'Over three quarters of larger charities don't understand their reserves'

22 Nov 2018 News

More than three-quarters of larger charities fail to accurately report the reserves they hold in their trustees’ annual reports, according to a review by the Charity Commission.

The Commission said its findings suggest that charities do not entirely understand what reserves are, and warned this could lead trustees to make poor decisions about their charity’s finances.

All registered charities are required to state their level of reserves held, why they are held and explain their reserves policy in their trustees’ annual report.

The Commission reviewed the annual reports of a sample of 106 charities with an income over £500,000 for period ends in the year ended 31 December 2016.

It found that just 22 per cent gave the right reserves figure, based on the information in their accounts.

A third of charities in the sample failed to include a figure at all, while another 30 per cent failed to deduct fixed assets held for charity use or designated funds from their reserves figure.

The Commission said in its review: “The main underlying reason why the reserves figures were incorrect appears to be that many trustees believe that reserves are the same thing as total unrestricted funds.”

Sarah Atkinson, director of policy, planning and communications at the Charity Commission, said: “It’s 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.”

Atkinson said the Commission would send a copy of the report to all charities in the sample where there were concerns over the absence or accuracy of the reserves figure in their annual report produces guidance that helps trustees manage their reserves properly.

In light of the review, the Commission said it was considering whether a "wide-ranging review" of its reserves guidance is needed.

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