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Reserves Policy


1. Purpose

The purpose of this policy is to set out RACGP’s policy on maintaining Reserves, the amount of Reserves to be maintained where relevant, and the procedures relating to the use of Reserves.

2. Application

This policy applies to all members of the Board, the CEO and any other delegates, and to subsidiaries of the College.

3. Definition of Reserves

RACGP’s Equity comprises Accumulated Surpluses (also known as Retained Earnings) and Reserves.  Reserves comprise Accounting Reserves (being reserves required under Accounting Standards, for example Revaluation Reserves) and Discretionary Reserves (being Reserves created by the Board for particular purposes).

Accounting Standards determined how Accounting Reserves are created, adjusted and recorded in the Annual Financial Statements of the College.  The Annual Financial Statements are audited and approved by the Board.  This policy does not deal further with Accounting Reserves.

Discretionary Reserves are a part of RACGP’s unrestricted funds.  Unrestricted funds are those funds that are freely available to spend on any charitable purpose of RACGP.  Restricted funds are funds that are declared by the donor or through a legal process for a specified purpose or are grants awarded under contractual or other binding agreements.

Discretionary Reserves represent that part of unrestricted funds that the RACGP Board has determined should be designated for a particular purpose

4. Purpose of holding Discretionary

Reserves The Board may designate reserves for purposes supporting the effective financial management of the College.  At the date of this policy, the Board designated reserves for the following purposes:

  • Financial sustainability and contingency – RACGP Reserve Fund
  • Foundation to fund research – the Research Foundation Fund
  • Future projects – the Futures Fund

Each reserve will be represented by assets on the Balance Sheet (often cash or investments).  The disclosure of these as part of reserves on the Balance Sheet provides a transparency on the funding of the College.

Each discretionary reserve will have a policy statement setting out the relevant details for the reserve relating to this policy.  Policy statements for discretionary reserves are approved by the Board. The policy statements relating to the discretionary reserves listed in this section are included as Attachments to this policy.  The Board may add policy statements for new discretionary reserves or amend existing policy statements.

5. Setting the balance of discretionary reserves to be held

The Board will set the balance of discretionary reserves to be held for each reserve taking account of the purpose of the reserve.  The balance set may be a target amount or an actual amount. Target levels for reserves may be a fixed amount or a range that the board wishes to maintain the reserve within.

The Board will review the balance of discretionary reserves to be held at least annually.

6. Transfers into discretionary reserves

The Board approves transfers into discretionary reserves unless otherwise provided for in the policy statement of a reserve. Increases in the value of the underlying assets for a discretionary reserve do not require board approval and should be accounted for into the discretionary reserve as they arise. Such increases should be approved by the CFO.

The approval of the Board is required for the use of proceeds from disposals of unrestricted assets (including intellectual property, investments and subsidiaries) in excess of $100,000 unless these proceeds will be used to reinvest in assets in accordance with a Board-approved budget.  The Board may determine that such proceeds be applied to discretionary reserve.

7. Use of and transfers out of discretionary reserves

The Board approves transfers out of discretionary reserves including any loss in value on the underlying assets of the reserve.  The Board approves the use of discretionary reserves considering the purpose of the reserve and its policy statement. The Board approves the cessation of discretionary reserves.

8. Investing Reserves

The Board will determine the nature of the assets that should be employed to represent the discretionary reserve taking account of the purpose of the reserve.

9. Exercise of Delegation

Other than the transfer of increases in the value of the underlying assets for a discretionary reserve, approvals on the creation, cessation and the movements in and out of discretionary reserves are reserved to the Board.

10. Monitoring and Reporting

The CEO will report to the Board on Reserves and movements at least quarterly.

11. Disclosure

RACGP and RACGPTS will disclose a summary of and amounts of discretionary reserves held together with their purpose in their Annual Financial Statements.

12. Amendment of this Policy

The CEO may, without the consent of the Board, make Minor Amendments to this policy at any time. If the CEO makes Minor Amendments, they must advise the Board of those amendments at the next scheduled Board meeting. The Board may make amendments to this policy at any time.

13. Responsibilities

Board Responsible for approval of policy and amendments. Approves creation, use and cessation of Reserves.
Members Must comply with the policy.
CEO Must comply with the policy. Responsible for Minor Amendments. Monitoring and reporting on the RF.
Delegates Must comply with the policy. Must exercise delegations within specified limits.
 

14. Glossary

Accounting reserve A reserve required under Accounting Standards, for example Revaluation Reserves.
Discretionary reserves A reserve that is not an Accounting reserve and is created by the Board for particular purposes
Minor Amendment An amendment to style, to correct grammatical mistakes, to change overall formatting, to make updates which do not materially change meaning, or any other amendment, which in the opinion of the CEO, does not materially alter the operation of the policy.
Policy Statement A statement for a discretionary reserve that sets out the relevant details for the reserve relating to this policy.
 

15. Related Documents, Legislation and Policies

Board Delegations Policy and Instrument

Treasury and Investment Policy
 

16. Policy Review and Currency

This policy will be reviewed every second year from the last approval date.

 

Version

Date of effect

Amended by

1.1 9 January 2024 Nicholas Arnott
Amendment details  

1.0

11 May 2023

 

Amendment details

  • Initial release – to replace Reserve Fund Policy

Policy owner:

RACGP Board

Approved by:

RACGP Board

Approved on:

11 May 2023

Next review due:

11 May 2024

 

 

 
Purpose

The RACGP Reserve Fund is intended to provide financial flexibility to respond to emergencies, reducing impact during times of financial stress by establishing an internal source of funds for situations, such as a sudden increase in expenses, once-off, unanticipated loss in funding, or uninsured losses. It forms part of the RACGP’s general business continuity arrangements.

It is not intended to replace a permanent loss of funds, or eliminate an ongoing budget gap, however, ensures sufficient working capital for a safety net when cash flows are unreliable or at risk without having to rely on lines of credit or external sources during shortfalls.

It is the intention of the RACGP for the Reserve Fund to be used and replenished within a reasonably short period of time.

Balance to be held

A target range of $19.0m to $41.0m.

The Board will review the range annually as part of the approval of the Annual Budget.

The bottom of the target range is determined as three months operating expenses (less depreciation, non cash-in-kind and grants).

The Board sets the higher level of the range taking account of working capital needs and financial risks such as unfunded insurances losses and commitments.

The Board recognises that building up the balance to within the target range will require to be achieved over a number of years.

Transfers into reserve

The Board may determine that transfers from Accumulated Surpluses to the RACGP Reserve Fund should occur at any stage during the year.

Increases in the value of the underlying assets of the RACGP Reserve Fund should be accounted for as increases in the reserve value.

The Board may give consideration to building up the Reserve Fund in setting the Annual Budget for the College.

Proceeds from the disposal of unrestricted assets in excess of $100,000 and not applied to purchasing assets in accordance with a Board approved budget may be transferred into the Reserve Fund.

Use of and transfers out of reserves

The Board will consider the transfer out of the RACGP Reserve Fund when the upper limit of the range is met.  This is to take account of the desirability of using funds to deliver objectives rather than held in reserves.

The RACGP Reserve Fund can be used for following purposes:

  • Shortfall due to significant changes to funding and/or market conditions such as changes in government funding and where the Board believes it is critical to the mission of the College that the activities continue and cannot be funded in any other way
  • To fund disaster management and recovery (such as a natural disaster or other event which might trigger the incident management plan)
  • Shortfall in total operational funds available for approved budgeted spend including complete utilisation of the overdraft facility
  • Payment of a deductible or excess on an existing policy or an occurrence of an uninsured loss if not budgeted; 
  • Any other reason consistent with the overall purpose of the RACGP Reserve Fund

Where the use is for capital purposes, the full capital value will be transferred out of the Reserve at the time of approval.

The use of funds should be consistent with the RACGP charitable purposes.

Underlying assets The underlying assets of the RACGP Reserve Fund should be cash and cash equivalents including Term Deposits.  The assets should be quarantined with income earned credited to the RACGP Reserve Fund.
Approval processes For transfers in to the RACGP Reserve Fund, the Board will consider approval taking into account the following information:
  • Source of funds (surpluses, asset disposal etc)
  • The alternate use of those funds
  • The balance of the RACGP Reserve Fund compared to the target range.
For transfers out of or use of the RACGP Reserve Fund, the Board will consider approval taking into account the following information:
  • The purpose of the transfer out (as detailed above)
  • The intended use and consistency with the overall purpose of the fund and purposes outlined in this policy statement.
  • The quantum of funds to be used and sufficiency and appropriateness of the request in the circumstances, including alternate sources of funding to meet the request.
  • The resulting balance of the RACGP Reserve Fund compared to the target range.
Reporting Quarterly to FARM and the Board.
 
Purpose The Research Foundation Fund was established to preserve the returns from charitable donations to utilise for research grants and awards.
Balance to be held The capital value of the fund will be maintained based on donations provided to the College for this fund and growth on the value of assets.  Income from the underlying assets will be available for use on the purpose of the Research Foundation Fund.
Transfers into reserve Donations received for the purpose of this fund.  Income from the underlying assets will be credited to the Reserve and may be used for the distribution purpose of the Research Foundation Fund
Use of and transfers out of reserves The reserve will not be used for capital transfers out.  Income/accumulated income from the underlying assets may be used for the purposes of the Research Foundation Fund.
Underlying assets Cash, cash equivalents and investments in accordance with the Investment Policy.  Assets should be invested to maintain the capital value of the Research Foundation Fund whilst delivering an income to distribute for the purposes of the Fund.
Approval processes

The CFO will approve transfers of donations into the Research Foundation Fund.

For uses of the Research Foundation Fund, the Board will consider the distribution of income/accumulated income taking account of:

  • The intended use and consistency with the overall purpose of the fund and purposes outlined in this policy statement (e.g. the nature of the research).
  • The quantum of funds to be used and sufficiency and appropriateness of the request in the circumstances, including alternate sources of funding for the request.
  • The consistency of the use with RACGP strategic objectives and charitable purposes.
  • The alternatives for funding the requested research proposal in whole or in part.
Reporting Quarterly to FARM and the Board.
 
Purpose The Futures Fund provides the College with the capability to invest in once-off, non-recurring costs that will build long-term capacity.  The Futures Fund is intended to augment investments to build capacity included within the annual budgeting baseline.
Balance to be held

Target minimum $2 million

The Board will determine a target balance annually as part of the approval of the Annual Budget.

Transfers into reserve

The Board may determine that transfers from Accumulated Surpluses to the RACGP Futures Fund should occur at any stage during the year.

Increases in the value of the underlying assets of the RACGP Futures Fund should be accounted for as increases in the reserve value.

Proceeds from the disposal of unrestricted assets in excess of $100,000 and not applied to purchasing assets in accordance with a Board approved budget may be transferred into the Futures Fund.

Use of and transfers out of reserves

The Futures Fund may be used to fund specified capital allocations or projects as part of strategic financial planning for the RACGP.

The Board may approve transfers out where the RACGP Futures Fund balance is below the minimum target.

The Board may approve transfers out where the Reserves Fund has been exhausted and where a transfer out of the Reserve Fund would have been sought.

Underlying assets Cash, cash equivalents and investments.  Assets should be invested based on the strategic forecast cashflows of the College.
Approval processes For transfers in to the RACGP Futures Fund, the Board will consider approval taking into account the following information:
  • Source of funds (surpluses, asset disposal etc)
  • The alternate use of those funds
  • The balance of the RACGP Futures Fund compared to the possible uses of those funds over a 3-5 year period.
For transfers out of or use of the RACGP Futures Fund, the Board will consider approval taking into account the following information:
  • The intended use and consistency with the overall purpose of the fund and purposes outlined in this policy statement and in furthering the strategic objectives of the College.
  • The intended use and consistency with the RACGP charitable purposes.
  • The quantum of funds to be used and sufficiency and appropriateness of the request in the circumstances, including alternate sources of funding.
  • The resulting balance of the RACGP Futures Fund compared to the target range.
Reporting Quarterly to FARM and the Board.


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