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Policy 19

ACCUMULATED OPERATING SURPLUS

Accumulated operating surplus represents the extent to which operating revenues from all previous years exceeds operating expenditures from all previous years. Conversely, when operating expenditures from all previous years exceed operating revenues from all previous years an accumulated operating deficit results. When an accumulated deficit occurs, it means future revenues are needed to pay for past expenditures. School Districts in British Columbia are not permitted to budget for or incur expenditures that result in an accumulated operating deficit.
Accumulated operating surplus allows a school district to budget for expenditures in excess of revenues in a given year, and also serves to reduce financial risk that can result from financial forecasting uncertainty and unforeseen circumstances.
Transfers of operating surplus to local capital are approved by Board motion and are made only for specific initiatives that either have a clear linkage to boards’ strategic goals, address required future capital asset investment, or that meet other specified needs of the school district.
Accumulated operating surplus may be appropriated (internally restricted) by Board motion for the following purposes:

  •  Contingency Reserve;
  •  Multi-year Funding of Projects and Programs; and 
  •  Strategic or Operational Priorities.

Contingency Reserve

The Board is responsible for ensuring the district is protected financially from financial forecasting risk and unforeseen circumstances which could negatively impact the education of students. To discharge this responsibility, the Board will establish a restricted portion of its accumulated operating surplus and/or its annual operating budget as a Contingency Reserve to be used to mitigate any negative impact such circumstances might cause.

  1. In conjunction with the Board’s review and approval of the annual financial statements, the Board will restrict a portion of accumulated operating surplus for the purpose of forming a Contingency Reserve.
  2. The Contingency Reserve will be sufficient to reduce, to an appropriate level, financial risk that results from financial forecasting risk and/or unforeseen circumstances.
  3.  The Contingency Reserve is to be used only to fund additional cost pressures that result from circumstances beyond the School District’s control or, with the Board's approval, in response to unforeseen circumstances
  4. When use of the Contingency Reserve reduces the balance below what is determined to be sufficient, the Board will adopt strategies for replenishing the Contingency Reserve within an appropriate time frame.
  5. Prior to adoption of each annual budget and amended annual budget, the Secretary Treasurer will present for the Board’s review and approval, allocation of budget for the purpose of Contingency Reserve, and when applicable, strategies for replenishing the Contingency Reserve.

Multi-year Funding of Projects and Programs 

  1. Effective multi-year funding of projects and programs requires the allocation of prior year revenues to fund future expenditures and is achieved through budgetary appropriation (internal restriction) of accumulated operating surplus.
  2. Multi-year funding of projects and programs includes budget allocated to fund expenditures that will occur subsequent to the fiscal year, and funding targeted for a specific purpose and not yet spent.
  3. Accumulated operating surplus available to support multi-year funding of projects and programs is equal to the accumulated operating surplus balance of the preceding fiscal year minus allocation of accumulated operating surplus to Contingency Reserve.

Strategic or Operational Priorities

  1. Accumulated operating surplus available to fund Strategic and Operational Priorities is equal to the accumulated operating surplus of the preceding fiscal year minus the allocation of accumulated operating surplus to Contingency Reserve and minus allocation of accumulated surplus for multi-year funding of projects and programs.
  2. Allocation of accumulated surplus to fund Strategic and Operational Priorities should reflect that accumulated surplus is a one-time funding source and once used will not be available in future years.
     

 

Reference:

 

Approved:

    November 2020

Amended:

     February 2022