HomeMy WebLinkAboutTR 13/98Y 4 J
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: ; . ' .ItEPORT TO COUNCIL
FROM: Qillis A. Paterson DA1'E: Apol 7,1998
D'uectorofFinena .
REPORT NiJMBER: TR 13/98
SUBJECI': ?danagemcnt of Reserves end Reservc Funds.
RECOhIlNENDATION:
It is recommended that this Report No. TR 13/98 bc received by Council for
informaUon.
ORIGIN: RepoA issued 6y Hwren, Flett, Sinclair, Chartercd Accountnnts, To:m Auditor,
in the summer of 1996, on reserve activities of tha Town for the year 1995;
Audiror suggested thnt the Trcasurer (Dircctor of Finnnce) md Council review the
reserves ond rcserve funds more frequently.
AUTHORITY:
�
Sections 162 nnd 163 of7he Muntcipul Act and Ontario Reguletion 438/97.
FINANCIAL IMPLICATIONS:
Not applicable.
EXECIITIVE SUMMARY:
This report conteins a summary of legislative requirements and staff comments
regarding the qtablishment ond manegement of reserves and reserve funds.
HACKGROUND:
Sce also Rgport for "Pre Audit Actuols, es at December 31, 1997", af tesetves and
reservc funds:
Reserves end reserve funds hnve designafed purposes end are crested ihrough thc specific
suthorizntion of Council for its own pwposes or av prescrilxd by Provinciul legisletion.
` il) , Le¢ialaHon Authodtv .
��) Reeervea
;,Tha suthodmdon far the creadon or, ostablishment oF a resecve in a
` ; Mu�icfpalfry is govemed by,9ecdon 162,(2) of ihe Munlcipel Act which
`` slates in pert thet "in prcparing the estimates,lhe Council ahnll make due
, - elloweiice for.0 eurpius of any prevtous yenr thet wilf be availa6lo duting
�r' � ;� the owrent year end shall provide for eny operadng deficit qf wiy provious '
_- "year.,, and for such Eeserves a9 the council constden necessa�y." `
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; RepoR to Councll TR 13/98 April 7,1998
.. Subjcct: ., ` Management of Reserves and Reseive Funde (Cont'd. J Pege 2
(1) Leptilative Aat6oHty (Cont'd.,) .
(b). ReaerveFand�
Section 163.(2) of the Mun3cipal Act provides Ihet "Every municipaliry,
local boazd and other endty may in eac6 year providc in it� estimates for
the eslablishmrnt or meintenence of a reserve fund for any pwpose for
which it has authority to expcnd funds."
Regulation 438/97 mede under the Municipal Act R.S.O. I990 requires thnt the
monies ra:scd for a rcserve fund shnll be invested in a security for which the bond,
debenture, promissory note, or evidence of indebtedness are mted at u prescribed
level by one of four recognized bond rating agrncies set out in the Regulalion.
All eamings derived from such investrnents arc to fortn part of the aserve fund.
Secdon 163.(5) of the Municipal Act requias the auditor in the annunl report to
report on thc activities end position of each rcserve fund estnblished by the
mwicipality.
(Z) Minlstry Gutdelina
CwronQy, there arc no fom�al policics goveming Ihc establishment and use of
aserves end rcserve funds by lhe Province or the Corporetion. However, the
Director of Finana wdortnkes nn nnnual review and mnintains nn ongoing
, managemrnt of all rcserves nnd rcserve funds. Moreover, the Corporntion must
follow certain Provinciel requirements in thc raparting of these nccounts
. eccordin to
the Minis o
g try f Municipal Affairs and Housing, es e guide for the use
of reservcs und rcserve funds or special funds, According to these guideli�es, a
roserve is created by;
MV
a) including in the current estimates thc amount thnt is to bc designeted us
reserves during ihe fiscol year, 71�e authoriry for the creaUon of a reserve will
?�' be contained in the estimatu by-Inw of the municipality; or
b) hansferring unexpected funds that have been identified prior to the end of the
., fiscal year to a resen�e accounG fn this instance an umending by-Inw would be
required prior to the end of the fiscal year to segregate a specified amount
from the aveilablc opemting rovenues.
These guidelines ulso apply to reservc funds. A rcserve fund dif}'ers from a
reserve in thet rcserve fund assets ere segiegated nnd restricted to meet the
purpose of the nsrne fund. Morcaver, a reserve is &equently used in connection
with shorter term expenditures or those of a more operadonnl nnhue such as
vehicle replecemen� Reserve funds are typically associated with longer tertn
financing pinns and expenditures, genernlly of a cnpilal nature. There aro two
- types of reserve funds,
a) 0611¢atory re�crve ihnds
,} t� ObligaWry nservc funds are govcmed by legislaUon, rcguladon or agrcement
�_ nnd requiro tcvenue receiyed for,ihc apeciel pwposes ro bc segrcgated from '
`V the general revenues of the municlpallry.
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'` " 'Itepott to Couac�l TR 13(98 � A�xi17,1998 .
SubJxt:". Management of Regerves and Rescrvc Funde (Cont'd.,) Page 3
;.;,-,Y
.`(2) Mln�trY Culdelina
a) OhUg�tory Raerve Fuude (Copt'd.,)
Obligatory reserve funds must be created whenever e atatute roquires revenue
received for a special pwjwse to be segregeud from tha general revenues of
the municipality end are to be used solely for the purpose prescribed for them
by Smtutc.
b) DiscreHonary Raerve Funda
Aiscretionary rcserve funds ure established whenever n municipal cowcil
wishes to wtmark revenues to finnnce e future expenditurc for which it has the
euthoriry to spend money and physically set aside a certnin portion of eny
yenr's revenue so that the funds are aveilable es mquircd. In accordnnce with
Section 163 of the Mwticipel Act, Discretionary reserve fwds may be uscd
for a number of dif%rcnt purposes. Some examples of these are:
L future expenditurcs for land acquisition;
1(. new buildings and other wpital projecis;
III. vehicle sclf insurance; and
IV. indusviel promadon.
With the exception of "Obligatory Reserve Funds;' the use of reserves and
reserve funds aro at tho discretion of Council. Gencrally, reserves are uscd to
provide for equipment rcplacements and payments of specific expenses which
� wuld cause major budgetary 1luctuations. Reserve funds are used if Council
wishes to cam�ark funds in n more formal way and to sct aside funds from the
generol operations of the municipaliry.
Since munic?palities are legelly prohibitcd from opernting their generul or
revenue funds at a deficit, reserves and reurve funds also may provide a wny
of levcling unandcipated or extrnordinary �cpenditures betw�een periods or
putting away funds for futurc use. The future use muy or mny not be
specifically designated such as in the case of n rcserve for working funds.
In theory, each fund is a separate group of accounts created es the result oF
legal or regulaWry requircments, by contract with donors or grantors, or
volunterity by ihe direction oFCouncil.
A rcserve fund is usuelly cmated W record the resoiuce fiows associated witlt
' a speciel projxt or event or to iiutitute a new program using a special grant
- hom a donor or a govemment grantor. Revenue may be generated by !he fund
br may be finnnced by restricted grants from outside Ute orgw�ization.
� COOCIp8I0Ili � ', � �� � . . - � . . � . �
Reserves:end nserve funde focm an integral pert o£ sound fumncial manngement and
plenning whereby rovenue in ona period can be put ssido to awumulute and finnnce planned
expenditures ln a future period. Resorves and reserve ti�nds:provide Iiquidlry to tho
Corporadon end are ane of tho key tndicators of thc finencial health of the mwicipnlity.
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! k� � 1t�pott �o Connci� T[t l3/98 � � Apr317,1998
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�.: } l` Su�joct Managemen! of Re�crYw and Re�aecve Funde (Cont'd ,) � Pego 4
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Y ,'. ATTACHMbNI'S:' (1) . A eopy of P,28 (Gxtract)�from the Auditore RcpoR issucd W
Council on tho Swnme� of 1996 on nservehesrne fund acdvities
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for thc year 1995. : . .
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prePercd BY: APProved/End ed By:
e� (3illisA. Paterson
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Attac6ments:
�-; '' Copy: : (3eneral Menager •
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. s`� "FxTRACf" rFRCH�,11iE::AUDITONS REPORT, ISSUE� TO COUNCIL" IN THE SUl4�R
OF 1946 ON.RESERYB/RES�RYE F11ND ACT'LVIITPS FOR THE TOWN EOR THE.YEAR I99S,
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- 28 . ATTACHMENTM_„�,���3/9
�' , : ttRCnA�NDAT[ONS RRL•ATED TO accR .
T6e following tecommeodadons rclam the managemeat ot ihe Town ot Pic�ering reucve
� ` and reservo Nnds.
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lbrough thls pracess, It is our observation that resecvu and reserve Nnds are not fully
understood by Council. Althwgh it is hoped that this material6as been educadoual, we suggest
tt�at the treasurci a� council aviow these raerve and caeNe funds on a quazterly or umF�
annual bult.
In dotng so, Couucil can become moro familiar wit6 the reserva and «serve fuads, che
tnnsacdon t6at aftcct those accounu and thea inter•acdoa with the municipality as a whola
'Che result will Ix enhanced govemancc of the reserve and «serve f�uds. 'R�3s will easure �hac
a reserve oa ceserve ftwd is not used.
2. Fotmet of Ttes��rer's Reoort To Co�ncil oa Reserve and Re�srve Fund Activitv
The report that is cucrently produced by t6e Treasurer presenu the rovenues and
expendiwrd of tLese twelve accouacs u butk rotal�. Accordingiy, it is aot rcadily determinable
w6et uamactiam spec{tieally afixted what reserve or teserve tund account. The implicacian
is that'CouncU can not see fot t6emsetves why a Qarticulu nserve ar resrne fund fncreased,
decreaud or remetued the same. The resaucturing of tLis ceport, in conjuncdon with the fust
rceommendatioa wUl produce very posiuve resulb.
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