(Version November 2006)
Contents
Annex A - Reserves review checklist
The following checklist is for charities that hold reserves and have established a policy1 to manage them. It provides questions to assist with:
- reviewing the reserves level and policy regularly to keep this information up to date; and
- presenting this information in the Trustees' Annual Report.
Please note not all points will apply to all types of charity.
| Stage one - The charity's governing document |
 |
| Do we regularly check our charity's governing document to make sure our reserves level takes into account any restrictions in it? |
|
Do we regularly consider whether the restrictions in the governing document are workable?
If the restrictions are not workable, where appropriate the trustees can consider contacting the Commission for advice. |
|
| Stage two - Reviewing the reserves target |
|
| Have we considered if any risks may affect the appropriate reserves target, for example rising costs, anticipated changes in the scale of activities or contracts, or an unexpected drop in income? |
|
| Have we considered the charity's objectives with our budget when planning the reserves needed? |
|
| Have we considered the reserves needed in the context of wider strategic planning? |
|
| Have we considered how this reserves target can be achieved? |
|
| Have we considered how this reserves target can be maintained? |
|
| Have we considered how this reserves target can be reviewed? |
|
| Stage three - Publishing the reserves policy ? |
|
| Have we published our reserves policy in the annual report? |
|
| Does it state the reasons why we need reserves? |
|
| Does it state the level of reserves held? |
|
| Does it set the level of reserves the trustees believe are needed and explain why? |
|
| Does it explain the steps the charity will take to establish or maintain reserves at the level set? |
|
| Does it include ongoing arrangements for monitoring and reviewing the policy? |
|
Annex B - Research techniques and survey findings
We analysed the data provided by charities in their Annual Return 2004 and undertook a further follow-up survey of 250 charities across three income bands2 .
Additional data was drawn from seminars with Charity Commission staff and an examination of our extensive casework archive.
Annual Return data
The questions on reserves are in the same format used in our previous research3 . Data for this research was derived from charities' answers to the following questions that appeared in the Annual Return 2004:
Question B8
a Has the charity had in place during the financial year a policy that sets out the level of reserves needed to effectively meet the needs designated by the charity's trust?
b If the answer to question B8a is 'yes', does the charity's Annual Report contain a description of the policy?
c Please state the total reserves held by the charity.
Our findings cannot be directly compared with data gathered from our analysis of the Annual Return 2001, because the composition of the sample was different. However, it is possible to compare percentage figures.
Survey
In August 2005, we conducted a small-scale email survey of 250 charities with an annual income of over £10,000 to find out why some aspects of reserves management had improved. The response rate was 19%.
Charity size classification
| Classification |
Income |
| Medium |
£10,000 - £249,999 |
| Large |
£250,000 - £999,999 |
| Very large |
£1,000,000 + |
Data tables
Table 1: Number of charities who stated on their annual return 2004 if they did or did not have a reserves policy 4
| Income band |
Estimated number of charities on the Register |
Number of charities that completed and returned AR2004 |
Number of charities that confirmed they have a reserves policy on AR2004 |
Amount that charities with a policy held in reserves (billions) |
Number of charities that confirmed they did not have a reserves policy on AR2004 |
Amount that charities without a policy held in reserves (billions) |
Number of charities that confirmed their policy is published in the Trustees' Annual Report |
Number of charities that did not answer question B8a |
Amount held by charities that did not answer question B8a
(billions) |
| Medium |
58,668
|
50,260
|
15,321
|
£2.9
|
32,772
|
£1.2
|
12,351
|
2,167
|
£0.5
|
| Large |
8,208
|
7,451
|
5,453
|
£4.0
|
1,820
|
£0.5
|
4,838
|
178
|
£0.4
|
| Very large |
4,858
|
4,522
|
3,801
|
£23.9
|
618
|
£1.9
|
3,523
|
103
|
£2.9
|
| Total |
71,734
|
62,233
|
24,575
|
£32.3
|
35,210
|
£3.6
|
20,712
|
2,448
|
£3.8
|
Table 2: Reserves compared with income and expenditure
| |
Total reserves billions |
Total income billions |
Total expenditure billions |
| Medium |
£4.2 |
£2.8 |
£2.8 |
| Large |
£4.7 |
£3.7 |
£3.4 |
| Very large |
£26.6 |
£32.7 |
£31.3 |
| Total |
£35.5 |
£39.2 |
£37.5 |
Table 3: Improvements in reserves management questionnaire results
| Reasons for introducing a reserves policy |
No of responses |
% responses |
| Charity now has reserves |
11
|
16
|
| Charity has now identified money which should have been recorded as reserves in 2001 |
3
|
4.5
|
| Charity is now aware of the accounting recommendations for reserves |
36
|
53
|
| This may have been a mistake |
1
|
1.5
|
| Operational reasons such as the charity now undertakes strategic planning |
11
|
16
|
| Other - please state: |
6
|
9
|
| Total |
68
|
100
|
Table 4:
| Reasons for increased awareness of and the requirement to have a policy for managing reserves |
|
| A Charity Commission publication |
18
|
24
|
| Made aware of the Statement of Recommended Practice |
21
|
28
|
| Professional adviser |
27
|
35
|
| Other charity/contact |
10
|
13
|
| Total |
76
|
100
|
Table 5:
| If charity experienced difficulties developing the policy |
|
| Yes |
4
|
8
|
| No |
44
|
92
|
| Total |
48
|
100
|
Table 6:
| Reasons given why the charity will benefit from having reserves and a policy governing them |
|
| The charity is more accountable to those who give money to it |
18
|
20
|
| The charity is more accountable to grant makers or other funding bodies |
15
|
17
|
| The charity is more secure in the short to long term |
35
|
40
|
| The charity uses reserves to generate income |
12
|
14
|
| Other |
8
|
9
|
| Total |
88
|
100
|
Table 7:
| If the charity experienced difficulties obtaining funding because money is held in reserve |
|
|
| Yes |
6
|
12.5
|
| No |
42
|
87.5
|
| Total |
48
|
100
|
Table 8:
| Where reserves policy is published |
|
|
| In the Trustees' Annual Report |
44
|
92
|
| Other - please state: |
4
|
8
|
| Total |
48
|
100
|
Annex C - Glossary of terms
In this report, where we use 'must' we mean it is a specific legal or regulatory requirement affecting trustees or a charity. Trustees must comply with these requirements. We use 'should' for items we regard as minimum good practice, but for which there is no specific legal requirement. Trustees should follow the good-practice guidance unless there is a good reason not to.
Charity trustees are the people responsible under the charity's governing document for controlling the management and administration of the charity (section 97(1) of the Charities Act 1993). They may be called the trustees, managing trustees, committee members, governors, or directors, or they may be referred to by some other title. In the case of an unincorporated association, the members of the executive or management committee are its charity trustees. In the case of a charitable company, they are the directors.
Income funds are all incoming resources that become available to a charity and that the trustees are generally under a duty to apply towards its charitable purposes within a reasonable time of receiving them (the proper exercise of a power of accumulation is an application).
A beneficiary is anyone who uses or benefits from a charity's services or facilities, whether provided on a voluntary basis or as a contractual service.
The term 'reserves' used here is taken from the SORP 2005. Full details are given in Annex F.
A small charity is broadly defined in terms of its income. If a charity has an annual income of £10,000 or less recorded on our database in its last full financial year, we will consider it to be a small charity. Almost 100,000 charities in England and Wales fall into this category.
A medium-sized charity is defined in terms of its income. For the purposes of this research, if a charity has an annual income between £10,001 and £250,000 recorded on our database in its last full financial year, we consider it to be a medium charity.
A large charity is defined in terms of its income. For the purposes of this research, if a charity has an annual income between £250,001 and £999,999 recorded on our database in its last full financial year, we consider it to be a large charity.
A very large charity is defined in terms of its income. For the purposes of this research, if a charity has an annual income over £1 million recorded on our database in its last full financial year, we consider it to be a very large charity.
Annex D - Resources for trustees
There are many resources on reserves that charity trustees can use. While this is not a definitive or complete list, it does offer a good overview and a useful starting point.
The Charity Commission for England and Wales
Key Charity Commission publications
The Charity Commission produces a wide range of publications and website guidance giving information and advice to charity trustees and the general public on issues relating to charity law, regulation and best practice. The full list of publications is on our website and in our publication CC1, but the list below is a selection based on the issues covered in this guidance.
Charity Commission Publications
To obtain copies of these or any of our publications you can:
- view and print them from our website
- order during office hours (0830 - 1800 weekdays) by phoning us on 0845 300 0218; or
- write to the Charity Commission, PO Box 8585, Adamsway, Mansfield, NG18 9AJ
To obtain copies of SORP 2005:
- view and print it from our website
- order from the publishers CCH at £15 per copy, by:
How to get in touch with us
More information about the Commission and a range of guidance for charities can be found on our website or by contacting Charity Commission Direct:
Telephone: 0845 300 0218 (calls charged at local rate)
Minicom: 0845 300 0219
Email
By post:
Charity Commission Direct
PO Box 1227
Liverpool
L69 3UG
Association of Charitable Foundations
ACF promotes and supports the work of charitable grant-making trusts and foundations.
Association of Charitable Foundations
Central House
14 Upper Woburn Place
London
WC1H 0AE
Tel: 020 7255 4499
Email: acf@acf.org.uk
Website: www.acf.org.uk
Association of Chief Executives of Voluntary Organisations
ACEVO provides best practice resources and information on sector issues.
Association of Chief Executives of Voluntary Organisations
1 New Oxford Street
London
WCIA 1NU
Tel: 0845 345 8481
Email: info@acevo.org.uk
Website: www.acevo.org.uk
Business Community Connections
BCC is a charity that helps other charities receive more support from business.
Business Community Connections
Gainsborough House
2 Sheen Road
Richmond upon Thames
Surrey
TW9 1AE
Tel: 020 8973 2390
Email: info@bcconnections.org.uk
Website: www.bcconnections.org.uk
Charities Aid Foundation
CAF helps non-profit organisations in the UK and overseas to increase, manage and administer their resources.
Charities Aid Foundation
25 Kings Hill Avenue
Kings Hill
West Malling
Kent
ME19 4TA
Tel: 01732 520 000
Email: enquiries@cafonline
Website: www.cafonline.org
Charity Finance Directors' Group
CFDG provides information for its members and others on a range of issues and helps charities manage their accounting, taxation, audit and other finance related functions. Benefits of membership include regular members' meetings, monthly mailings and access to information and services.
Charity Finance Directors' Group
3rd Floor
Downstream Building
1 London Bridge
London
SE1 9BG
Tel: 0845 345 3192
Email: info@cfdg.org.uk
Website: www.cfdg.org.uk
Charity Trustee Networks
Charity Trustee Networks is a charity that develops self-help trustee network groups.
Charity Trustee Networks
Crossweys
28-30 High Street
Guildford
GU1 3EL
Tel: 01483 243328
Email: info@trusteenetworks.org.uk
Website: www.trusteenetworks.org.uk
Companies House
All limited companies, including charitable companies, in the UK are registered at Companies House.
Cardiff
Crown Way
Cardiff
CF14 3UZ |
LondonPO Box 29019
21 Bloomsbury Street
London
WC1B 3XD |
Edinburgh
37 Castle Terrace
Edinburgh
EH1 2EB |
Tel: 0870 333 3636 (contact centre)
Email: enquiries@companies-house.gov.uk
Website: www.companieshouse.gov.uk
Directory of Social Change
The Directory promotes positive social change and provides a wide range of resources for trustees.
London
Directory of Social Change
24 Stephenson Way
London
NW1 2DP |
Liverpool
Directory of Social Change
Federation House
Hope Street
Liverpool
L1 9BW |
| Tel 020 7391 4800 |
Tel 0151 708 0117 |
Tel: 08450 77 77 07
Email: (London) info@dsc.org.uk, (Liverpool) north@dsc.org.uk
Website: www.dsc.org.uk
Ethnic Minority Foundation
EMF develops resources for black and minority ethnic organisations.
Ethnic Minority Foundation
9 Artillery Lane
London
E1 7LP
Tel: 020 7377 8484
Email: enquiries@emf.org.uk
Website: www.ethnicminorityfund.org.uk
HM Revenue and Customs
HMRC is the department responsible for the business of the former Inland Revenue and HM Customs and Excise. It provides information on a wide range of issues including tax issues relating to charities.
Tel: 0845 010 9000 (a general helpline for charities)
Email: charities@inlandrevenue.gov.uk
Website: www.hmrc.gov.uk
Institute of Fundraising
The Institute of Fundraising aims to promote the highest standards of fund-raising practice.
Institute of Fundraising
Park Place
12 Lawn Lane
London
SW8 1UD
Tel: 020 7840 1000
Email: enquiries@institute-of-fundraising.org.uk
Website: www.institute-of-fundraising.org.uk
Mango
Management Accounting for Non Governmental Organisations, Mango, helps aid agencies and non government organisations become more effectively by strengthening their financial management.
Mango
Chester House
George Street
Oxford
OX1 2AU
Tel: 01865 423 818
Email: enquiries@mango,org.uk
Website: www.mango.org.uk
National Association for Voluntary and Community Action
This is the national umbrella body of local voluntary and community sector infrastructure in England providing advice, support and information to voluntary organisations and charities.
National Association for Voluntary and Community Action
177 Arundel Street
Sheffield
S1 2NU
Tel: 0114 278 6636
Email: navca@navca.org.uk
Website: www.navca.org.uk
National Council for Voluntary Organisations
NCVO provides information on fund-raising and governance issues and a range of general support services.
National Council for Voluntary Organisations
Regent's Wharf
8 All Saints Street
London
N1 9RL
Tel: 020 7713 6161
Helpdesk: 0800 2798 798
Email: helpdesk@askncvo.org.uk
Website: www.ncvo-vol.org.uk
New Philanthropy Capital
New Philanthropy Capital is a charity that advises donors and funders on how to give more effectively.
New Philanthropy Capital
3 Downstream
1 London Bridge
London
SE1 9BG
Tel: 020 7785 6300
Email: info@philanthropycapital.org
Website: www.philanthropycapital.org
VolResource
This internet-only resource for charities offers quick links to useful organisations concerned with the effective running of charities.
Email: info@volresource.org.uk
Website: www.volresource.org.uk
Wales Council for Voluntary Action
This organisation represents the interests of voluntary organisations, volunteers and communities in Wales. It provides a comprehensive range of information, consultancy, funding, management and training services.
Welsh Council for Voluntary Action
Baltic House
Mount Stuart Square
Cardiff Bay
Cardiff
CF10 5FH
Tel: 0870 607 1666
Email: help@wcva.org.uk
Website: www.wcva.org.uk
Journals, magazines and newspapers
Charity Finance
3 Rectory Grove
London
SW4 0DX
Tel: 020 7819 1200
Email: rcoley@charityfinance.co.uk
Website: www.charityfinance.co.uk
Charities Management
Mitre House Publishing
154 Graham Road
Wimbledon
London
SW19 3SJ
Tel: 020 854 27766
Website: www.charitiesmanagement.com
Charity Times
A business and management magazine covering the financial, business and fundraising news affecting the voluntary sector.
Tel: 020 7426 0496 / 0123
Website: www.charitytimes.com
The Corporate Citizenship Company
This company provides an overview and round-up of current issues, largely through case studies.
Email: mail@corporate-citizenship.co.uk
Website: www.corporate-citizenship.co.uk/publications
The Guardian
The Society section includes information on the voluntary sector.
Website: www.SocietyGuardian.co.uk
Network Wales
Contact WCVA for details - see Resources above.
Third Sector
Tel: 020 8606 7500
Email: subscriptions@haynet.com
Website: www.thirdsector.co.uk
The Times (Public Agenda)
A digest of public sector news.
Website: www.timesonline.co.uk
Voluntary Sector
Contact NCVO for details - see Resources above.
Annex E - Bibliography
ACEVO and New Philanthropy Capital (2004) Full cost recovery: A guide and toolkit on cost allocation
Active Community Unit (2004) ChangeUp, the Capacity Building and Infrastructure Framework for the Voluntary and Community Sector
Charity Commission (2003) The Charity Commission and Regulation
Charity Commission (2005) Charities and Risk Management
Charity Commission (2002) Charities' Reserves (CC19)
Charity Commission (2003) Charity Reserves (RS3)
Charity Commission (2004) Hallmarks of an Effective Charity (CC60)
Charity Commission (2004) Managing Financial Difficulties and Insolvency in Charities (CC12)
Charity Commission (2003) Milestones: Managing Key Events in the Life of a Charity (RS6)
Charity Commission (2003) Small Charities and Reserves (RS5)
Charity Commission (2004) Transparency and Accountability (RS8)
Charities SORP 2000 and 2005
Gillingham, S, Tame, J, (1997) Not just for a Rainy Day? NCVO. London
National Governance Hub (2005) Good Governance: A Code for the Voluntary and Community Sector
The National Council for Voluntary Organisations The UK Voluntary Sector Almanac 2006: The State of the Sector
Palmer, P, Young F, Finlayson, N (2005) The Good Financial Management Guide for the Voluntary Sector, NCVO
Poffley, Adrian (2002) Financial Stewardship of Charities: Maximising Impact in Times of Uncertainty, Directory of Social Change
Annex F - SORP 2005 reference to reserves
Extract from SORP 2005, Appendix 1
GL51.1. The term 'reserves' has a variety of technical and ordinary meanings, depending on the context in which it is used. In this SORP the term 'reserves' (unless otherwise indicated) describes that part of a charity's income funds that is freely available.
GL51.2. This definition of reserves therefore normally excludes:
(a) permanent endowment funds;
(b) expendable endowment funds
(c) restricted funds;
and any part of unrestricted funds not readily available for spending, specifically:
(d) income funds which could only be realised by disposing of fixed assets held for charity use and programme related investments.
GL51.3. Individual charities may have more or less reserves available to them that this simple calculation suggests for example:
(a) expendable endowments may be readily available for spending; or
(b) unrestricted funds may be earmarked or designated for essential future spending and reduce the amounts readily available.
GL51.4. For further information, see the Charity Commission's publication CC19 on Charities' Reserves.
Financial review
Paragraph 55. The report should contain a review of the financial position of the charity and its subsidiaries and a statement of the principal financial management policies adopted in the year. In particular, the report should explain the charity's:
(a) policy on reserves (Glossary GL 51) stating the level of reserves held and why they are held. Where material funds have been designated, the reserves policy statement should quantify and explain the purpose of the designations and, where set aside for future expenditure, the likely timing of that expenditure…
Plans for future periods
Paragraph 57. The report should explain the charity's plans for the future including the aims and key objectives it has set for future periods together with details of any activities planned to achieve them.
Paragraph 58. Charities that are not subject to a statutory audit requirement may omit this disclosure although disclosure of this matter is encouraged as a matter of good practice.
Balance sheet
Paragraph 245. The objective of the balance sheet is to show the resources available to the charity and whether these are freely available to the charity or have to be used for specific purposes because of legal restriction on their use. It may also show which of the resources the trustees have designated for specific future use. It will normally be necessary to read the reserves policy and plans for the future in the Trustees' Annual Report (see paragraphs 55(a) and 57) to gain a fuller understanding of the availability and planned use of the charity's funds.
Acknowledgements
We would like to thank everyone who has co-operated in the production of this report, especially the charities that gave their time to take part in our survey or gave permission to use their charities as case studies. Thanks also go to staff at the Big Lottery Fund and CCLA Investment Management Limited for their helpful comments.
End Notes
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