The ability of charities to unlock restricted funds can often prove critical in managing financial challenges. But proper processes must be followed, as Helen Kidd, Partner and Head of our Charities and Third Sector team, explains.
One of the most frustrating things for trustees managing a charity’s finances can be the money they have - but which they cannot readily access to meet their needs.
Charities across Scotland have millions of pounds tied up in restricted funds, which over time have become “locked” or dormant pots of money. This is money donated for a specific purpose. Perhaps a special project or appeal.
The person or institutional funder who gave it to the organisation trusts that it will be used for that particular reason and no other. For a multitude of reasons, these funds can sometimes be unused or underspent - this might be due to the passage of time since the original gift and societal change since then, or perhaps a change in a charity’s activities.
Everyone in the sector knows that times are tight. Therefore, charity trustees may sometimes consider whether it is appropriate to unlock their restricted funds.
Accessing restricted funds requires the organisation to seek permission in a process laid down by charities regulator OSCR, to whom the organisation must apply for approval. It is one that, in the right circumstances, can make a real difference.
Restricted Funds Reorganisation can allow charities to change the purpose for which the funds may be used or remove the conditions imposed on how the charity can use those funds.
- The first step can often mean contacting donors directly to seek their permission.
- If this is not possible, OSCR’s prior consent will be required which will include having the application published on OSCR’s website or depending on the size of the fund in a relevant newspaper or periodical.
- Representations can then be made to OSCR or the charity, either to support or objection to the proposal, before OSCR reaches a decision on any application.
- If approved, the charity’s trustees are responsible for implementing the reorganisation and updating OSCR once it is complete.
The process, to some, might seem complex. But it is all about trust and transparency.
Donors often have specific reasons for wanting to support a cause. They could feel duped if they later find out that their money - or even that of a loved one - has been used for a purpose other than originally intended.
However tempting it might be to dip into restricted funds during the tightest of times, trustees must remember that they are legally and morally obliged to seek proper permission before doing so. And they must clearly make the case for why they would like to reorganise them.
Prudence lies at the heart of charity management. But so too does process. Trustees are wise to always keep that in mind and seek professional advice if in doubt.
Published 14 October 2024. Featured in Third Force News.
