Operating Reserve Fund Policy

PURPOSE

The purpose of the Operating Reserve Fund Policy for the Lake Heritage Property Owners Association, Inc. (LHPOA) is to ensure the stability of the vision, programs, employment, and ongoing operations of the organization. The Operating Reserve Fund provides an internal source of funds for situations such as a sudden increase in expenses, one-time unbudgeted expenses,unanticipated loss in funding, or uninsured losses. The Operating Reserve Fund is not intended to replace a permanent loss of funds or eliminate an ongoing budget gap. The Operating Reserve Fund if used shall be replenished preferably within a two-year timeframe. The Operating Reserve Fund Policy will be implemented in concert with the other governance and financial policies of LHPOA and is intended to support the goals and strategies contained in these related policies and in strategic and operational plans.

DEFINITIONS AND GOALS

The Operating Reserve Fund is defined as a designated fund set aside by action of the Board of Directors (BOD). The target minimum amount to be designated as Operating Reserve Fund will be established in an amount sufficient to maintain ongoing operations and programs for a set period of time. The Operating Reserve Fund serves a dynamic role and will be reviewed and adjusted in response to internal and external changes.

The initial target minimum Operating Reserve Fund is equal to 15% of the annual operating budget.  The annual operating budget for this purpose excludes depreciation and one-time expenses.

The amount of the Operating Reserve Fund target minimum will be calculated each year during approval of the annual budget, reported by the Finance Committee to the BOD and included in the regular financial reports.

ACCOUNTING FOR RESERVES

The Operating Reserve Fund will be recorded in the financial records as Board-Designated Operating Reserve. Operating Reserve Funds will be maintained in accordance with the LHPOA Investment Policy.

FUNDING OF RESERVES

The Operating Reserve Fund may be funded with the following: annual dues, surplus operating funds and/or interest earned on investment operating funds. The BOD may from time to time direct that a specific source of revenue be set aside for the Operating Reserve Fund.

USE OF RESERVES

Use of the Operating Reserves requires three steps:

1. Identification of appropriate use of reserve funds.

The Community Manager and/or Committee Chairs will identify the need for access to 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 period for which the funds will be required and replenished.

2. Authority to use operating reserves.

The Community Manager and/or Committee Chairs will submit a request to use Operating Reserves to the BOD. The request will include the analysis and determination of the use of funds and specific plans for replenishment. The BOD will be required to approve any requests.

3. Reporting and monitoring.

The Community Manager/Assistant Community Manager are 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 Funds, the Community Manager will maintain records of the use of funds and plan for replenishment. He/she will provide regular reports to the BOD of progress to restore the Fund to the target minimum amount.

RELATIONSHIP TO OTHER POLICIES

The BOD oversees the maintenance of the LHPOA Bylaws, which may contain provisions that affect the creation, sufficiency and management of the Operating Reserve Fund. Other Policies, existing or potential, that may affect the Operating Reserve Fund are as follows:

  • Financial Policy (including Budget), and
  • Investment Policy

REVIEW OF POLICY

This Policy will be reviewed every other year, at minimum, by the 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 BOD.

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