l.          PURPOSE 

The purpose of this Operating Reserve Policy for the Foothill-De Anza Foundation is to build and maintain an adequate level of unrestricted net assets to support the organization’s day-to-day operations in the event of unforeseen shortfalls. The Operating Reserve (“Reserve”) may also be used for one-time, nonrecurring expenses that will build long-term capacity of the foundation, the college district and/or the colleges such as for staff development, research, and development, or investment in infrastructure.  

The Reserve is not intended to replace a permanent loss of funds or eliminate an ongoing budget gap. The organization intends for the Reserve, once used, to be replenished within a reasonable period of time. This Operating Reserve Policy will be implemented in conjunction with the other financial policies of the organization and is intended to support the goals and strategies contained in those related policies and in strategic and operational plans. 

II.         DEFINITIONS AND GOALS 

The Reserve Fund is defined as the designated fund set aside by action of the Foothill-De Anza Foundation Board of Directors. The minimum amount to be designated as the 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 can be periodically be reviewed and adjusted in response to internal and external changes.  

The Reserve Fund is equal to a minimum of six (6)months of average recurring operating costs.  This is also known as the “minimum operating reserve.” The average recurring operating cost shall be calculated as the average of the prior three fiscal years.   

The “target” or preferred operating reserve is equal to twelve (12) months of average recurring operating costs as calculated above. 

III.       ACCOUNTING FOR RESERVES 

The Reserve Fund will be recorded in the accounting system and financial statements as “Board Designated Operating Reserve” or similar title. The Reserve Fund will be funded and available in cash or cash equivalents. The Reserve will be maintained in a segregated bank account or investment fund(s). 

IV.        FUNDING OF RESERVES  

The Reserve Fund will be funded 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 operating reserves. Examples may include one-time gifts or bequests, special grants, or special appeals. 

Unless otherwise approved and directed by the FHDA Foundation Board of Directors, the Reserve Fund shall be invested in lower-risk, shorter-term investment vehicles to ensure a stable fund balance and to mitigate any market losses. 

The Executive Director consultation with the Board Treasurer will identify the need for access to the Reserve and confirm that the use is consistent with the purpose of the Reserve as described in this policy. Determination of need requires analysis of the sufficiency of the current level of funds, the availability of any other sources of funds before using reserves, and evaluation of the time period for which the funds will be required and replenished. 

V.         AUTHORITY TO USE OPERATING RESERVES 

The Executive Director will submit a request to use the Reserve fund to the Finance Committee of the Foundation Board of Directors. The request will include the analysis and determination of the use of funds, the timeline for the use of those funds, and the plan to replenish the Reserve fund to the appropriate level. The organization’s goal is to replenish the funds used within thirty-six (36) months to restore the Reserve Fund to, at least, its minimum amount. If the use of operating reserves will take longer than 36 months to replenish, the request will be scrutinized more carefully. The Finance Committee will review the request and will make appropriate recommendations to the Board of Directors for the Board’s consideration and approval.  

VI.        REPORTING AND MONITORING  

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

The Executive Director will annually discuss what additional risk factors might be considered for the organization, the impact of budgeting on operating reserve levels, and any requirements with funders or chartering organizations.  

Foundation Board Approval  (10/21/20)