Policies & Guidance

Operating Reserves

I.    Purpose

The purpose of the Operating Reserve Fund for League of Women Voters Minnesota is to help ensure the long-term ability of the organization to meet its mission. League of Women Voters Minnesota will maintain the operating reserve to achieve the following objectives:

  • To create an internal line of credit to manage cash flow and maintain financial flexibility

  • To enable the organization to sustain operations through delays in payments of committed funding, and

  • To pay for one-time, nonrecurring expenses that will build capacity, such as staff development or membership or donor recruitment.

The Operating Reserve Fund is not intended to replace a permanent loss of funds or eliminate an ongoing budget gap. It is the intention of League of Women Voters Minnesota for operating reserves to be used and replenished within a year.

II.    Definitions and Goals

The Operating Reserve Fund is defined as funds set aside by action of the Board of Directors. Its ongoing operation and oversight is delegated to the Finance Committee.

A.   Target Minimum Operating Reserve Amount

The minimum amount to be designated for the Operating Reserve will be established as 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 Operating Reserve Fund is equal to twelve months of operating expenses on average. See Section VIII for current Target Minimum Operating Reserve Amount.

The calculation of average monthly operating expenses 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

B.   Funding Operating Reserves

To establish the Operating Reserve Fund, the League of Women Voters Minnesota Board of Directors has designated $600,000 of existing accumulated liquid unrestricted net assets as the beginning balance of the fund.

The amount of the Operating Reserve Fund target minimum will be calculated each year as part of the annual budgeting process. This amount will be reported to the Finance Committee and included in the regular financial reports. The Operating Reserve Fund will be funded annually with surplus unrestricted operating funds. The Board of Directors may from time to time direct that a specific source of revenue be set aside for its operating reserves. Examples may include one-time gifts or bequests, special grants, or special appeals. Organization staff will ensure that any donations designated for the Operating Reserve Fund will not carry restrictions that conflict with the Board’s oversight of the fund as outlined in the policy.

III.    Investing Operating Reserves

The Operating Reserve Fund will be funded and available in cash or cash equivalent funds, in accordance with the risk preferences, liquidity needs and investment objectives of the organization.

The operating reserves will be comingled with the general cash accounts of the organization but segregated in financial reporting.

IV.   Shortfalls

If the Operating Reserve is and has been less than 75% of the target operating reserve minimum for two consecutive years, the Board of Directors will adopt an operational budget with a projected surplus sufficient to rebuild the Operating Reserve Fund to its targeted operating reserve level over a prescribed number of years.

V.   Accounting for Operating Reserves

The Operating Reserve Fund will be listed separately in the unrestricted net assets section of the organization’s statement of financial position as “Board-Designated Operating Reserve” and the status of borrowings from the operating reserve will be reported in financial reports to the Board.

VI.   Using Operating Reserves

A.   Management identifies appropriate use

The Executive Director will identify reasons for accessing the operating reserve funds and confirm that the use is consistent with the purpose of the operating reserves as described in this Policy. As a part of this process, the Executive Director will do the following:

  • Analyze the reason for the needed funds;

  • Assess the availability of any other sources of funds before using operating reserves (e.g. line of credit); and

  • Evaluate the time period that the funds will be required, and then replenished.

B.   Board authorizes use and monitors operating reserves

The Executive Director may access the operating reserves for purposes as outlined above, as long as sufficient funds are available to repay such usage within twelve months’ time. The Executive Director will submit a request to the Finance Committee in writing, which will include the analysis and determination of the use funds and plans for replenishment (as outlined above). The Finance Committee will approve in writing or modify the request and authorize transfer from the fund. Email is an acceptable form of notification and acknowledgment.

1.    Borrowing from Operating Reserves

Any funds borrowed from the Operating Reserve Fund for longer than twelve months will be paid back through a prescribed repayment schedule. The Executive Director shall request approval of any such usage and the proposed repayment schedule from the Finance Committee and Board of Directors. If approved, such disbursement shall be reported at the next full Board meeting. At any time that a borrowing from the Operating Reserve is outstanding, the status of the borrowing and payments made will be reviewed at Board meetings.

A draw-down from the fund that cannot be replaced in the timeframe established above must be approved by a majority of the Board, either by a majority of the votes of quorum present at a regular Board meeting, or by a two-thirds majority of the Board if such vote is conducted by other means. A record of such action will be maintained and be made a part of the Board meeting minutes.

2.    Report and monitor use of operating funds

The Executive Director is responsible for ensuring that the Operating Reserve Fund is maintained and used only as described in this Policy. Upon approval for the use of Operating Reserve, the Executive Director and finance staff will maintain records of the use of funds and plan for replenishment. The Executive Director will provide regular reports to the Board of Directors and the Finance Committee of progress to restore the fund to the target minimum amount.

VII.   Review of Policy

This policy will be reviewed every year at minimum, by the Executive Committee and Finance Committee, or sooner if warranted by internal or external events or changes. Changes to the Policy will be recommended by the Finance Committee to the Board of Directors. 

VIII.   Current Target Operating Reserve Amount

For fiscal year 2020 the Target Minimum amount is $600,000.

 

Policy approved/adopted: May 18, 2020