700 Reserves and Investment Management

701 Equipment Replacement Reserves

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 03/19/2012

Self-sustaining organizations such as Auxiliary Enterprises and Service Centers should be financially prudent and set aside funds for equipment replacement per OUS 55.100 Fixed Assets Accounting Policies.

An equipment reserve fund is required for every proprietary fund carrying capital asset balances greater than $150,000. The reserves are to be used to repair or replace the capital assets or functionality of those assets used in the operation of the Service Center or Auxiliary.

The reserve fund’s balance and cash should be sufficient to promote the efficient and effective operation of the related operating unit.  The accumulated depreciation balance is used as a guide to determine sufficient funding.  

Funding of reserves should be performed in a timely manner.  Ideally the entry would be performed after the monthly postings of accumulated depreciation. This is accomplished by a manual journal entry as follows (cash inter-fund will flow with these entries):

  Debit Proprietary Fund _____ Account Code F0002 Fund Deductions to Reserves

    Credit Equipment Reserve Fund _____ Account Code E0002 Fund Additions from Proprietary Funds

Note: If funding of reserves would put the proprietary fund’s cash or fund balance in a deficit, reserve deficiencies can be recovered over the next ten years using current deficiency recovery methodology (only the accounting entries and timing of posting entries would differ.)

Replacing equipment that was fully depreciated and removed from inventory requires an additional transaction from the reserve to the proprietary fund to cover the cost for the replacement asset. The amount of funds removed from equipment reserves may not exceed the value of the replacement asset being purchased.

  Debit Reserve Fund _____ Account Code F0001 Fund Deductions to Other Funds

    Credit Proprietary Fund _____ Account Code E0001 Fund Additions from Other Funds.

702 Service Centers

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 03/29/2012

Each Service Center is responsible to develop a business plan that includes setting aside funds for equipment replacement.  Each service center will have a capital asset replacement plan. The plan must set a target for funding levels and include dollar amounts for contributions to the reserve fund.

This plan must be submitted to the Director of Business Affairs and approved by the Vice President for Finance and Administration at the beginning of each fiscal year.

Both operating and reserve funds for service centers are non-interest bearing funds.  Oregon Revised Statutes make no provision for these funds to be interest bearing.

Equipment reserve funds cannot be used to purchase new assets, only replacements. All purchases are made from the operating fund. When purchasing a replacement, cash is moved from reserves to the operating fund by use of Exxxx or Fxxxx account codes.

Reference: IMD 6.350.

703 Auxiliary Enterprises

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 01/25/2010

Auxiliary Enterprises, as self-sustaining organizations, must set aside funds for equipment replacement and develop a business plan.  The business plan will include a Capital Asset Replacement Plan, must be submitted to the Director of Business Affairs, and be approved by the Vice President for Finance and Administration at the beginning of each fiscal year.  The plan must set a target for funding levels and include dollar amounts for contributions to the reserve fund.

Reserve funds for both buildings and equipment for Auxiliary Enterprises are interest-bearing funds.  The interest earnings should be considered when creating the schedule for funding the reserves.

All purchases are made from the operating fund.  When purchasing a replacement, cash is moved from reserves to the operating fund by use of Exxxx or Fxxxx account codes. 

Reference: IMD 6.350; ORS 351.590; ORS 351.615

704 Building Repair Reserves – Auxiliary Enterprises

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 01/25/2010

Building Repair reserve funds are required so self-supporting organizations set aside sufficient funds to adequately maintain their “owned” buildings.  The Building Repair Reserve funding level requirement calls for an assessment by Auxiliary personnel of the “owned” buildings condition and age.  Each Auxiliary must review its particular building repair needs, and prepare a business plan for building repair projects in the same manner as for capital equipment replacement.  The plan must set target funding levels for upcoming years.  This plan must be submitted to the Director of Business Affairs and approved by the Vice President for Finance and Administration at the beginning of each fiscal year.  The amount in Building Reserves is not related to accumulated depreciation.

When the Building Repair Reserve Fund is funded with cash according to the schedule in the business plan, the transaction will be a fund deduction (account code F0002) to the Operating Fund, and a fund addition (account code E0002) to the Building Reserve Fund.

Cash will be moved from the Building Repair Reserve Fund ONLY to a plant repair fund 8XXXXX.  Building Repair Reserve Funds cannot be used to fund new construction or capitalized projects, only major maintenance and repairs.

Reference: IMD 6.350; ORS 351.590; ORS 351.615.

705 Building Use Credit Reserves

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 10/23/2012

Building Use Credit funds are held in a special reserve fund awaiting distribution under the guidelines of OMB Circular A-21; section J.14h. See FIS 605: Building Use Credits for additional information.

These funds are for the purpose of acquiring or improving research facilities.  These funds may only be used for (a) liquidation of a principal of debts incurred to acquire assets that are used directly for organized research activities, or (b) payments to acquire, repair, renovate, or improve buildings directly used for organized research.”  When projects are identified and approved, funds are moved from the Building Use Credit Reserve to a Plant Fund 802XXX and ZARWxx index for each unit or college receiving funds.  When the project is completed, or after five years, if there are funds remaining in the Plant Fund account, they are returned to the Building Use Credit Reserve for redistribution.  If a project is capital, i.e. a new building, then a request must be submitted through OSU Facilities Services to establish a special Plant Fund for this purpose.

Verification of costs for projects using BUC funds is prepared for the United States Department of Health and Human Services (DHHS).  It is important to expend these funds in a timely manner and only on approved projects.

706 Research Equipment Reserves

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/22/2013
Revised: 01/25/2010

Research Equipment Reserve Funds (RERF) may be used to acquire, repair, renovate, or improve equipment directly used for research. The equipment may be inventoried capital equipment =>$5,000 per unit, fabricated capitalized equipment, or minor equipment costing less than $5,000 per unit which lasts at least two years. Account code 40101 must be used when purchasing inventoried capital equipment, and account codes in the 202xx minor equipment series must be used when the item cost is less than $5,000. See PRO 210 Fabrication for specifics related to processing when constructing fabricated equipment units.

RERF funds can not be used to purchase or construct assets that are considered infrastructure (network wiring) or fixed building equipment (fume hoods, permanent lab benches); however, Building Use Credit (BUC) funds may be used for this purpose when appropriate.

The Research Office reviews all applications for eligibility before forwarding to the Research Council for competitive review and evaluation. The Research Council provides a prioritized list of recommendations for funding to the Vice President for Research, or their designee, based on the quality of the applications as reflected in the review criteria. The amount of the equipment awards are based on available funds. Information regarding the application process, award criteria and deadlines can be found online at the OSU Research website.

After the RERF funds are awarded, the Research Office initiates a budget increase to the recipient’s index associated with Equipment Allocation fund '001145'. The department should purchase the equipment using this index. A report on all purchases using RERF is prepared for the Department of Health & Human Services, Division of Cost Allocation (DHHS, DCA) as required by OMB Circular A-21, Section J14h.

707 Endowments

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 01/25/2010

Endowments are donations from a donor where the donor specifies that the principal cannot be expended.  The money is invested in stocks by the Oregon University System.  The spending rate is determined by the State Board of Higher Education based on a 5-year moving average over the entire pool of investments of the OUS.  These funds (6XXXXX) are distributed and posted on a monthly basis to appropriate restricted gift funds.

Endowment fund investments are pooled system wide.  The Controllers Division is responsible for calculating the gain and loss on these investments.  The institutions cannot make any entries that reduce Endowment Funds.  For more information, contact the Office of Business Affairs at 7-0624.

Reference: IMD 6.140.

708 Gifts

Fiscal Operations Manual
Section 700: Reserves and Investment Management
Effective: 01/01/2003
Revised: 01/25/2010

See the Grant, Contract, and Gift Accounting Policy & Procedure Manual.