In November 2023, the ESFA published updated guidance on the trust reserves policy.
As part of the Academy Trust Handbook, all trusts are required to have a well-developed reserve policy in place which should be documented in the financial statements on an annual basis and detailed as to why set levels of reserves are necessary.
The reserves policy should also be reviewed regularly to ensure it is fit for purpose and adjusted accordingly when there are significant changes to trust operations or potential changes in future plans.
What are considered available reserves for trusts
Trusts usually deem their available reserves as being any unspent unrestricted funds, plus the balance of unspent general annual grant (GAG). The ESFA does however note that unspent GAG is usually only permitted for the use of the running of the trusts core activities.
Other trust reserves may also include (these are not considered available reserves):
Most trusts will hold set levels of reserves for the following reasons:
The ESFA does not state a specific level of reserves to be held but it does stipulate that the policy should be sufficient and robust to help mitigate any financial risk that the trust may face in the future.
Trusts are therefore given an element of freedom of how they set a sufficient policy, however, have to be able to demonstrate its suitability through actual financial performance/results.
Trusts will have to consider several factors (but not limited to) when determining a reserves policy which may include the following:
It is important that the trusts have systems in place to be able to continually monitor their level of reserves which will allow quick responses to any changes in trusts circumstances. The ESFA guidance has documented that the majority of trusts hold reserves of between 5% - 20% of total income.
Although the trusts have flexibility to determine suitable levels of reserves, the ESFA will undertake reviews of trusts which they believe to be vulnerable i.e those that fall under the suggested lower reserve percentage of 5%.
The ESFA will also monitor trusts which they consider having high/excessive levels of reserves (defined as 20% of total income or above). The ESFA are likely to seek further information about trust plans to utilise funding in future periods. If the ESFA are not satisfied with the information provided from the trust, they may look to investigate and act further.
To find our more information please refer to the guidance published by the ESFA, please click here.
If you wish to discuss this further, please contact one of our Academies team members.
