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Reserves Policy (2020)

Reserves Policy

  1. Introduction and Background
  2. Purpose of the policy
  3. Application of the policy
  4. A balanced budget
  5. Maintaining a minimum level of reserves
  6. Additional funds available to support individual academies
  7. Academies joining the Trust
  8. Monitoring and reporting
  9. Pensions liabilities

Introduction and Background

The Co-operative Academies Trust Board is responsible for the effective and efficient use of available resources. These responsibilities are outlined by the Charities Commission in their published guidance:

The Board is ultimately responsible for the allocation of resources to deliver the vision of the Trust. Within this context the Board delegates responsibility for the management of available finances and reserves to local academy governing bodies as outlined in the scheme of delegation, and within the constraints of budgets approved by the governing body and Board.

Academy governing bodies are accountable to the Board for the level of reserves at any particular time.

Purpose of this policy

The Trust’s reserves policy:

  • assists in strategic planning by considering how new projects or activities will be funded;
  • informs the budget process at both a school and a Trust level by considering whether reserves need to be used during the financial year or built up for future projects;
  • enables investment decisions to be made at a Trust level, where necessary utilising reserves across the Trust; and
  • informs the budget and risk management process by identifying any uncertainty in future income streams.

Application of the policy

When considering an appropriate level of reserves, the Board considers:

  • the risk of an unforeseen emergency or other unexpected need for funds;
  • a fall or rise in sources of income;
  • planned commitments, or designations, that cannot be met by future income alone, for example, plans for a major capital project;
  • the need to fund potential deficits in a cash budget, for example, money may need to be spent before funding is received; and
  • the full range of financial risks identified.

A balanced budget

Academies within the Trust are expected to set and maintain a balanced budget where costs are met from income in a given year. Accumulated reserves can be utilised, subject to the provisions of this policy and the the financial regulations (including the scheme of delegation).

Maintaining a minimum/ maximum level of reserves

Individual academies must maintain as a minimum a reserve's balance equal to a 5% threshold of their respective total annual income (excluding PFI funding where applicable).

Individual academies should not exceed a maximum reserve’s balance equal to a 10% threshold for Secondary (11 to 18 years) and a 15% threshold for Primary schools (5 to 11 years) of their respective total annual income (excluding PFI funding where applicable).

For the purpose of this policy, reserves are deemed to exclude restricted fixed assets funds, pension reserves (see note 9 below) and any other specifically designated funds (e.g. funds held for particular, board approved projects).

The minimum level of reserves is ultimately limited by the need to maintain a positive net assets position for the Trust.

The Trust will:

  • maintain the aggregate of individual academy reserves, amounting to a minimum of 5% threshold of total annual income (excluding PFI funding where applicable);
  • maintain an additional central contingency of £100,000 in order to fund any short-term resource needs;
  • review the opportunities and risks at a Trust level in order to assess the required level of resources needed to meet anticipated and unanticipated needs in the short and long-term; and
  • require a business case from academies which maintain a reserves level in excess of the maximum threshold limit (see 5.6 and 5.7 below).

Where academies hold reserves which are above the upper threshold target, Board would require a business case or plan that would bring the academies reserves back in-line with this policy. Any business case or plan, covering a two year period, would require approval and be subject to the provisions of this policy and the financial regulations (including the scheme of delegation).

If, following the above review process, academies are unable to bring reserves in-line with this policy the Board may, after due consideration, reallocate reserves in excess of the upper threshold target centrally to support the Trust in delivering its vision and wider strategic priorities.

Additional funds available to support individual academies

Academies are able to apply to the Trust to use additional resources which would reduce their reserves below the 5% level stated above, subject to:

  • The Trust is able to maintain the required minimum levels of reserves in aggregate across all academies, as outlined above;
  • The academy is able to provide a 3 year budget which shows a return to a minimum reserves level of 5% by the end of a 3 year period; and
  • The Board, in its discretion, approves the use of additional funds on the basis of a business case submitted by the academy.

The policy is the responsibility of the Trust and decisions involving the use of reserves will be made in accordance with the governance documents of the Trust.

Academies joining the Trust

Academies joining the Trust (or upon conversion) will normally bring into the Trust accumulated reserves. When joining, the Trust will make a levy to central Trust reserves of up to £50k or a maximum of 25% of the academy / academies unrestricted reserves, after specific designations at the point of conversion or transfer. In such cases future reserves should be maintained in accordance with this policy. This levy will contribute towards the legal and due diligence costs incurred in the successful conversion or transfer.

Monitoring and reporting

Each year, the Trust will report in the financial statements:

  • The level or range of reserves considered appropriate for the academy trust;
  • The level of reserves at year-end;
  • How the Trust is going to achieve the desired level or range of reserves; and
  • How often the reserves policy is reviewed.

Pensions Liabilities

The risks surrounding the Trust’s pension liability should be taken into consideration. The presence of a pension’s surplus or deficit will result in a cash flow effect for the Trust in the form of an increase or decrease in the Trust’s future pension contributions over a number of years. The Board will assess the ability of Trust in aggregate (and by individual academy) to meet the required pension contributions from projected future income without significantly impacting upon its planned level of activities or reserves.

The above relates only to the Local Government Pension Fund as Teachers Pensions are underwritten by the government.