OG43 E9 - Practical example of a reserves policy:

The Charity Commission for England and Wales

The Regulator for Charities in England and Wales

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OPERATIONAL GUIDANCE CHARITY INCOME RESERVES Practical example of a reserves policy: Reserves apparently being built up to produce income OG 43 E9 - 24 May 2000

Divisional responsibility
For information:	Charity Support Division

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

	1. Objects of charity
	To make discretionary grants for charitable purposes.

2. Approximated figures from SOFA

		£
	Incoming resources	115 000
	Resources expended	70 000
	Net incoming resources	45 000

	Fund balances carried forward to next year	1 350 000
NB	The charity has no restricted or designated funds. Income from permanent endowment is used to make charitable donations.

	3. Stated policy
	Since the inception of the charity it has been the policy of the trustees to retain a small amount of the income on a year on year basis. The trustees believe this to be prudent and necessary for three reasons.
		1.	Initially the charity was dependent upon the performance of a private company shares in which formed the original expendable endowment of the charity. Consequently to ensure the long term future ability of the trustees to provide for its charitable objectives some retention of income was deemed prudent.
		2.	The trustees wish to increase the charity's reserves to enable it to provide larger grants to important projects as and when they are requested.
		3.	To continue to enable the trustees to diversify the charity's investments further and to protect its assets against fluctuations in the investment.

	4. Comment
	One of the main aims of this charity 's reserves policy appears to be to build up reserves in order to produce income - effectively an endowment fund. (See the first paragraph and point 3 of section 3 above.) The trustees do not appear to have set a level of reserves which they deem "prudent" but rather to be aiming at steadily increasing the figure year on year.

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

Go to:	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 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 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