The Revised Reserves Policy
1. Scope of Reserves Policy and Definition of “Free Reserves”
1.1 The reserve policy covers all free reserves held at CILIP Ridgmount Street and at Branches, Groups and CILIP in Scotland, CILIP Cymru and CILIP in Ireland.
1.2 CILIP defines free reserves as that part of a charity's income funds that is freely available to spend for any or all of the charity's purposes once it has met its commitments and covered its other planned expenditure.
1.3 Funds excluded from the definition of free reserves, and hence the policy, are:
- the restricted funds held (legacies and grant income)
- the Revaluation Reserve (relating to property at 7 Ridgmount Street)
- the Fixed Asset Reserve element of designated funds, reflecting expenditure on fixed assets already purchased
- The Development Reserve element of designated funds. These are amounts set aside for a particular project or use. However, the designation of funds is not binding and Council may change its plans and release these amounts to “free reserves”
- the Pension Reserve (a notional funding deficit which is calculated and reported under Financial Reporting Standard 17)
2. Reasons for Holding Reserves
2.1 The reserve policy determines the level of reserves required to enable CILIP
- to fund unexpected expenditure when unplanned events occur
- To fund shortfalls in anticipated income
3. Calculation of Required Reserves
3.1 The policy for activities run from CILIP Ridgmount Street is based on its two major income streams affecting the level of free reserves
- Member Subscriptions (approx. 33% of total income)
- Enterprise income. (Approx. 56% of total income)
3.2 Both major income streams are dependent on a large number of members or customers, which provides stability. Further stability comes from the range of different services provided by Enterprise. The level of income for both can be estimated with some certainty, based on past activity, although CILIP Ridgmount Street remains exposed to fluctuating market forces.
3.3 The minimum reserves required are calculated as
a) 20% of budgeted Member Subscriptions Income over three years
Plus
b) 30% of budgeted Enterprise income over three years, after deduction of those costs which rise or fall in direct relation to the level of Enterprise income.
3.4 The policy allows for Branches, Groups and CILIP in Scotland, CILIP Cymru and CILIP in Ireland to retain their own reserves to
- Ensure ease of administration by their committees and reduce reliance on Ridgmount Street
- Reward initiatives which generate surpluses from charitable activities undertaken on a commercial basis
3.5 The minimum level of reserves required to reduce the risk of seeking emergency funds from CILIP Ridgmount Street reflects
- The need to cover running costs of core activities
- The need to hold additional reserves to cover the risks of activities undertaken to further the objects of CILIP on a commercial basis
3.6 The minimum level of reserves required is calculated as
1 year’s budgeted core activity running costs plus 100% of the advance costs of charitable activities undertaken on a commercial basis.
3.7 If reserves fall below 1 year’s budgeted core activity running costs for more than 6 months, the treasurer should ask the committee to formulate a recovery plan which should be submitted to CILIP Council for approval.
3.8 If there are surplus funds available above the minimum level, the committee should plan to utilise these within three years.
July 2008