Money Short Even Before COVID-19
Money Short Even Before COVID-19

Charities in the United Kingdom held just enough “free reserves” — unencumbered funds — to cover two months’ operating expenditures before country went into lockdown at the end of March. That compares with three months’ worth of reserves in 2017, per a report from Zavantem, Belgium-based BDO Global, an accounting and business advisory conglomerate.

When the United Kingdom enacted its shelter-in-place restrictions, income losses for charities were estimated at £4 billion – roughly $5.1 billion U.S. – during the three following months. In June, a brief from Chartered Institute of Fundraising, NCVO and Charity Finance Group reported charities were expecting a 24 percent reduction in revenue, representing a £12.4-billion loss – just under $16 billion U.S. – during the following 12 months.

While the UK government announced a £750-million – $959 million U.S. – infusion for charities in April, BDO report compilers questioned whether the funds had reached those most in need and noted there “remains a significant gap that charities are still struggling to fill.”

According to the report, 30 percent of the charities analyzed did not indicate their levels of unencumbered funds. Other charities boosted their level of unencumbered funds by reporting fixed assets in their totals.

As the report noted, “fixed assets are not liquid and so cannot be used as and when they are needed. The value of fixed assets can also be subject to fluctuations and volatility.”

Per BDO, charities are required to establish and disseminate a reserve funds policy that explains several key elements regarding their reserves. Specifically, BDO recommended these policies cover:

  • The amount the charity needs to hold in reserve, and the purpose for the funds’ use
  • The circumstances under which the reserves can be spent
  • The frequency with which the reserves policy will be reviewed

According to BDO, the number of charities that routinely review and update their reserves policy as part of their fiduciary activities is very small. BDO further called on the UK government to clarify the definition of “free reserves” and make reserves level disclosure mandatory, including forecasted needs.