There are three notes in a charity trustees’ report which often contain inaccuracies. (As mentioned in previous blog entitled, What should be included in a Trustees’ report? These are:
- Reserves policy
- Key management remuneration
- Public benefit
These notes are often misunderstood or do not contain correct information, so these have been explored below.
- Reserves policy
Charity reserves are made up of unrestricted, restricted or endowment funds, and there are charities holding a combination of any of these types of funds.
Free reserves are those funds that your charity can spend freely on any of its charitable purposes. Restricted funds, endowment funds and designated funds are therefore excluded. As well as the individual funds, the total value of tangible fixed assets are excluded from free reserves as the Charity cannot readily access the value in these assets. Free reserves are therefore the portion of general unrestricted funds that are not ‘locked away’ in the form of fixed assets, or otherwise earmarked for future spending.
The reserves policy is an opportunity for a Charity to show its stakeholders how the trustees are managing the Charity’s money. Having a reserves policy will help the Charity manage its resources more effectively, as well as helping the Charity develop future plans.
An effective reserves policy will explain:
- Why the charity holds the particular level of reserves it currently has
- What level of reserves the trustees believe the charity should hold
- How the charity has arrived at this reserves figure
- Whether the target level of reserves been met
- If not, how the charity is planning on dealing with the shortfall
- If the charity has reserves in excess of the target level, how the charity plans on using this excess to the best use.
- Key management personnel remuneration
Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the charity. They will include the trustees, directors (if the charity is a company) and those persons who are part of the senior management team.
Trustees’ reports should include details of the arrangements for setting the remuneration of the charity’s key management personnel and the notes to the accounts should disclose the total amount of employee benefits paid to them, for their services to the charity.
The total amount should be the total of remuneration paid, benefits paid, employer NICs and employer pension contributions.
- Public benefit
Charities need to have regard for the Charity Commission’s guidance on public benefit. Charities have to demonstrate that they meet the public benefit requirements, when they register as a charity.
Charity trustees will meet the public benefit reporting requirements by including the following in their trustees’ report:
- a statement that the trustees have had regard for the Charity Commission’s guidance on public benefit
- an outline of the charity’s purposes and explanation of how these provide public benefit
- a description of the significant activities undertaken in furtherance of these charitable purposes
Charity trustees may choose to explain how benefits can be measured. They may also choose to value the public benefit opportunities their charity provides.
Our charity team can help you prepare your Trustees’ report.