Charities on war footings may need to call in the reserves

Commenting on the Charity Commission’s recently updated guidance on dealing with the coronavirus, Nick Sladden, head of charities at RSM said:

‘The Charity Commission is to be commended for providing swift guidance to charities and assurance that it will take a pragmatic approach to regulation during this very uncertain period. 

‘Most trustees will never have faced such challenging conditions and will now be forced to revisit their financial plans with a view to refocusing on essential spending and cutting back on non-urgent projects and non-core activities.

‘The Charity Commission has provided a helpful reminder about the use of reserves to help charities shore up balance sheets. The management of reserves is a key financial strategy and for many reserves have previously been held as a contingency for unforeseen financial situations or a 'rainy day' fund. Across the UK that financial rainy day has now arrived. 

‘While reserves can often be diverted into operational use, there may be certain funds that are earmarked for a particular purpose and cannot be spent at the trustees’ discretion. Where there are restrictions, in some cases it may be possible to amend them, but trustees will need to take advice.

‘The events of recent weeks have also underlined the importance of having a reserves policy to cope with unforeseen financial difficulties such as this. Whilst this has been one of the fundamentals of charity governance, it's how the reserves policy works in practice that will be the true test over the next twelve months.

‘Trustees and financial managers of charities will need to ensure that the coronavirus pandemic is factored into their forecast reserve levels for the foreseeable future and for many this will require an update to the policy for the minimum level of reserves being held going into 2021. In doing so, trustees will need to consider not only their charity’s short-term viability but also the longer-term impacts on future financial resilience and donor relationships.’

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