CHARITY INCOME RESERVES OG 43 E1

The Charity Commission for England and Wales

The Regulator for Charities in England and Wales

In this section...


OPERATIONAL GUIDANCE CHARITY INCOME RESERVES Practical example of a reserves policy:A good explanation but reserves above charity's stated optimum level OG 43 E1 - 24 May 2000

Divisional responsibility
For information:	Charity Support Division

Contents
1. Objects of charity 2. Approximated figures from SOFA 3. Stated reserves policy 4. Comment
Meaning of expressions - list of Glossary terms used in this Guidance Index to further related information

	1. Objects of charity
	The prevention cure and relief of disablement both in this country and abroad.

	2. Approximated figures from SOFA
		Unrestricted	Restricted	Total
		£	£	£
	Incoming resources	200 0	700 0	900 0
	Resources expended	110 0	620 0	730 0
	Net incoming resources	90 0	80 0	170 0

	Fund balances carried forward to next year	460 0	490 0	950 0

	3. Stated reserves policy
	Unrestricted funds are needed:
		(a)	to provide funds which can be designated to specific projects to enable these projects to be undertaken at short notice and
		(b)	to cover administration fund-raising and support costs without which the charity could not function.
	The trustees consider it prudent that unrestricted reserves should be sufficient:
		(a)	to avoid the necessity of realising fixed assets held for the charity's use;
		(b)	to cover one year's administration fund-raising and support costs;
		(c)	to provide a pool equal to 10% of the average charitable expenditure over the preceding two years from which funds can be designated to specific projects.
	Unrestricted reserves are currently above that range by approximately £50 0
	The level of reserves is monitored and reviewed by the trustees three times a year.

	4. Comment
	This is a good explanation of a reserves policy. The trustees:
	are clear about the reasons for holding reserves;
	have set a level of reserves which they consider prudent;
	recognise that the reserves are higher than the range they have fixed; and
	regularly monitor and review the position.
	This year's surplus of unrestricted income over unrestricted expenditure indicates that reserves were probably below their optimum minimum level last year. An examination of the notes to the accounts should provide greater detail on restricted and designated funds.
	The policy statement would have been even better had it explained what the trustees intended to do with/about the excess funds.

	The following words and phrases are defined in the Glossary of Terms:
	• • •	reserves SOFA trustees

Go to:	Other examples
		OG 43 E2	general justification for maintenance of reserves but rationale for particular level questionable;
		OG 43 E3	purpose and level of reserves explained shortfall identified;
		OG 43 E4	policy clearly explained but reserves currently over planned limit;
		OG 43 E5	purpose and required level of reserves clearly set out; policy has recently been reviewed;
		OG 43 E6	need for and purpose of reserves clearly explained but no comment on level of reserves;
		OG 43 E7	general principles understood and set out but no detail as to how these will be applied;
		OG 43 E8	income apparently being converted into endowment; amount of reserves actually held not clear;
		OG 43 E9	reserves apparently being built up to produce income;
		OG 43 E10	designated fund apparently being used as endowment; unclear why reserves are needed for purposes stated;
		OG 43 E11	danger that building up reserves may become an end it itself.

	Index to further related information