Reserves Policy

Introduction
Edinburgh Carers Council in compliance with OSCR regulations and SORP guidance, has a stated reserves policy.

Definition of reserve

The term ‘reserves’ is used here to describe the part of the organisation’s income funds that is freely available. ‘Reserves’ are the resources the organisation has or can make available to spend for any or all of the organisation’s purposes once it has met its commitments and covered its other planned expenditure.

Reserves are designed, in the case of financial setbacks and a reduction of income, to meet contractual obligations, specific project expenditure, income shortfall such as loss of bank interest, redundancy and pension liabilities.

The policy aims to demonstrate, by reference to the organisation’s current position and future prospects, why holding a particular level of reserves is right for the organisation at this time.

The organisation’s finances
As a small organisation, ECC are not complex. However, the organisation’s state of financial affairs is currently highly susceptible to factors outside its own control.

Therefore, generating unrestricted funds that allow it to build up and maintain the reserves needed to protect it from the risk of insolvency or serious disruption to its charitable work is highly desirable.

This reserves policy is informed by the fact it is at present difficult to accurately forecast:

  • levels of income in future years, both in relation to the reliability of current sources of income and the prospects for opening up new sources;
  • expenditure in future years on the basis of planned activity, as this will be largely dictated by income levels;
  • any future needs, opportunities or risks.

The recommendation of the Charities Commission is that reserves should represent six month’s expenditure

The organisation’s reserves
The organisation is keenly aware of the need to secure its viability beyond the immediate future.

To provide reliable services over the longer term, the organisation must be able to absorb setbacks and to take advantage of changes and opportunities. The organisation provides for this by maintaining a level of cash in an interest-bearing account ??

Due to the uncertainty, the organisation aims to hold on average a minimum cash balance of six month’s running costs, whilst recognising that balances may occasionally dip below that level due to the unpredictability and uneven nature of receipts, even of committed funds.

Something about how reserves may be used to ensure service delivery – however include something around decisions to use reserves for service delivery will be agreed and reviewed.

If reserves are higher than this, it is felt the organisation would be retaining income funds without justification; those funds ought to be expended for the benefit of the organisation’s current users or beneficiaries – actual or potential.

Holding reserves of less than six months would impair the organisation’s capacity to absorb setbacks and to take advantage of changes and opportunities.

This level of reserves, by balancing the need to develop services with that to seek financial security, therefore reflects prudent and good governance by its Board.

The organisation’s finances will be discussed as a standing item at the monthly Board meetings, thus providing a regular opportunity to review reserves.

This organisation’s annual audited accounts furthermore include, within its trustees’ report, a statement about the level of reserves held and the reasons for this.

The Reserves policy should be reviewed  six monthly

Date adopted: 30/7/18
Date of review: 31/7/19