Concern over strength of sector's reserves policies

Charities that were under pressure to spend money in the good times might have insufficient reserves to deal with the credit crunch, a charity accountant has warned.

Reserves: Have they already been spent?
Reserves: Have they already been spent?

"Charities have been reluctant to keep high levels of reserves," said Reza Motazedi, head of charity at accountancy firm Vantis. "They've found it difficult to justify carrying large amounts of resources because they've been afraid of being criticised.

"People have been reluctant to give money to charities with high reserves levels.

"Commercial organisations, for example, have often been reluctant to give to charities with a lot of money in the bank. But when times are tougher, will those organisations carry on with their own corporate giving?"

Motazedi said that predicting the correct level of reserves was "not a science" and that the credit crunch could test whether many reserves policies were working as well as they were intended to. "This is when charities will find out whether their models work," he said.

Keith Hickey, chief executive of the Charity Finance Directors' Group, said he believed many charities could have better reserves policies, but stressed that they should not blame grant givers or donors for the quality of their policies.

"Every charity must make sure it has the right reserves policy for itself, and not base it on the view of funders," he said. "The Charity Commission gives good guidance on what appropriate reserves are, and charities should follow that."

He said the CFDG recommended that all charities should have risk-based reserve policies, and that they should be reviewed in the light of the recent financial climate.

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