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Township of Brock Corporate Policy
Policy Name: Reserve and Reserve Fund Policy
Policy Type: Finance
Policy Number: F6
Reference: Resolution No. 4-5
Date Approved: April 4, 2016
Date Revised:
Approval By: Finance Committee
Point of Contact:
1. Background
The Corporation of the Township of Brock is committed to providing service to residents in a
fiscally responsible manner. With this commitment in mind, certain capital projects must be
financed over a number of years. This financing can be obtained in advance through the use of
debentures that require taxpayers to pay the principle and interest over 10 or 20 years. (The use
of debenture financing is covered in a separate policy document.) Alternatively, the funds
needed to finance the capital work can be set aside in a Reserve or Reserve Fund account as
part of the annual budget process. The number of these accounts and the total dollars held will
fluctuate from year to year depending on the purpose of the fund and the objectives of Council.
2. Purpose
Reserves and Reserve Fund accounts are used to set aside funds for specific purposes. These
could include adherence to statutory requirements; promotion of financial stability and flexibility;
provision for major capital expenditures; and to take advantage of financial opportunities that
may arise. These accounts, once created, remain in place for the purpose they were created
until legislation changes, Council directs they be closed or consolidated or completion.
The purpose of this policy is to establish consistent principles, standards and guidelines for the
maintenance, management and accounting of reserves and reserve funds.
3. Scope and Responsibility
The Treasurer is responsible for the maintenance and reporting on the activity in these accounts
in accordance with the existing legislation and Council direction.
4. Definitions
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In this policy the following definitions are used:
a) "Deferred Revenue" means revenue that is considered a liability on the Township's
financial statements until it becomes relevant to current operations, such as
prepayment received for goods or services that have not yet been provided. Some
Deferred revenue is set aside in obligatory reserve funds for specific purposes as
required by legislation, regulation, or agreement such as development charges,
cash-in-lieu of parkland, and federal and provincial gas tax allocation.
b) "Discretionary Reserve Funds" means Reserve funds created at the discretion of
Council whenever revenues are earmarked to finance expenditures of a purpose
designated by Council.
c) "Obligatory Reserve Funds" means Reserve funds that are required by legislation
or agreement to be segregated from the Township's general revenues for a special
purpose or for works to be undertaken on behalf of the contributor. These funds are
classified in the financial statements as Deferred Revenue.
d) "Reserves" means an allocation of accumulated net revenue that makes no
reference to any specific asset and does not require the physical segregation of
money. Established primarily for the purpose of providing working funds, a reserve
cannot have a revenue or expense of itself.
e) "Reserve Fund" means a fund that is segregated and restricted to meet a specified
purpose and includes both an obligatory reserve fund and a discretionary reserve
fund.
f) "Trust Funds" means a fund that is segregated and restricted to meet a specified
purpose defined by the contributor in the case of bequests or legislative
requirements in the case of cemetery perpetual care. These funds are not
consolidated with the Township's operations and reported in accordance with the
Canadian accounting standards for not-for-profit organizations.
5. Guiding Principles
Section 290 of the Municipal Act, S.O. 2001, as amended provides that a municipality's budget
shall set out amounts to be paid into and out of reserves. A municipality may establish reserve
funds for any purpose for which it has authority to spend money.
6. General Policy
Reserves will be maintained to meet one of the following purposes of the Municipality:
a) Asset Replacement - established to control "spikes" in capital budgets to minimize
property tax changes;
b) Project Reserves - established to provide cost effective self-borrowing mechanisms to
reduce risks associated with interest rate fluctuations;
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c) Economic Stability Reserves - established to buffer against significant fluctuations in the
economy;
d) Contingency Reserves - established to accommodate contingent, unfunded or known
liabilities for current and/or future years; and
e) Working Fund Reserves - established to provide cash flow for operations to eliminate
the requirement to borrow funds to meet immediate obligations.
Reserve Funds will be maintained as Discretionary for Capital, Operating or other Specific Use
or as Obligatory for Operating or Capital Purposes.
6.1 Establishing New Accounts
Reserves can be established through inclusion in the annual operating or capital budget which
is approved by Council or through a resolution of Council.
Reserve Funds that are created for a discretionary purpose are established in a fashion similar
to Reserves with documentation that identifies the name, funding method and purpose of the
fund.
Reserve Funds that are created for an obligatory purpose are established through either the
terms of an agreement entered into by the Township or through legislation from a higher level of
government.
6.2 Closing and Consolidating Accounts
If the purpose or purposes for which the reserve or reserve fund was created have been
accomplished and the reserve or reserve fund is determined to be no longer necessary, the
Treasurer, in consultation with the CAO, shall report to Council with the recommendation on
closure of the reserve or reserve fund; disposition of any remaining funds; and necessary
resolution.
6.3 Funding Accounts
Approval of funding to and from the Reserves and Reserve funds will be in accordance with the
Township's established budget policy and reports to Council.
6.4 Interest Allocation
Reserve funds will be invested in accordance with the Township's approved investment policy.
Earnings shall be credited to each separate reserve bank account that invested the funds.
Where multiple reserve funds are included in one bank account, interest shall be allocated to
reserve funds on a monthly basis based on the actual balance of the reserve fund.
Reserves shall not be invested and are not allocated interest.
6.4 Temporary Reserve Fund Borrowing
Temporary borrowing to cover a reserve short-term deficit, interim servicing requirements or
internal financing is permitted, when justified, adequately supported and authorized by Council.
The following conditions must be met in order to allow borrowing from reserve funds:
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a) Borrowing must not adversely affect the intended purpose of the reserve;
b) A plan to repay the reserve within a reasonable timeframe is required and must be
documented;
c) Interest, equivalent to the Township's interest on reserve fund bank accounts, will be
applied to outstanding amounts borrowed; and,
d) Where applicable, legislative requirements may apply. For example, the Development
Charges Act permits inter-fund borrowing only between development charge reserve
funds and prescribes a minimum interest rate (ie. Bank of Canada prime rate as of the
document approval date, updated on the first business day of every January, April, July
and October).
7. Annual Reporting
Reporting of Reserves and Reserve Funds will occur through the following processes:
a) As required under the Development Charges Act, the Treasurer will provide Council with
a financial statement related to the Development Charge reserve fund. This statement
will be forwarded to the Ministry of Municipal Affairs and Housing within 60 days
following Council receipt;
b) Year-end audit and financial statements - balances of reserves, both obligatory and
discretionary reserves and reserve funds, will be presented with note disclosure and
comparative figures as required to meet PSAB reporting standards;
c) An annual update report to Council summarizing all amounts held in reserves, reserve
funds and trust funds and their intended uses; and,
d) Where required, reporting to Council or other agencies may exist for reserved residual
balances related to grants or other contributed funds (eg. Federal and Provincial
Grants).