OPERATIONAL GUIDANCE

CHARITY INCOME RESERVES

Practical example of a reserves policy:
Purpose and required level of reserves clearly set out; policy has recently been reviewed

OG 43 E5 - 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

To relieve poverty sickness distress and suffering world-wide and to undertake related research and education.

2. Approximated figures from SOFA

Unrestricted

Restricted

Total

£

£

£

Incoming resources

500 000

1 300 000

1 800 000

Resources expended

500 000

1 300 000

1 800 000

Net incoming resources

-

-

-

Fund balances carried forward to next year

270 000

140 000

410 000

3. Stated reserves policy

The trustees have reviewed the charity's needs for reserves in line with the guidance issued by the Charity Commission and have set aside or designated £99 000 to meet commitments on co-financed projects and £50 000 to safeguard the charity's service commitment in the event of delays in receipt of grants or accrued legacies. The balance of the funds amounts to £120 000 This approximates to three months running costs. The Council believes that reserves should be at least at this level to ensure the charity can run efficiently and meet the needs of the beneficiaries.

4. Comment

This is a good explanation of a reserves policy in that:

• it is clear that the position has been actively reviewed by the trustees;

• our guidelines have been taken into account;

• the purpose and the required level of reserves is explained.

The following words and phrases are defined in the Glossary of Terms:

•
•
•

reserves
SOFA
trustees

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Other examples

OG 43 E1

a good explanation but reserves above charity's stated optimum;

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 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; level 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