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Fund Balance Reserves Policy

Authority:

• GASB Codification Section 1800.142
• GASB Statement 34
• AICPA Audit and Accounting Guide, Audits of State and Local Governmental Units, With Conforming Changes as of May 1, 2006, Chapter 10

Effective Date:
7/1/01; Revised 3/1/07; 3/1/08

Policy:
The equity reported in the governmental fund balance sheet should be labeled fund balances and segregated into reserved and unreserved amounts. Fund balance reserves report the portions of the fund balances that are either (a) externally restricted for a specific use, (b) not available for appropriation or expenditure because the underlying asset is not an available financial resource for current appropriation or expenditure, or (c) for encumbrances, which represent commitments related to unperformed contracts for services and undelivered goods.

For the purposes of this policy, externally restricted means either of the following:

• Imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments.
• Imposed by law through constitutional provisions (e.g., the State Constitution).

Accounting Guidance:
The portions of fund balance represented by assets not available for appropriation or expenditure should be reserved. For example, a Reserve for Inventories indicates that the portion of fund balance represented by inventories is not available for appropriation or expenditure at the balance sheet date because the underlying asset (inventory) is not an available financial resource for current appropriation or expenditure. Other examples of assets which are not available financial resources for current appropriation or expenditure are prepaid items, noncurrent receivables, and interfund advances.

Cash carryforward is comprised of amounts authorized by the Office of State Budget and Management to be carried forward to the next fiscal year. Cash carryforward is unreserved unless represented by specific encumbrances or externally restricted.

Reporting fund balance reserves is not necessary if resources that are legally segregated for a specific future use are reported in a separate GAAP fund used only for that purpose. This is because the use of the separate fund itself communicates the legal segregation for a specific future use. However, fund balance should be reserved in situations where external restrictions impose a limitation narrower than the purpose of the fund itself. For example, resources externally restricted for use in hunter education programs would properly be reported as reserved fund balance in a Wildlife Special Revenue Fund.

When part of fund balance is reserved, the remainder should be reported as the unreserved fund balance. Fund balance designations may be established to indicate tentative plans for how financial resources will be used in a future period, such as for general contingencies or for equipment replacement. Such designations reflect tentative management plans or intent and should clearly be distinguished from reserves. Designations should be reported as part of the unreserved fund balance or disclosed in the notes to the financial statements.

Designations should not result in reporting negative undesignated balances in the financial statements at year-end, regardless of the amount of undesignated fund balance at the time the designation was made. In such cases, those (excess) designations may be disclosed in the notes to the financial statements. The unreserved fund balances that remain after designations are undesignated fund balances.