28 Apr 2021 2:11 PM

Charity reporting requires that charities publish a reserves policy, normally in the Trustees’ Report in the annual statutory accounts, as Trustees are under a duty to balance the needs of current and future beneficiaries of the charity and explain why they are not spending all their monies straight away on meeting their principal charitable aims.

A charity will need to have sufficient reserves to allow it to cover known liabilities and contingencies, absorb setbacks and take advantage of change and opportunity.

However, if charities decide to hold reserves that are greater than their needs, they may be subject to scrutiny and possible investigation by the Charity Commission.

So, what does a sound reserves policy look like? What elements should it contain to be useful and effective?

It needs to

  1. Link to the Strategic Plan – the charity needs to work out what it needs to hold back to allow it to fulfil its strategic goals in the short and long term. These strategic goals may well have changed dramatically with the pandemic
  2. Consider the risks that the charity faces, both now in the future and consider the cost of the responses to those risks.
  3. Budget for how resources are to be spent and the timescale for that expenditure. A costed reserves policy will help with decision-making, particularly if the pandemic has led to a reduction in donations, whilst demands for your help have increased substantially.
  4. Be reviewed regularly – as part of the charity’s ongoing financial planning.

A reserves policy needs to be communicated properly to demonstrate that the charity’s money is being used to good effect. It is all part of the picture that a charity needs to paint to funders, beneficiaries, members and the wider public to show that there are good reasons for maintaining or seeking the additional levels of reserves.

The Covid 19 pandemic has certainly hit some charities hard, whether they have strong cash reserves or not, but for those with strong cash reserves have bought themselves more time to respond and react in a considered way to the implications of the pandemic.

Even for those charities with limited cash reserves, if they have a developed, clear, up to date and robust reserves policy, the seriousness of the implications of the pandemic have been picked up fairly quickly and the charities’ responses tailored appropriately.

If you are worried that your charity does not have a robust reserves policy and you need some help, please get in touch.