Almost four in five charities have a stated reserves policy but very few comply fully with the rules, research by the Charity Commission research has found.
The commission said analysis of 286 charities in its own database had found that 78 per cent of charities had a reserves policy.
It said this was a considerable improvement on research conducted in 2006, which found that less than only 40 per cent had a reserves policy.
The research found that only 59 per cent of charities with annual incomes of between £25,000 and £250,000 had a reserves policy, but 91 per cent of charities with incomes of more than £500,000 a year did so.
But only 12 per cent of charities explained how the reserves figure was calculated, and 17 per cent overstated the level of their reserves by quoting the total funds available on the balance sheet.
"There is still some way to go before charities are fully compliant in this area," the report says. "The research also shows there is still a lot more finance managers and trustees can do to improve how they present the charity’s reserves policies. It is not enough just to simply say that they have one.
"For example, most of the statements reviewed do not contain an adequate description of the policy even though it is a legal requirement so to do. Also, less than two thirds state what their target level is, and less than half provide an explanation of what the charity’s levels of reserves are and why they are held. Even fewer charities explain how their reserves figure is calculated."
The report also says that smaller charities are far less likely than larger charities to include a reserves policy statement in their trustees’ annual report, and the quality of those that do is generally much poorer. This is in spite of the fact that evidence shows smaller charities hold proportionately more reserves.
The report found that small charities hold £3.49 in reserves for every £1 of annual income, whereas larger charities hold only 42 pence for every £1 of annual income. The average level among all charities was 54 pence to every £1 of income.