Meetings/2010-02-16/Agenda/Reserves policy
Whereas, the Charity Commission recommends all charities have a Reserve Policy[1].
This Board resolves to adopt the following Reserve Policy:
1) "Reserves" is defined as income which becomes available to the charity and is to be spent at the Board's discretion in furtherance of any of the charity's objects; but which is not yet spent, committed or designated.
2) The charity requires a reserve in order to be able to reliably plan for the future without temporary changes in income having a deleterious effect and to be able to spend money at short notice on new opportunities to pursue the charities objects that arise after the charity's budget has been agreed.
3) The charity has an obligation to spend donations in order to further its objects and not keep hold of them unnecessary.
4) Prior to the beginning of each financial year the board will agree a budget for the upcoming year. That budget will state the charity's total assets, minus fixed assets and restricted funds. This amount is the available funds (F). The budget will then state the projected administrative spending for the upcoming year (A). The budget will then allocate to certain programs an amount equal to P=(F-2A)*0.92. This leaves a reserve of 0.08*F+0.84*A. This reserve is equal to 0.25*P+A+0.1875*P. The 0.25*P is funds that will be kept available for spending during the upcoming year on opportunities that arise during the year (it can also be used, if necessary, to cover overspends in planned programs or unexpected administrative costs). The remainder is to be spent in the next year, should fundraising during the upcoming year not be as successful as in the previous year. The A is to cover the admin costs of the next year (which are assumed to be equal to the upcoming year's admin costs) and the 0.1875*P is 15% of the upcoming year's total program spending and is to cover reduced program spending during the next year.
5) The Board will endeavour to have reserves at the end of the upcoming year of within 10% of the planned amount (A+0.1875*P=0.1725*F+0.655*A), not counting any money raised during the current year.
6) The Treasurer will advise the Board if clause 5 is likely to be or has been violated. If there is a forecasted or actual shortfall of less than the amount already raised during the current year, the board will decide if it is reasonable, considering all the circumstances, to take the shortfall out of that money. If they decide it is not, or if there is a shortfall of greater than the amount already raised, the board will agree a plan to rectify the situation as soon as possible, while not unnecessarily harming the charity's objects. If there is a forecasted or actual surplus, the board will agree a plan to spend the extra money furthering the charity's objects. The Treasurer will regularly report to the board on the progress of any such plan and will advise the board if it appears the plan will not be successful.
7) The Board will review this policy on an annual basis to ensure it is still applicable and amend it if necessary.