Risk and Reserves

Risk and uncertainty are unavoidable in government finance. Governments must deal with a growing list of threats to the community, including natural disasters, infrastructure failures, disease outbreaks, and public safety emergencies. Events like these can have a two-fold financial impact—increasing costs related to responding and decreasing revenues from an economic slowdown. Ignoring these events doesn’t make them less likely to occur; finance professionals need to ensure their organizations have adequate reserves in place to address them. This session will provide an overview of GFOA’s Best Practice “Fund Balance Guidelines for the General Fund,” highlight examples of local governments that have implemented the Best Practice, and provide a checklist you can use to assess if your government is meeting the Best Practice.

Learning Objectives

• Differentiate between budgetary fund balance, unrestricted fund balance, and reserves
• Explain the importance of reserves as a tool to mitigate risks
• Describe how to conduct a basic risk assessment
• Outline the elements of an unrestricted fund balance policy