Grants:APG/Reserves survey/2013

Background

The FDC is requesting information from current grantees about legal requirements and norms on operating reserves. Operating reserves are liquid, unrestricted assets available for an organization to use as a cushion, and to cover the costs of operations in case of unanticipated expenses or loss of revenue. Operating reserves are not meant to be considered a solution to everyday cash flow issues; in most cases, they are meant to be held over from year to year, accumulating interest and growing based on each individual organization’s operating reserves policy.

Request

Current FDC grantees are requested to share any legal requirements that exist in their country by 22 Dec 2013. Please provide references when possible. Round 1 2013-2014 applicants are requested to comment as well, although the Board decision on the FDC recommendation is not anticipated until 1 Jan 2014.

Netherlands. Within the Netherlands, there are no legal requirements concerning the operational reserves of (non profit) organisations. The branche-organisation for charities VFI has issued a guideline 'Richtlijn reserve goede doelen'. This guideline states that a charitable organisation can have an operational reserve of 1.5 times the annual 'working costs'. Working costs are the costs of staff, housing, office and administration, fundraising and governance. In addition, an organisation can maintain an operational reserve to ensure future continuity in view of certain specific risks. This has to be based on a risk assessment and requires a plan outlining how the organisation will deal with these risks. The text of the VFI guideline can be found online(in Dutch). SRientjes (talk) 12:58, 12 December 2013 (UTC)

Argentina. There are no clear requirements for NGOs regarding reserves, but only that they should be clearly explained on the annual balance and be reasonable considering the general budget of the institution. --Osmar Valdebenito (WMAR) (talk) 20:14, 12 December 2013 (UTC)

Catalonia. I consulted with our treasurer, he checked on it and he resoluted there are no obligations in our country concerning operational reserves. However, we are going to submit a proposal in our organization (Amical Wikimedia) regarding the definition of Amical's operating reserves in the future - we will keep you updated.--Arnaugir (talk) 10:22, 14 December 2013 (UTC)

Israel. In Israel there are no explicit reference to operational reserves. However, accumulating interest on operational reserves is atypical for NGOs in Israel לסטר (talk) 19:53, 14 December 2013 (UTC)

India. We do not seem to have any legal requirement of maintaining a minimum reserves. We have set aside an amount of INR 201,015 (USD 3350 approx) as a corpus fund. The amount drawn from this fund is taxable at 30%+, but not taxable when it remains as a corpus. So practically, it is worth about USD 2200 for the purpose of post tax spending. This amount is liquid, being part of our bank deposits. The interest from this fund is used as part of local funding and not carried forward. Only the capital amount is normally carried forward. TS-Sowmyan (talk) 10:41, 16 December 2013 (UTC)

Sweden. For operating reserves there are one legal condition: A upper one for non-profit charity ("for-the common-good") organizations in Sweden saying that you must spend about 80% of the income over 5 years, setting a limit on how much can be added to the reserves each year. --Jan Ainali (WMSE) (talk) 09:17, 17 December 2013 (UTC)

United Kingdom. We are required by law to make a statement concerning our reserves policy as part of our annual reports and financial statement. This is what we stated:

Reserves

Our reserves policy is regularly reviewed as part of our financial protocols. We aim to maintain reserves ideally equal to 12 months administrative expenses for our London office, staff and governance, in order to protect our programme of activities. Our year-end reserves stood atjust over £298,000, including funds of £7,000 designated for fixed assets, restricted funds of £1,000 and a €40,000 (ca. £36,000) charitable project commitment. Our free reserves, at £254,000, equated to 8 months of planned administrative spending as defined above so we are aiming to increase our free reserves by 50% this year as part of our fundraising target.

This is within our UK Charity commission guidelines. As you will see these are quite elastic. In real terms I would say the spectrum ranges from at minimum having enough to cover any liabilities should a charity cease trading, i.e. staff salaries and redundancy, rental agreements etc. and at the other end having so much cash that you should cease fundraising. This has happened only once in my memory when Guide Dogs for the Blind had enough funds to buy everyone in the country a guide dog. Richard Symonds (WMUK) (talk) 10:46, 17 December 2013 (UTC)

Austria. According to Austrian legal guidelines (VereinsR 2001 Rz 129), associations can hold reserves up to an amount which is equalling one year's administrative spending, without the need of any justification (above this amount, the fiscal authorities would demand an according rationale). As outlined on the discussion page of our proposal, WMAT plans an operating reserve of 50.000 EUR, which includes 3 month of administrative spending plus a cushion for further liabilities in the context of our projects. This is far from being too generous and has proven to be quite valuable twice this year, when the WMF payments took longer than expected. You can find the German version of the guidelines here. --CDG (talk) 16:44, 17 December 2013 (UTC)

Germany In order to maintain their tax-priviledged status NPOs in Germany need to follow the so called imperative of timely application of funds (“ Gebot der zeitnahen Mittelverwendung"). The application is considered timely if the funds are being used/spent for statutory or tax-priviledged objectives in the two calendar- or financial years following the year of the cash inflow (in line with § 55 Subparagraph. 1 Nr. 5 AO). However, §58 Nr.6,7,11 and 12 AO contain exception regulations so that NPOs may put their money into a reserve under certain conditions. Here is a summary of the main/relevant types of operating reserves allowed for NPOs in Germany:

Earmarked reserves (Zweckgebundene Rücklagen) § 58 Nr. 6 AO

The §58 Nr.6 AO permits creation of operating reserves as far as the reserve is necessary to achieve a statutory objective in a sustainable way. It doesn’t matter where the reserve funds come from meaning that the funds might be e.g. donations. The money needs to be aggregated in order to execute specific undertakings meant to contribute to achieving statutory objectives. Furthermore, the NPO needs to have a clear concept of a timeplan for the undertaking in question. If there is no clear timeplan yet, creating a reserve is permitted if the undertaking is plausible and the financial condition of the NPO would enable a reasonale timing. Normally this would mean four to five years but it depends on the size of the undertaking.If the NPO is planning to execute several undertakings, it is allowed to create several parallel reserves.

The Fiscal Code Application Decree is describing two special examples of the earmarked reserve:

• A so called “operating expenses reserve”(“Betriebsmittelrücklage” in line with AEAO §58 Nr.6 Tz. 10 S. 5) may be created for periodic expenditures (e.g. wages, salaries, rent) in the amount equaling budgetary needs for a reasonable period of time (usually up to one financial year).
• A so called “replacements/investment reserve” ("Wiederbeschaffungsrücklage" in line with AEAO §58 Nr.6 Tz.10 S.7) may be created for the purpose of acquisition of properties, vehicles and other assets if the current revenues are not sufficient for their acquisition. It is necessary that the new acquisition of a certain asset is actually planned and that the acquisition is possible in a reasonable amount of time.

Free/Unrestricted reserves (Freie Rücklagen) §58 Nr.7a AO

Unlike the earmarked reserves, in case of the free/unrestricted reserves (“Freie Rücklagen”in line with §58 Nr.7a AO) neither the timing nor the objective of the reserve usage are defined. They are general components of the NPO’s assets and may be used for its capital formation in a long term. However, on a yearly basis, their amount is limited to one third of the annual revenue surplus and furthermore to a maximum of 10 % of the funds that are to be used in a timely manner in line with the imperative of § 55.1 No. 5 AO.

Legal documents concerning operating reserves:

• Fiscal Code Application Decree (Anwendungserlass zur Abgabenordnung AEAO)
• General Fiscal Code (Abgabenordnung AO)
• Paragraphs concerning operating reserve in non-for-profit organisations:§55, §58

You can find information on WMDE’s operating reserve here --Kasia Odrozek (WMDE) (talk) 14:06, 20 December 2013 (UTC)