Help our reserves are too high!

Any charity can have different types of financial reserves, shown in the Balance Sheet in the Annual Accounts.

Endowment funds cannot be spent - they are long term capital that must be retained, using only the interest earned.

Restricted funds can only be used for the specific purposes that the donors gave them for.

Unresticted funds (sometimes known as General Funds) can be used by the trustees for any charitable work. Most charities need as much of these as possible, to give them operational flexibility.

The trustees can "designate" some of their General Funds for specific purposes (eg New Equipment) for future specific use. This is a flexible way of making the remaining General Funds appear lower. If the future project doesn't happen the trustees can "un-designate" the funds back to general use. However, they can't "un-restrict" any Restricted Funds, only the original donors can do that.

Hope that helps

Ian C

Hi, Catherine

Glad to help, if I can.

You can contact me through our website, of course.

Where are you? If you're clever enough to get the Trustees to talk about it without throwing a hissy fit, you may find one of us in your vicinity who could help them sort out their position.

Good luck - I hope it comes out right for you.

Cheers

Gerry

Gerry Beldon FInstF
Director, 26-01 CIC
www.26-01.com

Many of us working for charities would love to have more reserves.
Though too much can be a killer. Before I started, the charity I worked for ran for several years on its reserves, with only minor donations from churches and fees.
Currently we have 10 months reserves (partly through fundraising success, partly through underspending). Too high for some funders, and kind of embarrasing when you ask for £5k towards a new CCTV system and accounts show £80K on hand.

As I recall, the charity commission aren't concerned about reserves below 12 months. Not sure how they'd see 15 months.
Though as Gerry says, can be no problem with 15 months if explicit reasons given and stated in accounts.

Martin

Catherine - am I right in thinking that it was one of your posts that Tony and I had a (very enjoyable although possibly rather technical) lengthy debate over?

From memory (sorry, no time to track it down) we were all agreed that the trustees *have* to take overall responsibility for fundraising, financial and operational strategy - even if they delegate the implementation to you.

If your accounts are showing 15 months worth of free reserves, look at it from a potential funder's point of view: why give you money if it's just going to sit in your bank account collecting interest? As funders, we're also charities with objectives to meet. Just writing the cheque is not sufficient to demonstrate public benefit. We need the outcomes from the organisations we fund to demonstrate that we are also using our money wisely. If our money is sat in that organisation's bank account, have we spent/planned wisely? The answer has to be no!

Reserves are always a sticky issue. It is only responsible for a charity to ensure that it has sufficient reserves to cover its immediate and guaranteed/legal commitments to its staff and its beneficiaries. What funders think is reasonable varies - I would say 3-9 months is an average for most of us - that way, we can be sure that the money we are giving you will be spent in the year that it is given. In other words, we are meeting our objectives through your charity meeting its objectives through using our cash. As a funder, I would definitely question an organisation's immediate need for money if there was 15 months worth of cash in the bank with no official explanation of how it was to be used. And by official, I mean an allocation in the charity's accounts. It's not necessarily a "Go away" - but at best, it might be a "Come back later."

Your trustees - and it *has* to be the trustees as this is a governance issue - may instruct your auditors to report allocated funds as allocated funds - i.e. the capital expenditure you mention and your salary. Allocated funds are not the same as restricted funds - their use is entirely up to the trustees and allocations can be changed by trustee agreement.

Having said this, there are all sorts of issues with allocating reserves for your salary - if reserves are allocated for your salary then - again, look at it from a funder's point of view - your charity doesn't need the money for a fundraiser's salary until those reserves run down.

I cannot stress too strongly that your trustees MUST take control of this. It sounds to me like they may need to get a handle on SORP (charity finance) requirements - see Charity Commission website - and full cost recovery?

Sandre
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Hi, Catherine

What a horrible situation! You have Trustees who, apparently, don't understand their accounts, and you are being asked to fundraise for a charity that doesn't need the money!

Being asked to raise your own salary is, in my experience, highly de-motivating - you could work in Tesco's and be given a salary with far less hassle. If the charity is committeed to you, they should pay your salary for 3 - 5 years, and support you in developing a strategy that will allow you to raise 5 - 10 times their investment. If it makes them happy, they can still think of it as raising your salary and then some, but in terms of commitment to their staff, it's significantly different.

If you take your salary out of the accounts, what is the revenue picture? Are they producing an operating surplus on their current account? If so, why do they need a fundraiser?

(I recall hearing, many years ago, of a charity that was raising more money than it knew what to do with, so they employed a fundraiser to soak up some of the surplus!)

There is no problem with 15 months' reserves if the Trustees know why they need that level of money in the bank - there may be calculations that show you would need 18 months to run down the operations in the event of dissolution, for example. However, this would need to be explicit, and stated in the Annual Accounts.

Any Trust that has a regional Trustee is sufficiently savvy to spot a disconnect between a charity and its fundraising - it sounds as if you may have one here.

If you think it might help, feel free to contact me off list for a chat.

Cheers

Gerry

Gerry Beldon FInstF
Director, 26-01 CIC
www.26-01.com