Keeping money aside as a reserve protects the LOC against drops in income and allows it to take advantage of new opportunities.
A reserves policy explains why you are setting money aside rather than spending it on the LOCs aims. It’s helpful if the policy is written in terms of purpose – ‘to protect the continuity of our core work’ – rather than ‘to cover three months of unrestricted spending’.
The LOC will need to go through each area and put a financial number to it, or perhaps a range. Here are three key areas and some things to consider:
1. Provide a level of funds that protects the continuity of our (core) work
- What is the core work that we would want to protect?
- How much does that cost?
- Do we spend evenly or are there peaks and troughs?
2. Provide a level of funding for unexpected opportunities
- What opportunities have arisen in recent years?
- What capacity could we have for new opportunities?
- Results of horizon scanning from annual planning
3. Provide cover for risks such as unforeseen expenditure or unanticipated loss of income
- Review of recent years’ experience
The reserves policy should be reviewed regularly to make sure that the LOC isn’t setting aside too much or too little.
Annual Accounts and Inspection
The LOC model constitution requires LOCs to prepare annual accounts. These should be approved by the LOC after they have been inspected by a suitable person or persons and presented to the LOC at its AGM (see 13.4 of the Model LOC Constitution). The constitution also says that LOC accounts should be submitted to the NHS England Area Team.