Most charities report reserves levels incorrectly, says regulator

A survey by the Charity Commission finds that only 22 per cent of charities polled include the correct levels in their annual reports

More than three-quarters of charities report their reserves levels incorrectly, research by the Charity Commission shows.

In a report published yesterday, the regulator said it had surveyed 106 organisations with annual incomes of more than £500,000 and found that only 22 per cent of them included the correct level of reserves in their annual reports.

The commission found that 30 per cent of the charities surveyed failed to deduct fixed assets reserved for charity use and/or designated funds when setting out their reserves levels in their annual reports.

Other issues charities had included deducting fixed-asset investments and including restricted funds, according to the commission’s research.

Some charities confused reserves with net current assets or cash held, the commission said, and others included figures that did not appear to relate to those in their accounts.

The main reason for the inaccuracy in reporting reserves in annual reports appeared to be that "many trustees believe that reserves are the same thing as total unrestricted funds", the regulator said.

Ninety-seven per cent of charities surveyed included at least a reference to their reserves policy in their annual reports, but only two-thirds of charities included the actual level of reserves they had.

In response to the survey’s findings, the commission said it had updated some of its guidance on reserves and was also considering whether a more wide-ranging review of that guidance was required.

Sarah Atkinson, director of policy, planning and communications at the Charity Commission, said: "As regulator, we expect charities to steward their resources effectively so as to protect their futures and safeguard the money donated to them by the public or through public funds.

"Reporting financial information accurately is an essential part of this responsibility, so it’s concerning that so few larger charities appear to fully understand what reserves are or how to disclose them correctly."

Atkinson said that the commission would expect any independent examiners or auditors to report concerns about charities’ reserves to the commission, "especially in light of the collapse of Kids Company".

Research by Third Sector earlier this year found that the 157 best-known charities had an average of four months of reserves, with the mean reserve level at £23.3m.

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