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Preserve Your Reserves

March/April 2020

By Karla Hignite

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Planful prioritizing of reserves can help ensure that your campus remains nimble when it needs to spend set-aside funds.

THE MANY BENEFITS OF A RESERVES ANALYSIS

 

While many use the terms interchangeably, cash balances are not the same as reserves, says Jean Vock, senior vice president, business affairs and CFO, University of Nevada, Las Vegas. When Vock joined UNLV as CFO in 2017, the university did not have a formal financial reserves policy in place. Soon after she arrived, with the assistance of public accounting firm Moss Adams, Vock and the university leadership set out to develop a comprehensive framework for defining and reporting reserves practices going forward, in part because some had expressed concern about what they thought were high levels of reserves, says Vock.

One problem with many college and university financial statements is that they do not indicate funds that are committed or internally designated, leaving some to assume that all unrestricted funds are available to spend. UNLV is currently working to develop a supplemental report that shows these commitments as part of its push to better educate and communicate what constitutes the university’s reserves, says Vock.

Four Reserves Buckets

From Vock’s perspective, while there has been some isolated benchmarking, no clear consensus has emerged around operating reserves across higher education. Many institutions don’t have defined reserves targets, and for those that do, targets range anywhere from one month to 12 months of available cash on hand. Nevertheless, says Vock, the process of identifying and developing policy language that addresses potential recessionary reverberations and other rainy-day scenarios is an important part of every institution’s strategic planning.

Although current leadership transitions have put a hold on formally adopting the proposed reserves policy, UNLV is already using the new framework to guide its actions, says Vock. Among the university’s strategic reasons for having reserves are supporting daily operations, mitigating risk, and building capacity for future investments in emerging needs. UNLV has identified sources of funding and different “buckets” of reserves, categorized into four carve-outs:

In developing reserves buckets, a key discussion point for UNLV leadership was whether the university might also need to reserve against the state operating budget. “Ultimately, we decided not to do so,” says Vock. As she explains, UNLV’s state-appropriated funds have a specific function for the education mission. “We are not allowed to carry over those funds, so we always fully spend our state allocations.”

Because UNLV has a high proportion of first-generation students—about 52 percent—there is huge sensitivity to raising tuition or fees for in-state residents, since a primary strategic goal is accessibility, according to Vock. She says that, for now, UNLV leaders presume the state will continue funding at what remains a fairly high level, covering about 60 percent of the university’s education mission through direct support to students.

One positive outcome of a deep dive into reserves analysis is identifying how your institution should report information, says Vock. “The process itself provides an opportunity to educate and communicate by explaining why we need these different reserves. It also gets everyone on the same page about appropriate amounts to have on hand.”

KARLA HIGNITE, Fort Walton Beach, Fla., is a contributing editor for Business Officer.


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One positive outcome of a deep dive into reserves analysis is identifying how your institution should report information.

Jean Vock, University of Nevada, Las Vegas