A. SUMMARY OF ADMINISTRATIVE PROCEDURE

This statement outlines procedures for establishing and maintaining a departmental petty cash fund.

1. Purpose of petty cash. Departments are encouraged to use petty cash funds to reduce time, paperwork and administrative expense for minor business expenditures. Petty cash may be used to reimburse authorized expenditures up to $200 per transaction for:

• Local retail purchases
• Meeting expenses
• Business meals
• Local transportation expenses (i.e., day trips)
• Books
• Subscriptions
• Postage
• Similar expenses

2. Advance Payments to Employees. In some cases, the petty cash Custodian may find it necessary to advance up to $200 cash to an employee for non-overnight travel or for miscellaneous business supplies. Under no circumstances will petty cash advances be allowed (1) for overnight travel, (2) for more than 48 hours before the expense is anticipated, (3) for more than $200, (4) without a signed receipt (Petty Cash Voucher), (5) to a student or other non-employee, (6) for non-business purposes, or (7) outstanding for more than 4 days. Contact Accounts Payable immediately if advances are not resolved fully within 4 days.

3. When petty cash may not be used. Petty cash may not be used:

• For transactions over $200 (splitting one transaction over $200 into 2 or more parts is specifically not allowed)
• To make personal loans
• To pay employees or non-employees compensation for services rendered (including honoraria or other stipends)
• To pay moving expenses
• To buy hazardous materials or controlled substances
• As a check-cashing service
• To pay for expense that is personal or otherwise not allowable according to current USNH or campus policy, procedure or practice.

Receipts of cash or checks by the department may not be commingled with petty cash funds; all receipts are to be deposited in tact with the campus Cashier/Bursar within two business days.

4. Establishing a petty cash fund. Each petty cash fund is the responsibility of primarily one employee called the "Custodian" of the fund. There may be only one Custodian per petty cash fund. The Custodian is personally responsible for the value of the fund and to ensure that all policies and procedures are adhered to. Requests to establish petty cash funds must be approved by the responsible Department Head, the campus Chief Financial Officer (CFO), and the USNH Controller. Petty cash policies/procedures at a campus or department may be more restrictive than those of USNH but may not be less restrictive. All funds are subject to periodic surprise audits of cash and records by USNH internal and external auditors. Petty cash funds will be established at an amount not to exceed $1,000, unless specifically approved by USNH Controller. Petty cash funds require monthly reconciliation (and monthly replenishment, if un-replenished receipts exceed $300). Petty cash funds are established and replenished with a check or cash issued to the fund Custodian by the USNH Controller. The USNH Controller maintains a list of all approved petty cash funds.

5. Revocation of a Petty Cash Fund. If it is determined that a petty cash fund is being misused or not properly accounted for, the fund will be closed. The campus CFO, or USNH Controller may close petty cash funds at any time without reason.

6. Operating procedures. Detailed USNH petty cash operating procedures as published by the USNH Controller follow.

B. DETAILED OPERATING PROCEDURES

1. Purpose and Background Petty cash funds provide a useful and inexpensive way to make prompt cash payments for minor business expenses. Petty cash may be used for most authorized institutional expenses up to $200 per transaction that otherwise would require a Banner requisition (REQ), a direct pay invoice (INV), a travel expense voucher (TEV) (except where a travel advance was previously issued by the campus travel center), or a non-travel cash reimbursement. By establishing a petty cash fund, a department or unit which normally incurs a large volume of minor expenses may realize a significant reduction in administrative work. In addition, payees will receive payment faster and employees may no longer walk to the campus Cashier/Bursar for reimbursement. For these reasons, departments are encouraged to establish petty cash funds where there is demonstrated need. Petty cash funds are established on an imprest basis -- that is, at a fixed amount which is restored to its authorized level at frequent intervals by replenishing the cash in an amount equal to the expenditures made from the fund. Imprest petty cash funds placed in the custody of responsible employees thus serve to maintain control over cash without burdensome procedures for small disbursements.

2. Establishing a Petty Cash Fund

a. Requesting a Petty Cash Fund - Requests to establish petty cash funds are submitted via a Cash Fund Request, Form USNH-F44, and must be approved by the responsible department head, the campus CFO, and the USNH Controller. See Procedure 4-004, Preparation of Cash Fund Request, for detailed instructions and requirements. The amount of the petty cash fund is not charged to the department's budget. Rather, the fund is established by means of a loan to the department in the name of the petty cash Custodian. The departmental accounts are charged when petty cash expenditures are replenished or if loss of cash funds occurs.
b. One Petty Cash Fund per School/Major Department - It is not necessary or desirable to have separate petty cash funds for each budgeted or sponsored project account. Petty cash funds should be centered around geographical boundaries when possible rather than around accounting areas of responsibility. This provides the greatest utility of the funds while reducing the number of separate funds. However, consideration may be given to maintaining separate petty cash funds when the custodian does not have electronic Banner approvals for a particular Banner area.
c. Size of a Petty Cash Fund - A petty cash fund should be a small enough amount to require replenishment at least once a month. This allows the petty cash expenses to appear on monthly Banner expenditure reports for the correct fiscal period. On the other hand, the amount should be large enough so that replenishment will not be needed more than twice a month. In no case will a petty cash fund be established in an amount exceeding $1,000 unless specifically approved by the USNH Controller.
d. Special Petty Cash Funds -

i. Human Subjects - Departments or programs making studies which require human subjects may establish a petty cash fund from which one-time payments may be made to subjects. Contact the USNH Assistant Controller for details.

ii. Imprest Checking Accounts - In some cases it may be more efficient for departments to have petty cash in a USNH imprest checking account (personal checking accounts are not allowed). An imprest checking account requires the additional approvals of the USNH Controller and Vice Chancellor. See Procedure 4-002, Imprest Checking Accounts, for further details.

3. Custodian Responsibilities

a. Assignment of Petty Cash Funds to Custodians - The USNH Controller's Office issues a check payable to the Custodian to establish the petty cash fund (see Procedure 4-004, Preparation of Cash Fund Request.) The Custodian remains accountable for the petty cash until custody is formally transferred to another employee or until the fund is formally closed. It is the responsibility of both the Custodian and the Department Head to acquire a thorough knowledge of the applicable policies and procedures and to ensure the funds are properly safeguarded.
b. Protection of Petty Cash - Access to cash funds must be restricted to the Custodian only. To prevent access by anyone except the Custodian, petty cash must be kept in a locked strong box in a locked desk or cabinet whenever not in use or whenever the Custodian is absent. In case of theft the campus security police and USNH Internal Audit must be notified. Loss of petty cash funds will be charged to the responsible Banner account as listed on the Cash Fund Request form. Petty cash funds must never be commingled with other USNH cash funds, personal funds, miscellaneous cash receipts, or collected revenue of any type. The Custodian's supervisor should periodically inspect the records and count the cash (in the continual presence of the Custodian) in the petty cash fund to ensure proper accountability.
c. Change of Custodian - Except on a temporary basis described in paragraph 3.d., one Custodian may not informally transfer a fund to a new Custodian without obtaining written approvals as required on the Cash Fund Request, Form USNH-F44. The petty cash fund must be physically counted and reconciled before it is accepted by the new Custodian.
d. Absence of the Custodian - During absence or vacation, a Custodian may place the petty cash fund with a temporary Custodian. The temporary Custodian and the regular Custodian must physically count the petty cash box and prepare a list of cash, receipts and replenishment requests in process. These must total the authorized value of the petty cash fund. The temporary Custodian signs a copy of the reconciliation as a receipt. This receipt is retained by the regular Custodian since that individual is transferring personal responsibility for the value of the fund. When the regular Custodian returns, the same procedures must be followed with the receipt retained by the temporary Custodian.
e. Change of Location or Purpose of Petty Cash Fund - If the physical location or the original purpose of the petty cash fund should change from that which was stated on the original Cash Fund Request, the Custodian should immediately submit a new Cash Fund Request to the USNH Controller's Office for approval.
f. Confirmation of Petty Cash Funds - Custodians may receive an annual request from the USNH Controller's Office to confirm the amount of the petty cash fund. Some funds are selected by the USNH Internal Auditors each year for a surprise audit of cash and records to ensure proper accountability of funds and proper application of policies and procedures.
g. Closing a Petty Cash Fund - If a petty cash fund is no longer needed the Custodian must close the fund. If a Custodian leaves without formally closing the fund and there are no receipts or records, the balance unaccounted for will be charged to the operating budget of the Custodian's department, reported to the IRS as income to the Custodian, and USNH may choose to prosecute.

4. Maintaining A Petty Cash Fund

a. Accounting for Petty Cash Transactions - Proper accounting for petty cash requires that Custodians make payments for authorized expenditures only, obtain receipts, and record expenditures. Each petty cash expenditure requires a Petty Cash Voucher, Form USNH-F45. See Procedure 4-005, Preparation of Petty Cash Voucher, for detailed instructions and requirements. Petty cash expenditures are subject to all USNH and campus policies, procedures and practices relative to proper expenses, authorization, accounting and documentation. Note that there generally must be an original sales slip, cash register tape, or other receipt attached to the Petty Cash Voucher for each expenditure. Also note that each Petty Cash Voucher must be approved by a person authorized to expend from the Banner account charged (i.e., Dean, Director, Department Head or Business Manager), as noted on the USNH Signature Card filed with the USNH Controller's Office. This may include the petty cash Custodian. However, an employee may not approve his or her own expenses.
b. Reconciling Petty Cash Funds - When payments by the Custodian deplete the amount of cash, receipts are added to account for the expenditures and keep the petty cash fund "in balance." At any time, the sum of the cash on hand plus the total receipts and replenishment requests in process should equal the authorized amount of the petty cash fund. Use the Petty Cash Replenishment Request, Form USNH-F46, to record the reconciliation. If the fund does not balance, Accounting Services in the USNH Controller's Office (862-1470) should be immediately contacted for assistance. A petty cash fund must always be balanced (i.e., reconciled) before a request is made for replenishment.
c. Replenishment of Petty Cash Funds - When cash in the petty cash fund is low or if un-replenished receipts exceed $300 at the end of any month, the Custodian should submit a Petty Cash Replenishment Request, Form USNH-F46, to Accounts Payable and enter a PV to replenish the fund. See Procedure 4-006, Preparation of Petty Cash Replenishment Request for details. 

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

A. SUMMARY OF ADMINISTRATIVE PROCEDURE

This statement outlines procedures for establishing and maintaining a departmental imprest checking account.

1. Purpose of an imprest checking account. An imprest checking account is often used by departments in place of a petty cash fund. An imprest checking account can be used to reduce time, paperwork and administrative expense for minor business expenditures in accordance with all limitations outlined in Procedure 4-001, Petty Cash Funds, Section B1 and B2. In addition, there may be departments which operate under unusual circumstances whereby checks must be drawn on location at night or on weekends; in these cases, an imprest checking account may be deemed appropriate for emergency disbursements in excess of established limitations, with prior written approval of the USNH Controller.
2. Establishing an imprest checking account. Each imprest checking account is the responsibility of primarily one employee called the "Custodian" of the fund. Although there may be several authorized bank signators, there may be only one Custodian per fund. The Custodian is personally responsible for the value of the fund and to ensure that all policies and procedures are adhered to. Requests to establish imprest checking accounts must be approved by the responsible Department Head, the campus Chief Financial Officer (CFO), the USNH Controller, and the USNH Vice Chancellor. All USNH checking accounts must include the USNH Controller among the authorized bank signators. Monthly bank statements for all USNH bank accounts are received directly from the bank by the USNH Controller before the statements are forwarded to the responsible department. Imprest checking accounts require monthly reconciliation (and monthly replenishment, if un-replenished receipts exceed $300). All bank balances must be reconciled to the checkbook balance and to the authorized imprest balance on a monthly basis and submitted to the USNH Controller within 30 days of the bank statement date for review. All funds are subject to periodic surprise audits by USNH internal and external auditors. Checking accounts should be established at an imprest balance generally not to exceed $1,000. Checks should contain limitations on amounts or require 2 signatures in some instances. Imprest checking accounts are established and replenished with a check issued by the USNH Controller to the bank and bank account number at which the account is maintained. The USNH Controller maintains a list of all approved imprest checking accounts.
3. Revocation of an imprest checking account. If it is determined that an imprest checking account is being misused or not properly accounted for, the fund will be closed. The campus CFO, or USNH Controller may close imprest checking accounts at any time without reason.
4. Operating procedures. Detailed USNH imprest checking account operating procedures as published by the USNH Controller follow.

B. DETAILED OPERATING PROCEDURES

1. Purpose and Background. Imprest checking accounts often provide a useful and inexpensive way to make prompt or emergency payments for minor business expenses, similar to a petty cash fund. This may be particularly true in cases where the department is geographically separated from a campus or has unusual expenditure requirements.
2. Establishing an Imprest Checking Account. Requirements are identical to petty cash funds (see Procedure 4-001, Petty Cash Funds, Section B.2) except that checking accounts are generally established at an amount not to exceed $1,000 and require the additional approvals of the USNH Controller and Vice Chancellor.
3. Custodian Responsibilities. Requirements are identical to petty cash funds (see Procedure 4-001, Petty Cash Funds, Section B.3) except as follows. The USNH Controller's Office issues checks to establish and replenish imprest checking accounts made payable to the bank and bank account number at which the account is maintained. Checkbooks must be secured in a locked file cabinet or desk when not in use. When changing Custodians, it will be necessary to resubmit authorized signatory cards, via the USNH Treasurer's Office, to the bank as well as to file Form USNH-F44 with the Controller's Office.
4. Maintaining an Imprest Checking Account. Requirements are identical to petty cash funds (see Procedure 4-001, Petty Cash Funds, Section B.4) except as follows: Petty Cash Direct Pay Invoices are required for each check drawn on an imprest checking account. In addition to balancing the checking account to its authorized imprest amount, Custodians of imprest checking accounts must also reconcile the checkbook to the bank statement on a monthly basis. A copy of the bank reconciliation must be sent to Accounting Services, Controller's Office within 30 days of the end of the month. In order to replenish the checking account to its imprest balance, a Petty Cash Replenishment Request, Form USNH-F46, is used. After receipt and approval of Form USNH-F46, Accounts Payable will generate a check payable to the bank within 5 business days. The replenishing check will be mailed directly from Accounts Payable to the bank at which the checking account is maintained so that administrative time and expense is reduced. Accounts Payable will send a copy of the signed Form USNH-F46 to the Custodian when approved.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

A. SUMMARY OF ADMINISTRATIVE PROCEDURE

This statement outlines policy on establishing and maintaining a departmental change fund.

1. Purpose of a change fund. Some departments which make cash sales may require a small amount of cash on an ongoing basis to provide change necessary for normal operations.
2. Establishing a change fund. Each change fund is the responsibility of the head of the department or activity receiving the fund. The Department Head designates one individual known as the "Custodian" to be accountable for the custody of the funds. The Custodian is responsible to the Department Head for proper safekeeping of the change fund and to ensure that all policies and procedures are adhered to. Requests to establish change funds must be approved by the responsible Department Head, the campus Chief Financial Officer, and the USNH Controller. All funds are subject to periodic surprise audits by USNH internal and external auditors. Change funds should be established at an amount which is not in excess of the amount required for efficient daily cash sales operations, normally not to exceed $300. Change funds must be returned or reduced when the need no longer exists or diminishes. Otherwise, the amount of a change fund remains constant. Unlike a petty cash fund, a change fund does not require periodic replenishment.

Change funds may not be commingled with other cash funds nor are they to be used for making petty cash disbursements or cash advances or as a check-cashing service. Change funds are established with a check issued by the USNH Controller to the change fund Custodian. The USNH Controller maintains a list of all approved change funds.
3. Revocation of a change fund. If it is determined by the USNH Controller that a change fund is being misused or not properly accounted for, the fund will be closed or custody transferred to another individual. The USNH Controller may close change funds at any time without reason.
4. Operating procedures. Detailed USNH change fund operating procedures as published by the USNH Controller follow.

B. DETAILED OPERATING PROCEDURES

1. Purpose and Background Change funds are often appropriate to provide change necessary for efficient operations where cash sales are required.
2. Establishing a Change Fund

a. Requesting a Change Fund - Requests to establish change funds are submitted via a Cash Fund Request, Form USNH-F44, and must be approved by the responsible department head, the campus CFO, and the USNH Controller. See Procedure 4-004, Preparation of Cash Fund Request, for detailed instructions and requirements.
b. One Change Fund per Department/Location - A single change fund per retail cash sales location should be sufficient to conduct normal operations.
c. Size of a Change Fund - A change fund should be established at an amount no greater than that which is required to conduct normal daily cash sales transactions. If the change fund is not used (or its use is reduced) for an extended period, the funds not needed are to be returned to the Cashier/Bursar Office by following Procedure 4-004, Preparation of Cash Fund Request. The change fund can be re-established at its previously authorized level or increased when the need arises by submitting a new Cash Fund Request. In no case will a change fund be established in an amount exceeding $300 unless specifically approved by the USNH Controller.

3. Custodian Responsibilities. Requirements are identical to petty cash funds (see Procedure 4-001, Petty Cash Funds, Section B. 3) except as follows. Change funds must be kept in a strong box or a cash register when in use. Whenever change funds are not in use, they must be locked in a safe or kept in a locked strong box secured within a locked desk or file cabinet. Unlike a petty cash fund, the amount of a change fund should remain constant and does not require periodic reconciliation or replenishment. Change funds must never be commingled with other cash funds nor are they to be used for making petty cash disbursements or other cash advances or as a check-cashing service. At the close of each day's business, the change fund is to be removed FIRST from the total cash in the register and kept separately for the following day's operations. The remaining cash in the register must be deposited with the campus Cashier/Bursar as representing the current day's receipts. If the total cash at the close of the day does not agree with the authorized change fund amount plus the recorded receipts, the difference must be recorded in Banner as "Cash Over or Short" (account code 71C3%) and is considered to affect that day's receipts -- NOT THE AMOUNT OF THE CHANGE FUND.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

 

Procedure References:	Procedure 4-001, Petty Cash Funds Procedure 4-002, Imprest Checking Accounts Procedure 4-004, Preparation of Cash Fund Request Procedure 4-005, Preparation of Petty Cash Voucher
Form:	Petty Cash Replenishment Request (Form USNH-F46)
Obtain Blank Forms From:	USNH Accounts Payable, 862-1474
Forward Completed Forms To:	USNH Policies & Procedures - Appendix A - USNH-F46 -or- Accounts Payable (USNH, KSC, PSC as applicable)

1. Purpose

• To request replenishment of petty cash or imprest checking accounts to their authorized balance.
• To reconcile the petty cash fund or imprest checking account so as to account for all monies entrusted to the Custodian.

2. Use of the Petty Cash Replenishment Request - When cash in the petty cash fund (or the checkbook balance in the case of an imprest checking account) is low, or if un-replenished receipts exceed $300 at the end of any month, it is the Custodian's responsibility to enter a payment voucher (PV) document on-line in the CUFS system to replenish the fund. A Petty Cash Replenishment Request, Form USNH-F46, is sent to Accounts Payable to support the PV. The USNH-F46, with attached original receipts and Petty Cash Vouchers, must be reviewed and approved by the Department Head or someone who is authorized to approve departmental expenditures. Upon receipt and verification of a properly prepared USNH-F46, Accounts Payable will place final electronic approval on the PV and mail a copy of the USNH-F46 back to the Custodian with an original A/P signature. The Custodian will then take the signed copy of the USNH-F46 to the Cashier/Bursar to obtain cash. Accounts Payable will review Petty Cash Replenishment Requests within 24 hours of receipt and will either approve them for cash replenishment or will contact the Custodian via electronic mail with questions or problems. In order to avoid walking documents through the process, Custodians should allow 3 business days for the USNH-F46 to be mailed, reviewed and approved, and the copy mailed back to them. To shorten the time, Custodians may request that the approved copy of the USNH-F46 be held at Accounts Payable for pick up by the Custodian on their way to the Cashier/Bursar (simply check the "HOLD APproVAL AT A/P" box on the USNH-F46). The signed copy of the Replenishment Request will serve as a voucher to authorize the Cashier/Bursar to pay cash to the Custodian. The Cashier/Bursar will obtain the Custodian's signature signifying receipt of cash and retain the USNH-F46 for their records. Custodians who prefer a replenishment check may indicate so by checking the appropriate box on the USNH-F46 but they should allow 5 business days for the check to be received. The campus Cashier/Bursar will cash the USNH replenishment check upon presentation by the Custodian with appropriate identification.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

A.   SUMMARY OF ADMINISTRATIVE PROCEDURE

This procedure pertains to all advances made by check or cash for travel or other business expense; the procedure establishes maximum advance amounts and requires timely accounting by employees. Unreturned advances will be subject to collection through payroll withholding if necessary for collection.

1.   Internal Revenue Service Regulations (Sec. 1.62-2) requires that cash advances and expense reimbursements must be reported as income on an employee's Form W-2 subject to income tax withholding UNLESS paid under an "Accountable Plan." An Accountable Plan is one that satisfies three requirements:

a. Has a business connection - Advances must be limited to reasonable job-related expenses expected to be incurred by the employee, and the expense type may be allowable as a tax deduction.

b. Substantiated - The employee must supply the employer with detailed expense records as would be required if he/she had to substantiate a business expense deduction on his/her own personal tax return. In the case of business meals, date, place, amount, applicable receipts, names of persons accompanying employee, and business purpose must be documented.

c. Unspent Advance Must Be Returned - Employees are required to return to the employer, within a reasonable period, any amount advanced that is in excess of the substantiated expenses.

USNH will avoid income tax withholding on cash advances and expense reimbursements by meeting all requirements for an Accountable Plan and insisting that all employees comply with these requirements.

2.   Administrative Procedures

a.   Business Connection - Employees traveling more than one business day while on official USNH business may receive an advance to cover an estimate of the reasonable business expenses expected to be incurred during their travel. Employees are strongly encouraged to use a personal charge card, or a USNH Purchasing Card when allowed, to reduce the need for cash advances.

If it is not possible to use a charge card, a USNH purchase order should be issued to the vendor to avoid the need for a cash advance.  Advances will not normally be granted for airline tickets, hotel or conference fees, or items that should be secured through standard procedures preceding the travel.  Advances are to be used for incidental business expenses.  Examples of these expenses include transportation to/from an airport, parking, tips given to porters, baggage carriers, bellhops/hotel maids. Security deposits for temporary lodging/housing where an employee will be staying while traveling on USNH business are also eligible for travel advances. In this case, the employee must return the entire amount of the original deposit upon their return. Any amount retained by the landlord is to be paid by the employee.  All requests for advances must be documented by estimating anticipated expenses and submitting on the standard USNH Pre-Approval/Advance Form as described in Procedure 07-117, Travel Pre-Approval/Advance.

b.   Substantiation - All travel expenses must be substantiated with original receipts accompanying an itemized USNH Personal Reimbursement Form (or on a Petty Cash Voucher in the case of travel paid from petty cash). Any advances must be referenced on the reimbursement form to ensure that the reimbursement total is appropriately reduced by the amount advanced.

c.   Unspent Advances Must Be Returned - All unspent or unsubstantiated advances for travel and other business expenses must be returned to the USNH Travel coordinator or the Campus Travel Manager, BSC Director or designee with proper substantiation within 10 business days after completion of the related trip. Employees failing to return unused USNH cash advances or proper substantiation within 10 business days will be subject to payroll deduction for the amount not returned or unsubstantiated after adequate written reminders have been given to the employee. Employees with outstanding advances are not eligible to receive additional advances until any outstanding advances are cleared.

d.   Advance Reasonably Calculated - Advances must be kept to a minimum and should be used only for minor expenses. Travel advances are generally limited to $300 per person per week maximum unless specifically approved in writing by the campus Chief Financial Officer (CFO) or his/her designee. Special arrangements which follow the intent of these procedures may be required for athletic team travel, and other group activities. Requests for advances must be approved by the responsible dean/director/department head using standard institutional forms. Advances should be processed through the USNH Travel Coordinator or Campus Travel Manager, BSC Director or designee at least four business days before the check is needed. Advances are released two business days prior to the travel departure date.

e.   Advances to non-employees - Advances of USNH funds will not be made to persons who are not currently affiliated with USNH. For this purpose, current USNH students, when functioning in an official capacity are considered affiliated with USNH. Advances will not be provided to any consultants.  Consultants incurring travel costs associated with their work for USNH must invoice their travel expenses as a fee for services, and the cost should be charged to account codes in the 717-Professional services range.

B.   DETAILED OPERATING PROCEDURES

1.   Responsibilities of USNH Disbursement Services

a. Maintain a detailed list of all employees with advances outstanding. The list will include the employee's name and USNH ID#, the amount of the advance, the date the advance was issued, the date the advance is expected to be returned (e.g., trip return date plus 10 days), and the dates reminders were sent to the employee. The list must be reconciled each month and sent to the USNH Director of Accounts Payable and Payroll by the 10th day of the following month, even if no employee is presently delinquent.

b. Send a standard written reminder to the Campus Travel Manager, BSC Director or designee with information necessary to process the USNH Personal Reimbursement request to substantiate the expenses associated with the trip. The reminder should state the facts and site this procedure. A copy of the reminder will be sent to the advance recipient and the dean/director/department head who authorized the advance. If the substantiation is not received, a second reminder will be sent about two weeks from the date of the first reminder.

c. On the 10th of each month the USNH Disbursements will complete a listing of all outstanding advances reconciled to Banner. Where two or more reminders have been sent to an employee with no response, the outstanding amount will be deducted from the employee's next paycheck.

d. Initiate Payroll Deduction. USNH Disbursements Services will initiate the deduction and send a notice when the deduction will take place to the Campus Travel Manager, BSC Director or designee by forwarding a reference to the JV document to transfer the money into the campus travel advance account. The campus representative will notify the employee of the date and amount of the payroll deduction.

e. USNH Disbursements Services will clear/cancel any open credit invoice transactions in the Banner System.

2.   Responsibilities of the Campus Travel Manager, BSC Director or other designee

If the USNH Director of Accounts Payable and Payroll delegates travel advance responsibilities to the Campus Travel Manager, BSC Director or other designee, the Campus Travel Manager, BSC Director or designee are responsible for completing all tasks outlined in section B.1. above.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

The procedure outlined below is intended to ensure that proper approval is obtained in advance of executing write- offs, and that each request is based on fully documented good faith efforts to collect the account (i.e. due diligence). This procedure does not pertain to loans administered under the Federal Perkins Student Loan Program.

A. SUMMARY OF ADMINISTRATIVE PROCEDURE

1. Approval: The authority to approve the write off of uncollectible accounts is vested in the Chief Financial Officer (CFO) at each campus. All decisions to write off an account must be based on review of documented collection efforts demonstrating that due diligence has been exercised. All write-offs must be approved in advance by the CFO, or his/her designee, at each campus.
2. Accounting for Write-Offs: The University System Financial and Administrative Procedures Manual, Procedure 10-002, Billing for Goods Sold or Services Rendered, states that when accounts receivable must be written off due to collectibility, such amounts are always recorded as a charge to an expense object code or the related reserve for doubtful accounts, not as a reduction of revenue.
3. Initial Collection Efforts: Any receivable account balance which remains unpaid 90 days after the initial payment due date shall be referred to the campus department responsible for collections. This department will take appropriate collection steps, including, but not limited to, dunning calls and letters, placement with collection agencies, or initiation of legal action to recover amounts due USNH.  Each campus may exercise more stringent practices, but may not be more lenient.   

a. For balances less than $10 no collection work is necessary before writing off balances, but CFO or designee advance approval is still required. For balances of $10 or more but less than $100, the collections department must make at least 2 good faith efforts to collect by letter or telephone. For balances of $100 or more, at least 3 good faith efforts to collect must be made and documented.
b. If an account remains unpaid 45 days after the collection process described above begins (i.e. 135 days past the original due date), the account should be evaluated for transfer to an appropriate collection agency or collection attorney.
c. If the account is returned by a collection agency as uncollectible, the account record should be reviewed again to determine if further collection agency placement or legal action should be taken, before a recommendation to write off the account will be made.

4. Requests for Write-Offs: If it is determined that further collection action would not be productive, and after appropriate consultation with the referring office, the complete record of the account and collection actions will be forwarded by the collections department to the Campus CFO, or his/her designee, for write-off approval.
5. Processing Write-Offs: When a write-off is recommended, an appropriate expense account, or the proper reserve for doubtful accounts, will be identified by the collections department, to fund the write-off. When approval is received, appropriate documents will be prepared by the collections department to accomplish the write-off of the account within Banner and/or the campus' accounts receivable system.
6. Record Retention: The complete record of the account, including write-off approval and documentation of due diligence in the collection effort, will be retained in the archives of the collections department for seven (7) years.

B. DETAILED OPERATING PROCEDURES for UNH, UNHL and UNHM accounts (Students or Commercial)

1. Delegation of Authority: As an administrative convenience, the UNH authority to write-off individual accounts up to $1000 as well as all balances of deceased students, and any balances discharged by federal or state courts under bankruptcy petitions, has been delegated to the Director of Business Services.
2. Balances less than $10:  Account balances of less than $10 will be automatically written off by the Director of Business Services, when the account is more than 90 days past due.  
3. Balances between $10 and $24.99:  Account balances between $10 and $24.99 which are more than 90 days past due, may be written off by the Director of Business Services upon completion of at least two documented good faith attempts to collect the account.
4. Balances between $25 and $999.99:  When the account is 90 days in arrears, UNH Business Services will assume collection responsibility. It is the originating department's responsibility to notify UNH Business Services on a timely basis, and provide all relevant background materials.

a. UNH Business Services will make at least 2 good faith efforts to collect, by letter and/or telephone, as appropriate in each case.
b. If the account remains unpaid after 45 days in the collection process, UNH Business Services staff will evaluate the account. A recommendation to take further action or to write-off the account will be made to the Director of Business Services.

5. Balances of $1000.00 or over:  When the account is 90 days in arrears, UNH Business Services will assume collection responsibility. It is the originating department's responsibility to notify UNH Business Services on a timely basis, and provide all relevant background materials.

a. UNH Business Services will make at least 3 good faith efforts to collect by letter and/or telephone as appropriate.
b. If the account remains unpaid after 45 days in the collection process, the account will be transferred to a collection agency or attorney, as appropriate.
c. If the account is returned by a collection agency as uncollectible, the account record will be reviewed to determine if further collection agency placement or legal action should be taken.
d. If it is determined that further collection efforts would not be productive, the Director of Business Services will forward the documented record to the Associate Vice President for Finance and Administration for approval of the write-off.

6. Balance write-off procedures: Upon approval of the Director of Business Services or Associate Vice President for Finance and Administration, the Director of Business Services will effect the following actions:

a. A "Credit & Collections Write-Off" (CCWO) credit amount will be entered into the Banner system to write-off the account against the Banner reserve for doubtful accounts fund.
b. A "Credit Watch" (CW) hold will be placed on student Banner accounts with written off balances of $10 or more to preclude registration or issuance of transcripts.
c. Prior to write-off, any account balances over $100 will be reported to UNH's student payment plan servicing agent for final collection attempts.  If unsuccesful, the servicing agent will notify UNH to write-off the balance and the servicing agent will report the write-off to the applicable credit bureau.

7. Reports

a. A quarterly report of all accounts written off will be provided to the Associate Vice President for Finance and Administration for review.
b. Semiannually, a Banner report will be generated listing any payments made to accounts with a CW hold. This will permit the reversal of write off actions, when appropriate, and restore the funds to the reserve for doubtful accounts fund for future use.
c. Other appropriate reports will be prepared by the Director of Business Services of accounts written off to support internal and external audit requirements for due diligence.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

A. INTRODUCTION

1. Background - The purpose of this Debt Derivatives Policy is to establish guidelines for the use and management of all interest rate exchange transactions ("Swaps") and similar arrangements entered into by the University System of New Hampshire in connection with the incurrence of debt obligations or in furtherance of other non-speculative corporate purposes. This Policy sets forth the objectives, benefits and risks of a Swap program; discusses procurement and execution of Swap agreements; provides for security and risk mitigation strategies to be used; and requires regular monitoring and reporting; among other provisions. The terms "Debt Derivatives" and "Swaps" are used interchangeably throughout this Policy.
2. Rational for utilizing derivatives - Swaps and related financial instruments are appropriate interest rate management tools. Although not without risk, Swaps when properly used can improve USNH's financial viability, help manage its financial risks, and provide opportunities for interest rate savings. The authorized Swaps contemplated in this Policy are intended to reduce the amount or duration of interest rate risk, or produce a lower cost of borrowing when used in combination with the issuance of bonds. Swap structures will be adopted within plans of finance that are designed to maintain the tax-exempt status of USNH's debt.
3. Swaps may be used for the following purposes only:

a. To achieve significant savings as compared to a product available in the bond market. Significant savings may be deemed to occur if the use of Swaps helps to achieve diversification of a particular bond offering;
b. To prudently hedge risk in the context of a particular financing or the overall asset/liability management of USNH;
c. Synthetically to create variable rate exposure within prudent guidelines through Swap transactions in which USNH effectively exchanges with a Swap counterparty its fixed interest rate obligation on notes or bonds for an obligation to pay to the counterparty a variable interest rate;
d. To lock in fixed rates in current markets for use at a later date, through the use of forward Swaps, swaptions, rate locks, options and forward delivery products;
e. To manage USNH's exposure to the risk of changes in the legal and regulatory treatment of tax–exempt bonds;
f. To manage USNH's credit exposure to financial institutions and other entities through the use of off–setting Swaps and other credit management products; and
g. To achieve more flexibility in meeting overall financial objectives than can be achieved in conventional markets.

4. Situations where debt derivatives may not be used - Swaps may not be used for speculative purposes or to assume risks that are not prudent in light of the purposes for which the Swap transaction is being done. USNH may not enter into any Swap transaction for which there is (a) insufficient market liquidity for its transfer or termination at market, or (b) insufficient price transparency to allow realistic valuation of its market value on an ongoing basis.

B. AUTHORITY FOR DEBT DERIVATIVES AGREEMENTS

1. Board resolution - A vote of the Board of Trustees is required to incur long-term indebtedness in the form of tax-exempt bonds. The use of Swaps is limited to USNH's outstanding or anticipated debt and will be matched to specific bonds. New Swap agreements relating to new bonds require Board of Trustee authorization.
2. Existing bonds and swaps - Terminations, modifications, requests for bids, negotiations, and execution of Swap agreements related to currently outstanding bonds, or Swaps approved in B.1 above, require the joint approval of the Treasurer and the Chairman of the Financial Affairs Committee. USNH will consider the expert advice of Swap Advisor(s) and Bond Counsel as it deems relevant in the circumstances prior to its determination of whether to proceed with execution.
3. Legality - As a condition to the execution of any Swap transaction the USNH General Counsel will produce an opinion (or cause to have a recognized external bond counsel firm produce an acceptable opinion) substantively to the effect that USNH has the power to execute the agreement(s) relating to the Swap, that the agreements are legal, valid and binding obligations of USNH, and that they and their execution and delivery are not inconsistent with applicable laws.

C. PERMITTED FINANCIAL INSTRUMENTS

1. Specific approval instruments - USNH may expressly utilize the following financial instruments, after identifying financial objective(s) to be realized and assessing the attendant risks:

a. Current or forward starting floating-to-fixed rate swaps (Synthetic Fixed), designed to capture current market interest rates, for example, for a bond issue anticipation hedge or a synthetic forward refunding
b. Current or forward starting fixed-to-floating rate swaps (Synthetic Variable), designed to create additional variable interest rate exposure
c. Financial contracts (caps, collars, floors) that limit or bound exposure to interest rate volatility
d. Sale or purchase of options to commence or cancel interest rate swaps (Swaptions)
e. Floating-to-floating rate swaps (Basis Swaps) to manage basis or tax risk

D. SWAP RISK AND BENEFIT ANALYSIS

1. General - In connection with any Swap, USNH and its Swap Advisor, shall review the proposed transaction and outline any considerations associated with the transaction, including identification of the benefits and potential risks; an independent analysis of potential savings from the proposed transaction; fixed versus variable rate and Swap exposure to USNH as a whole; and Maximum Net Termination Exposure for all existing and proposed USNH transactions. The USNH Treasurer shall consider for execution only those proposed transactions that meet the savings thresholds described herein, or that are compelling for other reasons, without incurring undue risks. Sections E through I below describe actions designed to protect USNH interests by maximizing benefits and mitigating risks.
2. Swap risks - In reviewing proposed Swaps, USNH shall consider at a minimum each of the following risks:

a. Counterparty risk - The risk that the Swap counterparty will not fulfill its obligations as specified by the terms of the contract. Under a fixed payer Swap, for example, if the counterparty defaults, USNH would be exposed to an unhedged variable rate bond position and the additional risk that the counterparty may be unable to or fails to make an early termination payment that would compensate USNH for the value of the lost hedge.
b. Termination risk - The risk that the Swap could be terminated as a result of any of several events, which may include a ratings downgrade for USNH or the Swap counterparty, covenant violation by either party, bankruptcy of either party, Swap payment default by either party, and default events under a bond resolution or trust indenture. USNH could owe a termination payment to the counterparty or receive a termination payment from the counterparty, depending on how interest rates at the time of termination compare with the fixed rate on the Swap.
c. Basis Risk - Basis risk refers to a mismatch between the interest rate received from the Swap contract and the interest actually owed on USNH’s related bonds. The risk, for example, in a 67% LIBOR floating to fixed rate Swap is that the variable rate interest payments received at 67% of LIBOR from the Swap counterparty will be less than the variable interest payments USNH must pay on its hedged bonds (assumed to be at or near the SIFMA Index in the case of USNH’s bonds).
d. Tax risk - A potentially long-term form of basis risk resulting from changes in marginal income tax rates and other changes in the Federal and state tax systems. Such changes will affect the relative value of tax-exempt debt. If marginal tax rates decline, the after tax value of tax-exempt income declines, which could cause tax-exempt rates to increase. Tax risk exists in all unhedged tax-exempt variable rate debt. Hedging tax-exempt variable rate debt with a LIBOR-based Swap leaves USNH exposed to the tax risk inherent in tax-exempt debt while hedging with a swap based on the SIFMA index would hedge the tax risk.
e. Amortization risk - Amortization risk refers to a mismatch between the principal amount of hedged bonds and the notional amount of the associated hedging Swap at points in time.
f. Swap rollover risk - If the term of the Swap contract does not match the term of the related bonds being hedged, the risk that upon the scheduled expiration of the Swap, the interest rate risk will be unhedged unless a new Swap is procured.
g. Liquidity/Remarketing risk - The risk that USNH cannot secure a cost-effective renewal of a Letter or Line of Credit or suffers a failed remarketing with respect to the variable-rate bonds underlying a floating-to-fixed swap. This would be due to a credit deterioration of USNH or a general reduction in bank lines available to the broad market.
h. Administrative risk - The need for ongoing expertise and effort to develop documentation, assess pricing, monitor rates, calculate and make payments, manage all aspects of the Swap program, evaluate tax issues, and institute proper accounting and budgeting methodology for the term of the Swap.

3. Swap benefit expectation - Synthetic fixed rate swaps or other derivative products should generate approximately 1% greater projected savings than that which would be expected for traditional bonds. This threshold will serve as a guideline and will not apply should the transaction, in USNH's sole judgment, help to meet any of the other objectives outlined herein. The higher savings target reflects the greater complexity and higher risk of derivative financial instruments. In addition, comparative savings analyses shall include, where applicable, the probability (based on historical interest rate indices, where applicable, or other accepted analytic techniques) of realized savings for both the derivative and traditional structures. Savings are to be calculated after adjusting for (a) applicable fees, including takedown, remarketing fees, credit enhancement and legal fees, and (b) call options that may be available on the bonds. In addition, USNH should examine any other risks added to a transaction, in particular tax risk, and adjust benefit expectations for the value added by taking such risk.

• Example - Assume a refunding of $100 million of existing bonds, where a traditional fixed rate advance refunding that does not use derivative products may have a present value savings (net of all costs) threshold of $3 million, which is 3% of the refunded par. If the refunding structure utilizes a derivative product, the threshold would have to be $4 million in net present value savings, 4% of the refunded par. Therefore, the transaction utilizing a swap or other derivative product would have to generate an additional $1 million to meet the target in this example.

4. Other considerations - In evaluating a particular Swap transaction, USNH will review long-term implications associated with entering into the Swap, including the costs of borrowing, historical interest rate trends, variable rate capacity, credit enhancement capacity, opportunities to refund related debt obligations and other similar considerations. When considering the relative advantage of using a Swap to synthetically create a fixed rate bond obligation versus the issuance of conventional fixed rate obligations, USNH will take into consideration the value of any call option on fixed rate obligations. USNH shall consider the impact of any variable rate obligations issued in combination with a Swap on the availability and cost of liquidity support for other additional variable rate obligations that may be issued by USNH in the future.

E. LEGAL AND CONTRACTUAL REQUIREMENTS

1. Prior to entering, amending, or terminating any swap, USNH will consider and meet all applicable regulatory requirements for swap transactions in consultation with its advisors and legal counsel.  USNH will consider relevant advisories and maintain full compliance prior to entering, amending, or terminating any swap and provide ongoing monitoring of compliance with the applicable regulations of the CFTC (Commodity Futures Trading Commission) and/or any other body with regulatory oversight of the swap market.
2. Standard documents - USNH will use standard ISDA swap documentation including the Master Agreement, Schedule to the Master Agreement, and a Credit Support Annex. USNH may use additional documentation if the product is proprietary or USNH deems in its sole discretion that such documentation is otherwise in its interest.
3. Terms and notional amount of swap agreement - USNH shall determine the appropriate term for an interest rate swap agreement on a case-by-case basis. In connection with the issuance or carrying of bonds, the term of the swap agreement between USNH and a qualified swap counterparty shall not extend beyond the final maturity date of existing debt of USNH for the related bonds, or in the case of a refunding transaction, beyond the final maturity of the refunding bonds. For purposes of calculating net exposure, credit shall be given to any fixed versus variable rate swaps that offset termination exposure for a specific bond transaction. For variable rate transactions, credit may also be given for any assets that are used to hedge a transaction as long as in USNH’s judgment such assets are reasonably expected to remain in place on a coterminous basis with the swap.
4. Provisions to be included - The swaps between USNH and each counterparty shall include, as appropriate, payment, term, security, collateral, default, remedy, termination, and other terms, conditions and provisions as USNH, in consultation with its Swap Advisor and Bond Counsel, deems necessary or desirable. USNH swap documentation and terms should generally include the following:

a. Downgrade provisions triggering termination shall in no event be worse than those affecting the counterparty.
b. Governing law for swaps will be New York law, but should reflect New Hampshire authorization provisions.
c. The specified indebtedness related to credit events in any swap agreement should be narrowly drafted and refer only to specific debt.
d. Collateral thresholds should be set on a sliding scale reflective of credit ratings (see Collateral below).
e. Eligible collateral shall be as set forth in Attachment A, the Collateral section below.
f. Termination value should be set by "market quotation" methodology, when USNH deems appropriate.
g. USNH should only agree to an Additional Termination Event for USNH to the extent that the ratings on the applicable bonds fall below a ratings trigger acceptable to USNH and the counterparty and no form of credit support or enhancement is in place.

5. Termination provision - All swap transactions shall contain provisions granting USNH the right to optionally terminate a swap agreement at any time over the term of the agreement. Such a provision shall be required even if any termination is at market. In general, exercising the right to terminate an agreement should produce a benefit to USNH, either through the receipt of a payment from a termination or, if the termination payment is made by USNH, in conjunction with a conversion to a more beneficial debt obligation of USNH, as solely determined by USNH.
6. Collateral - As part of any swap agreement, USNH may require collateralization or other forms of credit enhancements to secure any or all swap payment obligations. As appropriate, USNH, in consultation with its Swap Advisor, may require collateral or other credit enhancement to be posted by each swap counterparty under the following circumstances:

a. Each counterparty to USNH may be required to post collateral if the credit rating of the counterparty or parent falls below the “AA” category. Additional collateral for further decreases in credit ratings of each counterparty shall be posted by each counterparty in accordance with the provisions contained in the collateral support agreement to each counterparty with USNH.
b. Threshold amounts shall be determined by USNH on a case-by-case basis. USNH will determine the reasonable threshold limits for the initial deposit and for increments of collateral posting thereafter.
c. In determining maximum uncollateralized exposure, USNH shall also consider and include, as applicable, financial exposure to the same corporate entities that it may have through other forms of financial dealings, such as securities lending agreements and commercial paper investments.
d. Collateral shall be deposited with a third party trustee, or as mutually agreed upon between USNH and the counterparty.
e. A list of acceptable securities that may be posted as collateral and the valuation of such collateral will be determined and mutually agreed upon during negotiation of the swap agreement with each swap counterparty. A complete list of acceptable securities and valuation percentages are included as Exhibit A.
f. The market value of the collateral shall be determined on at least a monthly basis, or more frequently if USNH determines it is in USNH's best interest given the specific collateral security.
g. USNH shall determine on a case-by-case basis whether other forms of credit enhancement are more beneficial to USNH.

F. METHODS OF SOLICITING, PROCURING AND SELECTING SWAP COUNTERPARTIES

1. General - USNH will assess the benefits of competitively bidding financial products that are non-proprietary or generally available in the marketplace. On a case-by-case basis, USNH will have the authority to negotiate the procurement of financial instruments that have customized or specific attributes designed on USNH's behalf. To provide safeguards on all Swap transactions, USNH will secure professional advice of a Swap Advisor and legal counsel familiar with Swaps to assist in the process of analyzing, structuring, documenting and pricing the transaction, and to verify that a fair price was obtained.
2. Negotiated - Negotiated procurement may be used (a) for original or proprietary products, (b) for original ideas of applying a specified product to a USNH need, (c) to avoid potential market pricing effects that would be detrimental to USNH’s interests, or (d) on a discretionary basis in conjunction with other business purposes of USNH.
3. Competitively bid - If USNH determines that a Swap should be competitively bid, at least three bids will be sought. USNH may employ a hybrid structure to reward unique ideas or special effort by reserving a specified percentage of the Swap to the firm presenting the ideas on the condition that the firm match or better the best bid.
4. Counterparty selection - USNH may enter into a Swap transaction only with highly qualified and highly rated counterparties. Qualified Swap counterparties will have demonstrated experience in successfully executing Swaps and, either (a) the counterparty has a credit rating for its long-term, unsecured and unsubordinated obligations of not lower than A2 by Moody's Investor's Service or A by Standard and Poor's Ratings, or (b) the payment obligations of the counterparty are unconditionally guaranteed by a bank or non-bank financial institution with credit ratings that comply with clause (a) above at the time of execution of the Swap agreement. USNH will not enter into Swap agreements with counterparties rated below A2/A by any rating agency. Each counterparty shall have minimum capitalization of at least $150 million.
5. Protection from credit deterioration - USNH shall structure all Swap agreements to protect itself from credit deterioration of counterparties, including the use of credit support annexes or other forms of credit enhancement to secure counterparty performance. Such protection shall include any terms and conditions which, in USNH's sole discretion, are necessary or appropriate or in its best interests. If after entering into an agreement the ratings of the counterparty or its guarantor or credit support party are downgraded below the ratings listed above by any one of the rating agencies, then the agreement should be subject to termination unless (x) the counterparty provides either a substitute guarantor or assigns the agreement, in either case, to a party meeting the rating criteria reasonably acceptable to USNH or (y) collateralizes its obligations in accordance with the criteria set forth in the transaction documents.

G. COUNTERPARTY EXPOSURE LIMITATIONS

1. Diversification of counterparty risk - In order to diversify USNH’s counterparty credit risk, and to limit USNH’s credit exposure to any one counterparty, limits will be established for each counterparty based upon both the credit rating of the counterparty as well as the relative level of risk associated with each existing and proposed swap transaction. The guidelines below provide general termination exposure guidelines with respect to whether USNH should enter into an additional transaction with an existing counterparty. USNH may make exceptions to the guidelines at any time to the extent that the execution of a swap achieves one or more of the goals outlined in these guidelines or provides other benefits to USNH. In general, the Maximum Net Termination Exposure to any single Counterparty should be set so that it does not exceed a prudent level as measured against the gross revenues, available assets or other financial resources of USNH. Accordingly, these guidelines will be reviewed and revised from time-to-time.
2. Prospective analysis - Such guidelines will also not mandate or otherwise force automatic termination by USNH or the counterparty. Maximum Net Termination Exposure is not intended to impose retroactively any terms and conditions on existing transactions. Such provisions will only act as guidelines in making a determination as to whether or not a proposed transaction should be executed given certain levels of existing and projected net termination exposure to a specific counterparty. Additionally, the guidelines below are not intended to require retroactively additional collateral posting for existing transactions. Collateral posting guidelines are described in the “Collateral” section 5.5 above. The calculation of net termination exposure per counterparty will take into consideration multiple transactions, some of which may offset the overall exposure to USNH.
3. Maximum net termination exposure - USNH will set limits on individual counterparty exposure based on existing as well as new or proposed transactions. The sum of the current market value and the projected exposure shall constitute the Maximum Net Termination Exposure. For outstanding transactions, current exposure will be based on the market value as of the last quarterly swap valuation report provided by the Swap Advisor. Projected exposure shall be calculated based on the swap’s potential termination value taking into account possible adverse changes in interest rates as implied by historical or projected measures of potential rate changes applied over the remaining term of the swap. For purposes of this calculation, USNH shall include all existing and projected transactions of an individual counterparty and all transactions will be analyzed in aggregate such that the maximum exposure will be additive.
4. Exposure thresholds - The exposure thresholds will also be tied to credit ratings of the counterparties and whether or not collateral has been posted as shown in the table below. If a counterparty has more than one rating, the lowest rating will govern for purposes of the calculating the level of exposure. A summary table is provided below.

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Counterparty Credit Exposure Limits
Credit Ratings	Maximum Collateralized Exposure	Maximum Uncollateralized Exposure	Maximum Net Termination Exposure
AAA	NA	$40 million	$40 million
AA Category	$30 million	$20 million	$40 million
A Category	$20 million	$10 million	$30 million
Below A	None	None	None

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If the exposure limit is exceeded by a counterparty, USNH shall conduct a review of the exposure limit per counterparty. USNH, in consultation with its Swap Advisor, shall explore remedial strategies to mitigate this exposure.

H. ONGOING MANAGEMENT AND BUDGETING

1. USNH will manage all Swap transactions centrally for its constituent campuses and units and will charge no less than full debt service based on the all-in fixed rate cost of traditional bonds as if no Swap transaction had taken place. In addition, any net present value savings realized through execution of the Swap agreement will be invested long-term in a fund functioning as endowment under the control of the USNH Board of Trustees. The difference between the fixed rate charged to campus auxiliary units and the actual periodic debt service payments (including variations due to basis exposure) will be added to or subtracted from the funds functioning as endowment to provide a permanent offset to the risks of the Swap transaction.
2. USNH will seek to maximize its benefits and minimize its risks by actively managing its Swap program. This will entail frequent monitoring of market conditions, by both the Swap Advisor and Swap counterparties, for emergent opportunities and risks. Active management may require modifications of existing positions including, for example:

a. Early termination;
b. Shortening or lengthening the term;
c. Sale or purchase of options; or
d. Use of basis swaps

3. Accounting treatment - USNH will evaluate existing and proposed debt derivative transactions under accounting rules, such as GASB 53, to understand the full range of financial statement impacts and fully inform the decision-making process.

I. ONGOING MONITORING AND REPORTING REQUIREMENTS

1. Analysis of quarterly reports - A written report providing the status of all Swap agreements entered into by USNH will be prepared by its Swap Advisor and/or Swap counterparties and analyzed by the USNH Treasurer and Controller, at least on a quarterly basis and shall include the following:

a. A description of all outstanding interest rate swap agreements, including bond series, type of swap, rates paid and received by USNH, total notional amount, average life of each swap agreement, remaining term of each swap agreement.
b. Highlights of all material changes to swap agreements or new swap agreements entered into by USNH since the last report.
c. A summary of Swap agreements that were terminated or that have expired.
d. A summary of principal terms of the agreements, including bond series, type of swap, rates paid and received by USNH, notional amounts, average life of each swap, remaining term of each swap agreement, and method of procurement.
e. The marked–to–market value of each Swap.
f. The name, description and credit ratings of each counterparty and the applicable guarantor or other credit support party.
g. The amounts that were required to be paid and received, and any amounts that were actually paid and received.
h. Listing of any credit enhancement, liquidity facility or reserves and accounting of all costs and expenses associated with the credit enhancement, liquidity facility or reserves.
i. The aggregate marked to market value for each counterparty and relative exposure compared to other counterparties.
j. A calculation of USNH’s Maximum Net Termination Exposure to each counterparty.

2. Annual reporting - An annual summary report shall be prepared and presented by the Treasurer or Controller to the Board of Trustee’s Financial Affairs Committee.

3. Annual disclosure and accounting treatment - USNH shall adhere fully to all applicable Governmental Accounting Standards Board (GASB) requirements and recognized “best practices” for the accounting treatment and disclosure of debt derivative transactions in its audited financial statements and other relevant publications.

Exhibit A - Acceptable Collateral
Exhibit B - Glossary of Terms

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

Exhibit A - Acceptable Collateral

Security				Valuation Percentage
(A)		Cash		100%
(B)	(x)	mortgage backed securities issued by Ginnie Mae
		but with respect to either (x) or (y) excluding interest only or principal only stripped securities, securities representing residual interests in mortgage pools, or securities that are not listed on a national securities exchange or regularly quoted in a national quotation service) and in each case having a remaining maturity of:
		(i)	less than one year	98%
		(ii)	greater than one year	98%
(C)	(x)	Negotiable debt obligations issued by the Federal Home Loan Mortgage Corporation ("Freddie Mac") or the Federal Home Loan Mortgage Association ("Fannie Mae") or
	(y)	mortgage backed securities issued by Freddie Mac or Fannie Mae
		but excluding interest only or principal only stripped securities, securities representing residual interests in mortgage pools, or securities that are not listed on a national securities exchange or regularly quoted in a national quotation service.		98%
(D)		Any other collateral acceptable to the USNH in it sole discretion.		The valuation percentage shall be determined by the Valuation Agent from time to time and in its reasonable discretion.

 

For example, if a counterparty is required to post $1.0 million of collateral and wished to use Ginnie Mae's with five years remaining to maturity, it would be required to post $1,020,408 ($1.0 million/0.98) to satisfy the collateral requirement.

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The official version of this information will only be maintained in an on-line web format. Any and all printed copies of this material are dated as of the print date. Please make certain to review the material on-line prior to placing reliance on a dated printed version.

Exhibit B - Glossary of Terms

Confirmation - A contractual document executed for a specific Swap transaction which details the specific terms and conditions applicable to that transaction (fixed rate, floating rate index, payment dates, calculation methodology, amortization, maturity date, etc.).

Counterparty - A principal party to a Swap, as opposed to an agent such as a broker. USNH and a Swap dealer would both be counterparties in a transaction.

Credit Support Annex - A contractual document that covers the posting of collateral, if required under the ISDA Schedule, which is based on the net mark–to–market values of the cash flows in the Swap.

Forward Starting Swap - An interest rate Swap in which the Swap terms are set at the outset, but the start of the cash flow accruals and exchanges is delayed until some future date.

Hedge - A position taken in order to offset the risk associated with some other position. For example, a floating-to-fixed rate Swap can be a hedge of the interest rate risk of variable rate debt.

Interest Rate Swap - An interest rate Swap is a contract between two parties to exchange cash flows over a predetermined length of time. Cash flows are calculated periodically based on a fixed or variable interest rate against a set "notional" amount (amount used only for calculation of interest payments). Principal is not exchanged.

ISDA - The International Swaps and Derivatives Association, Inc. The global trade association whose members are dealers in the Swap industry. Most Swap transactions are executed under standard documentation created by ISDA.

ISDA Master Agreement - The primary document for the terms and conditions governing the Swap market. The ISDA Master Agreement contains the terms for events of default, termination events, representations and covenants, early termination provisions and payment calculations.

LIBOR - The London InterBank Offered Rate. The rate at which banks will lend eurodollars to each other. The most active dollar-based taxable interest rate benchmark utilized globally.

Maximum Net Termination Exposure - An amount equal to the aggregate termination payment for all existing and projected Swap transactions that would be paid by an individual counterparty. For purposes of this calculation, the aggregate termination payment is equal to: (i) the reasonably expected worst-case termination payment under all existing Swaps prior to the execution of any proposed transaction, plus (ii) the reasonably expected worst-case termination payment of the proposed transaction.

Notional Amount - The stipulated principal amount for a Swap transaction. There is no transfer of principal for a Swap, but there is an exchange in the cash flows for related, designated interest payments.

Schedule to the ISDA Master Agreement - A contractual document that supplements and may modify the terms of the Master Agreement. It also specifies which of a number of particular options available under the Master Agreement the parties have chosen to apply. The terms of the Schedule become part of the Master Agreement and will govern all Swap transactions consummated under the Master Agreement unless the Confirmation for a particular Swap transaction provides otherwise with respect to that Swap.

SIFMA Index - The Securities Industry and Financial Markets Association Municipal Swap Index. The principal benchmark for short-term, tax-exempt rates. A market basket index of over 400 actively traded, highly rated, non–AMT tax–exempt variable rate issues that reset their rates every Wednesday.

Swaption - A Swaption is an option on a Swap. The Swaption purchaser has the right to enter a specific Swap for a defined period of time. This option can be exercised on a specific exercise date or on any of a series of exercise dates depending on the specific terms of the Swaption.

Yield Curve - Refers to the graphical or tabular representation of interest rates across different maturities. It reflects the market's views about implied inflation/deflation, liquidity, economic and financial activity, and other market forces.

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