Investment of Reserves – update paper
Investment of Reserves – update paper
Background
Since its formation in 1996, IWF has been registered as a not-for-profit company limited by guarantee and in December 2004, re-registered its Memorandum and Articles of Association at Companies House with a view to applying to the Commission to become a registered charity.
Although IWF has operated as a not for profit charity since its formation, the original constitutional documents required the funding companies to provide the funds necessary to operate the IWF and any year-end surpluses would be returned. This is no longer the position and a significant increase in IWF members in the last two years has enabled an income in excess of the required operating costs.
Irrespective of the application to the Charity Commission, at their meeting on 12 October, Board agreed to create an appropriate reserve fund and at the subsequent meeting on 25 January 2005, it was confirmed that this should be equivalent to six months running costs for the IWF, a total in the order of £300,000. Six months running costs, includes salaries, rent & rates, lights and power and usual premises costs.
Charity Commission expectations
If the IWF’s application to become a registered charity is successful then the Commission sets out ground rules with regard to reserves:
- Regardless of the size or nature of the charity, trustees should have an appropriate reserves policy that clearly explains what level or range of reserves the charity needs to operate effectively.
Trustees should ensure that:
- Their reserves policy is appropriate for the charity's aims, needs and objectives and the risks it faces.
- They understand and formally agree the principles behind their charity's reserves policy, and set an appropriate level of reserves based upon factors which impact upon the charity rather than an arbitrary figure or rule.
- Their charity's reserves policy addresses the issues raised in the Charity Commission's publication “Charities' Reserves” (CC19).
- Their reserves policy, investment policy and governance framework are periodically reviewed to take account of changes to the environment in which the charity operates.
- Realistic plans are in place for maintaining the charity's reserves at the level or within the range set out in the policy, and for managing the impact of any change.
- They carefully consider the risks and action that can be taken where the charity's reserves are significantly below the level needed to run the organisation effectively.
- The reserves policy is disclosed in the annual report.
If we become a registered charity, the Commission (publication CC19) makes it clear that a reserves policy should be more than a statement about the amount of reserve that will be held.
Developing IWF policy
The level of reserve agreed by the IWF Board is based upon smoothing unplanned fluctuations in income or expenditure and in the worst case scenario, the orderly winding up of the IWF. In order to determine how our reserve should be invested it is necessary to refine that process and examine:
a) Cash flow fluctuations
b) Threats to and reliability of income
c) Any pressures to increase IWF services and activities
d) Other external pressures
e) The impact of IWF reducing or winding up its operation
The executive are currently reviewing these issues and the outcome will form part of the reserves policy, determine the type of investments IWF may hold and the proportions of reserve held within them.
The executive have sought advice with regard to investments from a number of consultancies, including Cascaid (our retained charity consultants and Carr Sheppards Crosthwaite, a recommended corporate and charity investment company (http://www.carr-sheppards.co.uk/). Further information is being provided on the fee structure for managing any investment and the type of investment funds which would be available to IWF.
Following the receipt of further information, the completion of the risk analysis and the decision with regard to registered charity status, the policy will be finalised and presented to Board for approval.
Present position
In the interim we have adjusted the amounts we are holding in our accounts as follows:
- Current checking account to £5,000.
- Bank Premium Account (interest accrued based on a monthly account), that feeds the checking account, to £100,000.
- Step Saver Account with a higher interest rate of 3% holds any remaining funds.
Page Created: Thu, August 18th, 2005
Page Modified: Thu, August 18th, 2005
