Question

What are your thoughts on an organisation that raises an average of €400,000 per annum, has an average annual expenditure of €200,000 and has accumulated a surplus of €1.6 million euro?

Comments

deirdreg's picture

Hiya Michael,I guess I would

Hiya Michael,

I guess I would wonder if the organisation is a charity and has a CHY number. If so, then it would normally only be in the business of accumulating surpluses if it were saving up money for a large spend at some point in the future e.g. a building or something similar. Normally, you'd have to advise the Revenue Commissioners that you are operating in this way and there's nothing wrong with saving money for things like this - so long as its explained and transparent.

If the organisation is a company limited by guarantee as well, it has to produce audited accounts, which are on the public record and it would be normal in that case to have some sort of note or explanation for the surpluses. Even if it is not a company limited by guarantee, such large surpluses should really be explained openly and transparantly, most easily of course, on the website, or wherever it holds its "activity reporting" type of information.

A useful way for an organisation to avoid speculation on what it's up to if it runs apparent surpluses, is to develop a 'reserves policy' which is openly available on its website or in its annual report/accounts.

The principle of the thing is that people donate money to a charity (be it the public or be it organs of the state) so that the organisation can use it to deliver on its mission. If the organisation is not using it for that purpose, then there are legitimate questions to ask of the organisation. However, it may well be accumulating a surplus is a legitimate way for an organisation to deliver on its mission, as per the building/capital example I used above. The bottom line, at the level of principle, is that it is vital to have transparancy about what is being done with the money.

Maybe others will have otehr opinions on this?

Deirdre

Anthony Lindsay's picture

I agree with everything

I agree with everything Deirdre said, but also think that such a surplus-generating approach is entirely sensible and practical.  Surely it is better to be prepared for a rainy day than operate in the hand-to-mouth fashion that most charities seem to do nowadays. 

Imagine knowing that you could run your organisation without any extra funding for 8 years!  Wow. 

edanto's picture

Assuming that it's a charity,

Assuming that it's a charity, then one conclusion might be that they could really afford to do more with the money they have raised.

8 years of operating costs in reserve would be highly unusual for any organisation, unless they had a large expansion planned.  In this economic climate, with that fundraising ability and such a large piggy bank, it would be a great time to expand.

Is the original question a hypothetical? Any more details on the scenario?  Why have the organisation been building up such a reserve?  What sub-sector are they active in?