Last updated: 10 April 2024
Purpose
The purpose of the Reserves Policy for Société Jersiaise is to ensure the stability of its mission, programs, employment, and ongoing operations of the organization and to provide a source of internal funds for organizational priorities such as building repairs and improvement.
The Reserves Policy will be implemented in concert with the other governance and financial polices of Société Jersiaise and is intended to support the goals and strategies contained in those related policies and in strategic and operational plans.
This policy will be reviewed periodically subject to a minimum 3-year review and any material change in the finances of the Société Jersiaise
Definitions:
Unrestricted funds
The Charity Commission has provided a specific definition for “reserves” as “that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes.
The items excluded from reserves are:
· tangible fixed assets used to carry out the charity’s activities, such as land and buildings.
· programme-related investments those held solely to further the charity’s purposes.
· designated funds set aside to meet essential future spending, such as funding a project that could not be met from future income.
· commitments that have not been provided for as a liability in the accounts.
Reserves are made up of cash held in the Charity’s current bank account / cash account held by the Investment advisers, and the Charity investment portfolio which is readily convertible to cash.
Restricted Funds
Fall outside the definition of reserves, but the nature and amount of such funds may impact on a charity’s reserves policy. Where significant amounts are held as restricted funds the nature of the restriction should be considered, as such funds may reduce the need for reserves in particular areas of the charity’s work.
Designated Funds
The Executive Committee may determine during the reporting period to set aside a part of the unrestricted funds to be used for a particular future project or commitment. By earmarking funds in this way, the Executive Committee may set up a designated fund that remains part of the unrestricted funds of the charity. This is because the designation has an administrative purpose only and does not legally restrict the Executive Committee’ discretion in how to apply the unrestricted funds. It does however mean designated funds are not classified as free for the purpose of identifying reserves depending on the identified commitments of the funds.
Reserve strategy
An appropriate level of reserves has been set through:
• Discussion with CEO, Treasurer and other members of the Executive Committee • analysis of cash flow; • analysis of existing funds and reserves; • review of future income streams with an assessment of their reliability; • review of committed expenditure and how far this is controllable; • examination of past trends; • examining the likely changes in the main source of income; • assessment of how your charity may cope with changes in the main source of income; • assessment of the risks facing the charity, and how likely these are to materialise; • forecasting levels of income in future years (taking into account the reliability of each source of income, and the prospects for opening up new sources); • forecasting expenditure in future years on the basis of planned activities; • analysis of any future needs, opportunities, contingencies or risks; and assessment of the likelihood of each of those needs arising, and the potential consequences for your charity not being able to meet them.
Operating reserve Fund
The Operating Reserve Fund is defined as a designated fund set aside by action of the Executive Committee. The minimum amount to be designated as Operating Reserve will be established in an amount sufficient to maintain ongoing operations and programs for a set period of time, measured in months. The Operating Reserve serves a dynamic role and will be reviewed and adjusted in response to internal and external changes.
The amount of the Operating Reserve Fund target minimum will be calculated each year after approval of the annual budget, reported to the Executive Committee, and included in the regular financial reports.
Funding of reserve
The Operating Reserve will be funded with surplus unrestricted operating funds. The Executive Committee may from time to time direct that a specific source of revenue be set aside for Operating Reserves. Examples could include onetime gifts or bequests, special grants, or special appeals.
Use of Reserves
Use of the Operating Reserves requires three steps:
- Identification of appropriate use of reserve funds.
The Executive Committee in consultation with the CEO will identify the need for access to reserve funds and confirm that the use is consistent with the purpose of the reserves as described in this Policy. This step requires analysis of the reason for the shortfall, the availability of any other sources of funds before using reserves, and evaluation of the time period that the funds will be required and replenished.
- Authority to use operating reserves
The CEO will submit a request to use Operating Reserves to the Executive Committee. The request will include the analysis and determination of the use of funds and plans for replenishment.
The organization’s goal is to replenish the funds used within twelve months to restore the Operating Reserve Fund to the target minimum amount.
The CEO must receive prior approval from the Executive Committee/Board of Directors if the Operating Reserves will take longer than 12 months to replenish.
- Reporting and monitoring.
The Executive Committee is responsible for ensuring that the Operating Reserve Fund is maintained and used only as described in this Policy. Upon approval for the use of Operating Reserve funds, the CEO will maintain records of the use of funds and plan for replenishment. He/she will provide regular reports to the Executive Committee.
Accounting for Reserves
The Operating Reserve Fund will be recorded in the financial records as Board-Designated Operating Reserve. The Fund will be funded and available in cash or cash equivalent funds. Operating Reserves will be maintained in the general cash and investment accounts of the organization.
Recommended Designated Funds
- Continuity Fund
This fund is to be used to bridge any possible delays in receiving promised grants or managing payment in arrears contracts. This has been defined as a minimum of a three month budgeted trading activity.
- Cyclical Maintenance Fund
This fund is to be used for major items of maintenance of the fabric of the buildings such as redecorating the interior and exteriors.
- Dissolution Fund
This fund provides for the costs of dissolution should the charity be unable to continue. It will be used to pay notice periods, redundancies and the expenses of running the charity until closure of the organisation.
| Fund Balance | |
|---|---|
| Dissolution – Redundancies | |
| – 3 months minimal running costs | £74,000 |
| – 3 months residual salaries | £78,500 |
- Building and Capital Asset Fund
The Building and Capital Asset Fund is intended to provide a ready source of funds for the acquisition of buildings, leaseholds, furniture, fixtures, and equipment necessary for the effective operation of the organization and programs.
- Opportunity Fund
The Opportunity Fund is intended to provide funds to meet special targets of opportunity or need that further the mission of the organization which may or may not have specific expectation of incremental or long-term increased income. The Opportunity Fund is also intended as a source of internal funds for organizational capacity building such as staff development, research and development, or investment in infrastructure that will build long-term capacity.
Appendix 1: 2024 Reserves
Our current reserve structure
| Current Year | Previous Year | % Increase / (Decrease) | |
|---|---|---|---|
| Unrestricted Funds (Reserves) | 2,499,254 | 2,368,436 | 6% |
| Designated | 1,060,866 | 167,084 | 535% |
| Restricted | 398,400 | 149,477 | 167% |
| Total Funds¹ | 3,958,520 | 2,685,297 | 47% |
| Ratio of Reserves² to Annual Operating Expenditure³ | 15% | 16% | (5%) |
Per the annual financial statements, as at the close of our financial year ending 31 December 2023, the Societe held capital reserves of £3,958,520 of which £398,400 was restricted and £1,060,866 was designated committed across various projects throughout our financial year. There was at the time no amounts designated for use across the organisation operational costs base throughout the next financial year.
NB. All current year figures quoted are subject to audit approval.
The budgeted forecast⁴ predicts a further decrease in unrestricted reserves by circa £445,658 by the end of December 2024.
Operating Reserves
Based on a forecast cost base for the period ended 31 December 2024:
Annual operation costs of £611,320 x 50% (6 months) = £305,660 + £25,000 rounded up liability allowance = £335,000 (rounded to the nearest 5,000)
Footnotes:
- Total funds include unrestricted, restricted, designated and endowment funds.
- Unrestricted Funds
- Charitable Activities and Other Operating and Administration Expenses.
- Budgeted Forecast is based on the approved annual budget approved by the Executive Committee