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A problem I often come across with these is charities not reviewing the designations. So the building project doesn't happen but the funds remain designated.
Additionally some charities that are branches or part of a larger charity in some way contribute part of their unrestricted reserves to the main charity. I have seen local charities designate to reduce their free reserves to save sending money to the centre.
Similarly they can also be used by cash rich charities to reduce free reserves to encourage further giving rather than acknowledge they have too much money and are not using it or have any plans for it.
When I do independent examinations of charities I push quite hard on designated funds and whether the designation is still appropriate.
I have created a control feature in our accounting software to force all charitable activities funded from unrestricted sources to be tracked and reported as designated funds for their specified life time. This is particularly useful to those few trustees like myself who insist on monitoring the unrestricted charitable activities in the same way as the restricted ones. This is how they can enforce proper budgeting and view in real-time any cost overrun by management also in the unrestricted charitable projects.
Sadly, the SORP FRS 102 does not reward those trustees for doing so. I understand that some reporting is simplified and that is very useful. But there is no requirement to report by designated funds, nor is there a practical separation of charitable expenditure, support and governance costs when reporting expenditure for charitable activities. The statement of accounts is stretched across too many tables for the management team to want to keep track of all that data.
From a management accounting perspective of a small charity, this is very inefficent, as management accounts need to be drawn up separately if one or more trustees insist on adequate management accounting reports across all funds.
It is also very dangerous, as charities should be encouraged to understand and manage in detail their unrestricted income for funding charitable activities rather than to ignore or delay the active management and reporting of designated funds.
Can someone tell me what is the legal situation if monies left in a will towards a building fund that have been put into a designated bank account were to be used for other purposes? Does this break the terms of the will/bequest?
A church I know is in this situation but it is very unlikely that they will ever buy a building and would rather put the monies to a better use.
Thanks for any feedback.
Hi Ken
This bequest forms a restricted fund in the accounts and the money can only be spent based on the terms of the bequest. I would advise caution - do you have the wording? Many churches have a buildings fund and more often than not is is for repairs and maintenance not a new/replacement build.
The bank account is irrelevant it could all be in one bank account. It is the fund accounting that is important.
If what you say is true then the building fund should be maintained which may put the general fund into deficit.
The restriction can be lifted (usually with the donor's permission - obviously not possible here - churches don't approve of seances!).
See here for some good CofE guidance on this: http://www.parishresources.org.uk/wp-content/uploads/restrictedfunds.pdf
Mike