The medical relief charity Merlin experienced a 12 per cent fall in funding over the year to the end of 2012, according to its annual report and accounts, filed last week.
The charity, which was taken over by Save the Children in July, says in its report that the reduction in funding, from £68.9m to £60.9m, had been caused mainly by the fact there were "no significant emergencies" in 2012. This had led to a drop in grant funding from institutional donors, the charity's major source of income.
Merlin recorded a £3.39m deficit during the year to the end of 2012. The previous year it had recorded a £1.89m deficit.
The report says the charity's free reserves of £2.8m were below the level considered to be acceptable by trustees.
"Merlin continues to operate a substantial level of donor-funding projects overseas," the charity’s annual report says. "The very nature of these agreements with donors requires the organisation regularly to pre-finance much of its overseas charitable work in advance of the receipt of funds from donors.
"The level of voluntary income and overhead recovery from operating projects has been insufficient to enable the organisation not only to grow and develop, but also to cover those unforeseen costs inevitably arising from operations in such difficult states."
The annual report said that in 2012 Merlin had been seeking an arrangement to allow its programmes to continue and that it had "concluded discussions with Save the Children to combine capabilities".
Merlin will remain temporarily as a separate charity, but in July Save the Children became its sole corporate member and appointed a new five-strong board. Save the Children will provide financial support for Merlin’s working capital requirements, the annual report says.
"Our expectation is that there will be a phased transition of Merlin’s overseas programme operations to Save the Children, which we are aiming to complete within 18 months," the annual report says.