New research highlights that charity reserves can guide future direction
New research from the Scotland Funders’ Forum and the Institute for Voluntary Action Research (IVAR) highlights that charities can use their reserves to guide their future direction
Turbulent times
Holding reserves at a certain level has for so many felt like another cog in a wheel to meet regulatory and/ or funder requirements. However, the turbulent economic conditions of the last few years have turned that thinking upside down. The reality for many charities has been that deploying reserves was necessary to survive.
During that time conversations amongst funders highlighted how charities, out of necessity, responded differently. Ranging from charities which were rightly fearful of the potential implications of using restricted reserves, to those with agility to use unrestricted reserves in a way that responded to the crisis unfolding.
An opportunity to look afresh
However, the conversations also rightly shone a light on all our preconceived ideas about reserves. It created space to question the myths, challenge the norms and look at the real purpose of reserves.
These conversations led to the Scotland Funders' Forum commissioning IVAR to conduct deeper conversations and research the approach of the charity sector to reserves. Hearing directly from charities and funders about reserve management, Thinking about… Charity Reserves offers real insight into why charities take particular approaches.
It draws out the vital role of trustees seeing reserves not as a static measure, but a tool to help support and guide the future direction of their charity. The research rightly recognises that this also requires a shift in funders and policymakers.
Changing the narrative, practical guidance and increasing flexibility in funding can all help in creating the right conditions for having purposeful reserves.
Thinking about… Charity Reserves
Key findings
There is considerable variation in charities’ reserves management practice. The researchers identified a spectrum of approaches from ‘basic’ to ‘strategic’. Strategic reserves management was identified as core to enhancing a charity’s ability and agility to meet changing needs. However, the following are barriers for some charities and opportunities for others to taking a strategic approach to reserves:
- Access to finance management skills
- Funding practices and income types
- Trustee caution and confidence
How can we make the most of charity reserves?
Funders have a critical and central role to play in continuing to create conditions that encourage more strategic reserves management, in particular through the provision of more flexible funding and the adoption of more nuanced approaches to due diligence and scrutiny of charities’ reserves.
Regulatory bodies can also make an important contribution by offering more practical guidance and training to charities.
Charities themselves can take immediate steps to implement strategic reserves management, including:
- Accessing training and support
- Reviewing reserves policies more regularly, in concert with their budgeting and risk management processes
- Encouraging their funders towards providing more unrestricted income, where possible
A time for action
There is a committed group of funders, policymakers and regulators who are exploring follow-up actions, but that shouldn’t stop individual funders considering the findings from this work.
Individual funders can start by looking at their own internal processes and how they talk about reserves. This research is more than a publication, it is an opportunity for funders to act.
About the Scotland Funders’ Forum
The Forum is a gathering of funders in Scotland, including statutory bodies and independent grant-making trusts, who are committed to best practice in funding the voluntary and community sector and to maximising the impact of funding for the benefit of Scotland. Forum members come together to share information, to identify and address areas of common interest and to share best practice and learning.
About IVAR
The Institute for Voluntary Action Research is a small research charity that works with other charities, foundations and public agencies to strengthen the UK voluntary sector through action research.
ICAS engagement with the Scotland Funders’ Forum
ICAS attends meetings of the Scotland Funders’ Forum, engaging in discussions about how best to enhance both funders and charities’ understanding of reserves in the public interest.
To find out more about the research, download the report here.
