(1) The board of trustees may establish a litigation reserve fund when litigation is pending. Pending litigation is defined as any type of contested hearing that could result in a judgment with adverse fiscal consequences against the school district. Such proceedings may include but are not limited to actions heard by a county superintendent, the state Superintendent of Public Instruction, the Montana Human Rights Commission, a district court, the Montana Supreme Court, the Equal Opportunity Commission, Fair Labor Standard Boards, etc.

(2) The litigation reserve fund may be used to pay awards or judgments, including costs if so ordered in the judgment. This fund may also be used to pay settlements agreed upon before a judgment is rendered, back wages including benefits, and civil penalties.

(3) The litigation reserve fund shall not be used to pay costs of attorney fees, witness fees, travel, copies, telephone, transcripts, etc.

(4) When the litigation ends, any remaining fund balance in the litigation reserve fund shall be immediately transferred back to the general fund.

(5) In accordance with generally accepted accounting principles, transfers due to or from the litigation reserve fund must be accrued prior to year's end in the district's accounting records as operating transfers. The actual cash transfer to or from the litigation reserve fund shall be made before September 30th of the next fiscal year.