One in four charities failing to regularly monitor their reserves policy

One in four charities have failed to carry out a review of their reserves policy within the last year, research has found.

Accountancy firm RSM, which has carried out the research, warns charities that they “should aim to review their reserves policies more frequently to ensure they remain relevant and effective, particularly in the current economic and political climate”.

Its research found that one in ten charities have not carried out any review of their reserves policy, while just over one in 20 have only monitored and updated their policy within the last five years.

Around one in ten have carried out a review in the last two years.

But its research found that just over a third of charities had carried out a review within the
last three months.

RSM also found that four in five charities “consider various factors in determining reserves” such as restricted income and endowment funds. This “suggests a thoughtful and comprehensive approach to reserves management”, it said.

As well as regularly reviewing reserves policy charities “should also focus on transparency and accountability by clearly communicating their reserves policies and the rationale behind them to stakeholders. This can help build trust and confidence among donors, beneficiaries, and other stakeholders.”

It added: “Reserves are not just about financial stability; they also enable charities to invest in strategic initiatives and innovation.

“By maintaining adequate reserves, charities can seize opportunities for growth and development, such as expanding their services, investing in new technologies, or launching new programmes.

“Charities should incorporate reserves planning into their overall strategic planning processes to ensure they are well-positioned to achieve their long-term goals.”

A report by the Scottish Council for Voluntary Organisations (SCVO) last year warned that charities' “reliance on limited financial reserves and the unsustainable use of those reserves raises concerns about long term sustainability”.

It found that just under three in five charities were using their reserves to fund salary increases and just over half only had less than six months worth of reserves. Two in five said their use of reserves is “unsustainable”