Reserves are sums of money an organisation accrues through a surplus which are kept aside.
There are three types of reserves:
- Restricted: money where the donor has specified on what it must be spent;
- Designated: money the trustees have set aside for a particular purpose; and
- General: uncommitted funds.
It is now recognised as good practice for charities to have reserves as part of the risk management framework. Charities can maintain 3 - 6 months running costs as a free reserve with the potential for more for unforeseen circumstances or if the environment is particularly unstable. The Charity Commission for Northern Ireland has provided some guidance on reserves here. In Charity SORP Trustees are required to report about the level of reserves they hold and the reserves policy.