Importance of a reserve and reserve policy

A Charity is duty bound to spend monies received within a reasonable period on its charitable purposes. However, the collapse of some charities is not due to mismanagement or misappropriation of funds but due to not having sufficient reserves or considering a reserves policy. Therefore, good governance would dictate that a charity should retain some income as reserves.

Reserves are unrestricted funds that can be spent on any charitable purpose. Any funds that are not readily available e.g. designated funds etc. should not be included in the reserves policy. In determining a reserve policy the charity should consider potential risks and commitments. In doing this the charity should – identify its commitments; identify major risks and the timing of them and make decisions on how to respond.

By retaining the correct level of reserves the charity will have monies to deal with planned commitments; has a buffer against the unexpected; gives stakeholders the confidence that the charity can deal with uncertainty and also helps to identify any need for future funding. Therefore, a reserve policy is not only effectively protecting the charities future it also protects the trustees in the event of the charity being investigated on cessation by providing proof that the finances of the charity were considered and protected by the Trustees having an appropriate reserve policy, which is adhered to, reviewed and updated on a regular basis.

To view the OSCR Charity Reserves Factsheet, follow this link: https://www.oscr.org.uk/media/2681/v10-charity-reserves-factsheet_pdf.pdf

If you wish to discuss further the implications of maintaining a reserves policy, please contact a member of our Charity team or speak with your local office contact.