THINKPIECE: Some charities have a need for large reserves

Witold Sawin, a senior partner at Sawin & Edwards, Chartered Accountants

The Charity Commission is actively investigating charities with apparently excessive levels of reserves. One can see the justification for this in cases where charities are seeking public donations and appear not to be spending the money on charitable objects but are instead accumulating excess funds.

There are, however, many charities that do not seek or receive donations from the public and, commonly, these are bodies involved in advancing medicine, health or other activities for the general benefit of the public.

These organisations are funded entirely by subscriptions from the membership or a single large donation (perhaps from a will).

I would describe these types of charity as being 'private' as they are not seeking public donations. It is disappointing that the Charity Commission does not distinguish between the two types of charity. I would maintain that 'private' charities should enjoy more freedom from the prescriptive approach, not just on reserves but other areas, such as grant-making policy and investment policy. Certainly in the case of the membership type of charity described above, it seems unfair that the cost of this added regulation and compliance has been placed upon the members.

There is a need for the Charity Commission to recognise the basic difference between the two types of charity. It would not be impossible for it to introduce a more lenient approach to charities where the trustees were prepared to sign a statement that they are not seeking (or accepting) donations from the public. This would be a fair trade-off between safeguarding the interests of the public and allowing 'private' charities to reduce their compliance costs and enjoy a greater level of flexibility that is inherent to such bodies.

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