Question: A Charity Commission report has found that £5.5 billion has been held by charities as financial reserves without being accounted for by a reserves policy. Firstly what is a reserves policy?

Neville Brownlee:Reserves are funds that you keep back from your expenditure for a specific purpose, in order to ensure continuity of income should emergencies arise. A policy is something that helps you decide how much you should keep back, so that you have enough to cover your needs but don't hold back too much from your own expenditure.

You need to work it out based on your own individual circumstances. There's no magic policy I'm afraid of one magic policy meets all. The nature of their work is also important. If you are running a care home which cannot be turned on or off, then the need to have a consistent line of funding is much greater than if you are a smaller trust that simply distributes funds.

Question: So having a good reserves policy is integral for charities then?

Neville Brownlee:Its an important part of financial management. A proper policy for deciding how much to spend on projects is vital.

Question: The report also highlights concern over the one third of charities whose reserves are lower than the level that they need. Why has this situation developed?

Neville Brownlee:Charities are subject to the vagaries of fundraising and they need to get their income from a variety of sources. So you might find a charity is providing a service but is dependant on legacies or other fund raising income. This might mean that they have to operate with a reserve pot which is slightly lower than what they would actually like.

There is nothing wrong with charities trying to fill that pot. If you do a risk policy that is the right way to it. If there is a gap between the two it is important to think about strategies to bridge that gap.

Some charities do rely on things other than reserves. They may have other things to fall back on like property or backing from benefactors or things like that. We do address this in our report.

Question: Do you think there should be more government regulation? Should charities be coerced into maintaining a good reserve policy?

Neville Brownlee:I think what we need to do is to follow the existing Statements of Recommended Practice. The charities need to think about their reserves policies and providing they do that and then they publish them, then I don't think there is a problem.

If things don't change or things don't improve then perhaps legislation might be the way forward but its certainly not on the cards at the moment. We do see a trend moving in the right direction. Quite a lot of charities that didn't have a policy are in the process of getting one and we would like to see this accelerated.

We are going to return to this area and see where we are in a few months time so provided that this steady improvement continues I think the current framework is sufficient. There is certainly no plans to set in place new legislation at the moment.

Question: Does transparency in reserves accounting help or hinder fundraising?

Neville Brownlee:I think it's helpful. I think it is no different to any other aspect of the charity. These are public bodies and if you're open about what you've got, what you're doing and what you're doing with it most charities say that actually helps them.

We did ask charities who have got a policy if they found this was a problem and only 6 per cent said the policy was unhelpful to them. So I think having a clear and transparent policy actually helps their position.

It allows them to set their stall out and say 'This is what we're about'. Its all clear than and people can make their own minds up so I think it actually helps charities rather than hinders them.