Charities failing to report reserves accurately

Most large charities are unclear about the level of reserves they hold, a Charity Commission review has found, which raises the possibility that some may not be clear about their financial health

The regulator says less than a quarter of larger charities accurately reported the level of financial reserves they hold in their trustees’ annual report, which it warns suggests an incomplete understanding of what reserves are, which could lead trustees to make poor decisions about their charity’s finances.

All registered charities must explain their policy on reserves in their trustees’ annual report and should state the level of reserves held as well as why they are held.

Almost all of a sample of 106 charities with an income over £500,000 included at least a reference to their reserves policy in their annual report. However, less than a quarter gave the right reserves figure, based on the information in their accounts. A third of charities failed to include a figure at all.

The Charity Commission cautioned that 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.

Sarah Atkinson, director of policy, planning and communications at the Charity Commission said it was concerning that so few larger charities appear to fully understand what reserves are or how to disclose them correctly.

‘We would also expect auditors and independent examiners to report any concerns they have about the reserves held by charities, especially in light of the collapse of Kids Company,’ she said.

Atkinson highlighted Charity Commission guidance for reporting on reserves and said the regulator will be sending a copy of its report to all charities in the sample where there were concerns over the absence or accuracy of the reserves figure in their annual reports.

Charity reserves policies: demonstrating and building resilience is here

Guidance on Charity reserves: building resilience (CC19) is here

Report by Pat Sweet

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