The Charity Commission said lack of understanding around reserves could lead trustees to make poor financial decisions.
Trustees’ annual reports require registered charities to explain their policy on reserves, state the level of reserves help and why they are being held.
But a Charity Commission review of 106 charities with income over £500,000 found that less than a quarter provide the correct reserves figure based on the information in the accounts. A third of the charities failed to include a figure at all.
Sarah Atkinson, director of policy, planning and communications at the Charity Commission, said the public expect charities to abide by high standards and manage their funds in a socially responsible way.
“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,” she said.
“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.”
Atkinson added that auditors and independent examiners should also flag any concerns about reserves, particularly in light of the financial collapse of Kids Company. The high-profile London-based children’s charity closed in 2015 after running out of funds.
She said the commission would be sending guidance on reserves management to all charities in the sample where there were concerns about accuracy.
