Understandability and Transparency of the Financial Statements of ...

Because of the way people look at your financial statements, if you left it
[money] in the organisation, at one level some people will say „oh good, you‟re
nice and secure we‟ll invest‟. Whereas other people are going to go „oh, you‟ve
got all that money you don‟t need any‟. (Interviewee 20 B)
Some of our committee don‟t want money sitting in the bank, because they
actually feel that [when] the funders see that, they‟re not going to like it.
(Interviewee 21 MT)
If you‟ve got too much money they [the funders] tend to turn you down. If
however you‟ve got a Trust, you can sit some of your funds across there and you
can apply for funding while legally not showing the full amount of funding that
you have available to you. (Interviewee 29 MB)
Donors must be persuaded that the charity is using its funds to provide worthwhile
charitable services and that it is in need of additional funding (Bird, 1985). Connolly &
Hyndman (2003) considered it should be reasonable for charities to seek a small surplus
to support future plans and provide a degree of sustainability, since an important aspect
of a charity must be to continue on into the future. This was recently supported by
Helson (2010) who considered that financially viable charities need a „rainy-day‟ fund
so that in the event of an economic downturn they could still keep their charity running
into the future. Some interviewees in this New Zealand study did consider it important
to set monies aside in a reserve to „safeguard‟ the future of the charity or for a particular
future need such as building maintenance:
One of the things that really upsets me is we cannot budget at all. On April 1, all
I know is that I‟ve got $32,000 income [to fund $150,000 expenses]. Well, it‟s
nerve wracking because we have salary commitments - there‟s people whose
lives depend on having a salary. And I don‟t know where it‟s coming from.
That‟s why we need to get reserves set up. (Interviewee 15 BM)
I‟ve still not set my budget, which is a huge cause for concern. Because of the
age of the building, I want to clearly separate out some expenditure that we can
put aside, so that when the roof needs replacing we don‟t suddenly go „oh‟ [we
can‟t afford it]. (Interviewee 21 MT)
The amount to „set aside‟ depends on the charity‟s reserve policy. Helson (2010)
considered that six months‟ operating expenses set aside would be sufficient to sustain a
charity through financial tightening of donor support. Some interviewees in this study
had different ideas, however, including:
I said to the Board that we should hold under investment no more than three and
a half times our average [annual] expenditure. If we have a couple of bad years,
we‟ve still got enough funds to actually get the organisation going and carry out
the charitable activities. (Interviewee 12 MA)
I was taught in [name of charity] that you should have, 3 months worth of salary
in the bank (Interviewee 21 MT)
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