Reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. Setting and monitoring a reserves policy is an important part of maintaining a charity’s financial resilience.
We found that less than two thirds of our sample of charities with incomes over £500,000 provided the required information about their reserves policies in their trustees’ annual reports. Less than a quarter of charities stated the correct reserves figure.
Many trustees appear to believe that reserves are the same thing as total unrestricted funds. They may assume that their charity has more unrestricted funds available to draw on than is in fact the case, particularly where significant amounts of funds are tied up in buildings. This may therefore lead the trustees to make poor decisions about the charity’s finances.
Our guidance Charity reserves: building resilience (CC19) explains what reserves are and sets out the steps that trustees should follow in developing and explaining a reserves policy.