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Ÿ State the amount of “free reserves” that the charity holds at the end of the reporting period after making allowance for any restricted funds, and the amount of designations, commitments (not provided for as a liability in the accounts) or the carrying value of functional assets that are held; and
Ÿ Compare the amount of the reserves with the charity’s reserves policy and explain, where relevant, what steps the charity is taking to bring the amount of reserves it holds into line with the reserves identi ed by the trustees as appropriate given their plans for the future activities of the charity i.e. their reserves policy
Ascertaining the appropriate level of reserves for your religious institute charity will require that the trustees give very careful consideration to their future plans, the impact of those plans on the charity’s nances and, in particular, the need to have suf cient funds to provide for the long term care of all members of the institute. This will require the trustees to consider the age pro le of members, their personal needs, their ministry, and the consequent property needs etc. In short, before a religious institute charity can begin to formulate
a reserves policy, the trustees need to have given thought to the nancial planning checklist set out earlier in this chapter and the long term potential care needs for the members.
For religious institute charities, the key decisions regarding reserves are not the level of their charity’s free reserves but the level of funds set aside or designated for speci c purposes to meet long term commitments. In the case of many religious institute charities, the level of designated funds required will be very signi cant.
Before looking at how a religious institute charity can justify its reserves, it is important to consider what the law says about charities and their reserves. There is no speci c rule about the amount or proportion of a charity’s income funds which it must hold as free reserves. Every charity’s reserves policy will be different. A charity with very few commitments may be able to survive with a policy of having three months’ expenditure in reserve whereas a complex charity with commitments in respect to property, staff and bene ciaries may require several years’ expenditure in reserve. It is the writer’s opinion that most religious institute charities will fall in to this latter category.
Trustees are under a legal duty to apply, or spend, charity funds within a reasonable time of receiving them. If funds are not going to be applied in this way then trustees have to rely on explicit powers within their governing
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