How to redeploy restricted funds effectively
Free reserves allow charities to invest in innovation, new services, raise more income, or cover funding gaps. However, restricted reserves often make up most of a charity’s reserves, so maximizing their use can make a big difference.
Not all restricted funds are the same. For example, “I’d like this donation to be used for your humanitarian work, where possible” is very different from “I’m making this donation for and only for your direct humanitarian assistance project in Somalia.” When making a funding appeal, be careful with your wording. Try not to unnecessarily restrict your funding appeal or make it clear to donors that any surpluses will be transferred to unrestricted funds.
Many local authorities or other statutory funders now use contracts rather than grants when commissioning charities to deliver services. Technically, all contract funds are unrestricted under company law – but you still need to deliver the contract to get the funds.
According to the Charity Commission Guidance ‘Charities and public service delivery: an introduction and overview (CC37)’, section 8.3, payment under a contract is a fee and not a grant, and any surplus under a contract is not a restricted fund but may be subject to contractual terms and conditions. Check your contracts’ terms to make sure that any surpluses that you have can be used for other things.
Where there is a restriction in place, effective recharging of costs is key to making those restricted funds work better for you. According to section 8.1 of the guidance ‘What does the commission mean by know your worth’?, “the full cost of a service includes both its direct costs and the indirect costs (sometimes called overhead, administrative or ‘core’ costs) … that can be fairly allocated to the service.” Using this wording, charities should include a fair portion of overheads in all bids to reflect the true cost of a service.
If you were given funding for a particular project that has now ended, and those funds are unusable but still restricted, you can apply to the Charity Commission for a cy-près scheme to set out how you would use those funds in a similar but different way. Charity Boards can unrestrict a total of £1,000 of restricted funds per year without needing to seek the Charity Commission’s approval – however, this will be immaterial to most charities. First, talk to your funders and donors, as applying for a cy-près scheme can be a lengthy process. Your funders and donors may be willing to loosen a restriction or un-restrict funds altogether. As the saying goes, “if you don’t ask, you don’t get”!
In summary, effectively redeploying restricted funds can significantly enhance your charity’s ability to innovate, provide new services, and cover funding gaps. By understanding the nuances of restricted funds, carefully wording funding appeals, and leveraging contract surpluses, you can maximize the impact of your resources. Additionally, recharging costs effectively and exploring options like the cy-près scheme can help you make the most of restricted funds that are otherwise unusable. Remember, open communication with your funders and donors is key to finding flexible solutions.
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