Just under a quarter of larger charities accurately report the level of financial reserves they hold in their annual report, a review by the Charity Commission has revealed.
According to the regulator’s research, there is an ‘incomplete understanding’ of what reserves actually are, which could lead trustees to ‘make poor decisions about their charity’s finances’.
The research revealed that of 106 charities with an income of over £500,000, the vast majority included a reference to their reserves policy in their annual reports.
However, less than a quarter gave the right reserves figure, based on the information in their accounts. A third of charities failed to include a figure at all.
Commenting on the findings, the Charity Commission’s director of policy, planning and communications, Sarah Atkinson, said: “The public, who generously donate to charity, rightly hold charities to high standards and expect them to manage funds in a way that maximises their benefit to society.
“As regulator, we therefore expect charities to steward their resources effectively; to protect their charity’s future 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.
“We would also expect auditors and independent examiners to report any concerns they have about the reserves held by charities, especially in light of the collapse of Kids Company.
The Commission produces guidance that helps trustees manage their reserves properly, which Atkinson claims should equip charities “with the tools they need to improve reporting in this area”.
“All charities should ensure they are up to speed with this, so they can reach their potential by planning effectively for their financial future,” she said.
The full report is available on GOV.UK.