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Home My WebLink About421 - Reserve Balances in Internal Service Funds CITY OF REDDING COUNCIL POLICY RESOLUTION POLICY p.j-~-~-CTIVE SUBJECT NUMBER NUMBER DATE PAGE Reserve Balances in Internal Service Funds 99-94 421 711199 1 Background The City of Redding has established internal serviCe funds to provide a useful means of accounting where it is advantageous to centralize the provision of certain goods and services provided to City departments and divisions. An internal service fund should provide services to other departments and divisions on a cost- reimbursement basis. Purpose internal service funds are used to account for services provided on a cost-reimbursement basis (i.e., without profit or loss). Thus surpluses in an internal service fund may be an indiction that other departments and divisions were over charged for the goods or services they'received. To insure departments and divisions are not over charged by internal service funds for goods and services received, the City has implemented the following policy: Policy Internal service funds cash reserves will be reviewed by the Finance Division after the end of a fiscal year. Finance will journal voucher cash reserves in excess of 5.0% in internal service funds back to the originating division or department unless one of the following conditions applies: 1. The excess cash does not exceed $20,000. 2. A justification for retaining the excess balance has been included in the budget issues and approved by the City Manager. 3. A justification separate from the budget process has been presented to and approved by the City Manager. 4. The fund is a self-insurance fund. Self-insurance funds have been established to account for potential risks and payments are not treated on a cash reimbursement basis. In the self insurance funds cash will be returned to the originating divisions when retained earnings is in excess of expected potential liabilities, as determined by the Finance Division and approved by the City Manager, plus a 5% reserve of current appropriations for unexpected expenditures. When funds in a self-insurance fund exceed the above criteria, cash shall be refunded to the originating divisions unless conditions 1, 2 or 3 above applies. The adjustment to cash reserves shall not cause a deficit fund balance in any fund, unless the deficit is a result of depreciation and future assets will be replaced by contributions from other funds.