Region’s charities urged to be ‘robust’ about reserves

Accountant Rebecca Frost of Lovewell Blake

Rebecca Frost, a charities expert at Lovewell Blake - Credit: Lee Blanchflower

East Anglian charities may be holding too much – or too little – in their reserves, a financial expert has warned.

Rebecca Frost of regional accountants Lovewell Blake said many charities had been unable to deliver some services over the last couple of years – and as a result had reserves well above their target levels.

Others had the opposite problem. She pointed to a recent Charity Commission survey which revealed that 40% of charities were forced to draw on their reserves during the Covid pandemic.

“Both situations are problematic for charities. A low level of reserves could indicate that a charity is not viable for the long term, whereas a high level of reserves could discourage funders from coming forward, thinking that the charity doesn’t need their help,” she said.

“Many charities will have been unable to deliver some services over the last couple of years, and as a result may have reserves well above their target levels.  

“These may be in the form of restricted reserves, donations and grants provided specifically to deliver those services – although most funders have allowed a degree of flexibility during the pandemic.

“These charities may at the same time be suffering depleted unrestricted reserves as core costs have had to be met during a period when fundraising has been difficult or impossible.”

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These needed to look to funders to be sympathetic, and possibly discuss whether previous restricted grants can be reallocated towards other projects, said Ms Frost.

The survey found 36% of large charities – mainly with more than £500k annual income – did not have an appropriate reserves policy, she pointed out.

Charities which have accumulated high levels of reserves – especially unrestricted reserves – may be tempted to designate such funds to specific projects, she said.  

However, the Charity Commission expects any designated funds to have a specific purpose with set timescales for future spending. 

“Such funds will still form part of the organisation’s unrestricted reserves, so a clear demarcation of how those funds will be spent, on what specific projects and in what timescale, will be important to persuade funders to disregard that portion of the free reserves,” she said.

Charities with depleted reserves should take urgent actions, she warned.

“Trustees are required to ensure that the charity has sufficient funds to be viable,” she explained, adding that reconnected with fundraisers and volunteers was a key task.

All charities should be reviewing their reserves policy – or creating one if they don’t have one, urgently, she said.