Charities 'raid reserves to subsidise contracts'

The voluntary sector's asset base is being dangerously eroded as charities raid their reserves to subsidise under-funded government contracts, former Charity Commissioner Julia Unwin said last week.

Speaking at a Charity Commission conference on charities and public services, Unwin said the NCVO's 2006 Almanac, to be published in May, shows that the sector's asset value dropped from £68bn in 2003 to £66.8bn in 2004.

Unwin, now a freelance consultant, said: "Charities are systematically raiding their reserves in order to meet the cost of contracts. This is a real threat, not only to tomorrow's beneficiaries, but also to organisational resilience."

Unwin told Third Sector that, while some charities used their assets to cover the cost of contracts, others funnelled fundraised income to plug the gap.

"Both of these approaches seem to me to be very risky for the long-term health of the sector," she said. "Some charities will consciously subsidise the cost of contracts - as long as their trustees know they are doing it, that's their choice.

"But it's the covert nature of this that I think is dangerous for the business reliability of the sector."

Karl Wilding, head of research at the NCVO, said: "Our data suggests net funds have fallen in value, so it is likely that reserve levels will be hit. One of the contributory factors - there are others - might be subsidising services delivered under contract."

Unwin said slow progress was being made towards full cost recovery. But if it was achieved the result would be fewer contracts because they would cost more: "The sector's campaigned hard for full cost recovery, but we have to face the fact that in a fixed budget there will be fewer contracts."

- See News, page 2.

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