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Colourful Founder Camilla Batmanghelidjh has been in front of the Commons public administration committee defending the (now closed) charity Kids Company. Reserves was one topic that arose.
There have been sharp words exchanged on many subjects, but I particularly want to consider reserves. It is alleged that sufficient reserves were not established or maintained – the charity appears to have been living a hand to mouth existence.
So what is an adequate level of reserves? The Charity Commission guide (CC19) (https://www.gov.uk/government/publications/charities-and-reserves-cc19/charities-and-reserves) is there to help but is quite imprecise about what the level of reserves should be… as trustees the buck rests with you and you need to consider the risks to your charity. Might funding cease or be cut? Is the likelihood of unforeseen expenditure high? Are there troughs in your cash income?
This subject also came up in a training session this week: do we set a level of reserves to cover close down costs, or a level to cover 3-6 months (or whatever time period) running costs, so we have time to generate more funding? I know groups that adopt both approaches.
No-one except those on the inside can judge what is appropriate for your charity. At the very least you should be aware of close down costs, so if your balance held hits that level, the close down begins. If you are a charity your annual accounts must state the reserves policy, or the fact that there is not one.
The consideration of reserves demonstrates that the charity is managing its resources responsibly.
And, to finish as I started: it’s not unusual to have a Reserves policy!