded from annual allocations, location reserves, or other sources of nonstate funds available to the location. Losses may include such items as sponsor non-payment due to disallowance, overexpenditure, or sponsor inability to pay and penalties imposed by federal or other agencies, etc.
The Research Foundation recommends that each campus establish a reserve and annually review it in order to be in position to cover losses that may occur. Waiting until a loss does occur is not a prudent business practice.
The following is guidance for establishing the reserve in terms of timing, estimating the amount of the reserve, and creating the award.
Campuses annually receive a net distribution of income in the campus allocation. Each year prior to June 30th or during the campus budget process, the operations manager (OM) should isolate a portion of the allocation as a reserve to cover potential losses.
The OM should act with an objective standard of financial prudence. This standard is usually expressed as “the care an ordinarily prudent person would take under similar circumstances.” The OM should establish reserves in a manner that is in the best interests of the corporation. Prudent business judgment should be used without consideration of the ability to fund in any particular year.
The following process may assist in estimating the reserve amount.
Number of Days |
Recommended Reserve Percentage |
30 to 60 |
2% |
61 to 90 |
5% |
91 to 120 |
25% |
121 to 365 |
75% |
Greater than 365 |
100% |
The percentages recommended above are subjective; actual percentages should be based on history or a prudent estimate.
Campuses should also pay particular attention to
Award The reserve must be funded by the campus allocation or other sources as noted above. The campus may request that the Foundation’s corporate office establish the reserve award. Contact the comptroller to request that central office establish and maintain the reserve award.
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