Only 12% of charities comply with reserve rules

  • According to research by the Charity Commission, only 12% of charities explain how reserves figure is calculated.

    This is in fact a big improvement on the figures prior to that in 2006, where only 40% even had a reserves policy.

    The figure now is 59% have a reserves policy with annual incomes between £25,000 and £250,000, and 91% of charities with incomes of more than  £500,000 per year did.

    However, this still needs to be improved as only 12% explain where this figure comes from, and 17% overstated the level of their reserves.

    The report says:

    For example, most of the statements reviewed do not contain an adequate description of the policy even though it is a legal requirement so to do.

    Also, less than two thirds state what their target level is, and less than half provide an explanation of what the charity's levels of reserves are and why they are held. Even fewer charities explain how their reserves figure is calculated.

    Using Reserves in Tough Times

    At a time when so many charities say they are drawing on their reserves to survive, it is key that the figures are correct and the trustees are aware of the financial situation, as it can only go on so long before the reserves are dry.

    In some cases, charities have actually used the tougher times to build up their reserves, even when cutting charitable expenditure following reductions in funding, to ensure they are backed up.

    Getting Tougher

    The Charity Commission are also getting tougher on charities that fail to file their accounts on time. The rise in trustees doing this has encouraged them to consider penalising those that do not comply with their legal duty.

    Figures released by the commission from 400 charities that filed the accounts late from 2011, show that more than a third were signed off before their filing date, but had not been passed to the regulator on time.

    The commission also found that nearly a quarter of these charities with incomes of more than £250,000 filed late accounts in each of the previous five financial years.

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