Confusion over what reserves are and why they're needed

The same concerns regarding the massive reserves accumulated by tertiary institutions, megachurches and, by implication, other organisations that receive funds from the public can be applied to the country's ample national reserves (Varsities, religious groups raising the most donations, July 14).

There appears to be a misunderstanding that accumulated reserves equate to cash in hand and are readily available to more than amply meet the charitable and social objectives of the said entities.

In fact, reserves include assets and liabilities, of both long-term and short-term characteristics, and share capital.

Long-term assets very often include huge amounts locked up in buildings, infrastructure, equipment and other fixed assets that are not readily convertible to cash and often are available only upon liquidation of the organisations.

Clearer indicators of whether an entity is overaccumulating reserves would be the levels and the rate of growth in cash balances and other liquid investments like fixed deposits, bonds and equities. This has to be counterbalanced by not ignoring short-term liabilities.

Like any corporate body, non-profit entities need to maintain a healthy level of reserves in order to provide working capital to sustain their existence, to assure beneficiaries who may not be able to withstand a sudden cessation of aid and to meet the long-term plans for growing the entity.

Typically, entities with several years of track record and proper financial management capabilities should be able to arrive at an adequate reserves level on, say, a three-to 10-year perspective.

Given the persistent public outcry, all entities receiving public monies should pay attention to their level of reserves.

Perhaps, they should also take their cue from the 2016 Netflix series Billions, which had an episode ironically entitled "Accumulation with no end in sight is gluttony", one of the seven deadly sins.

Loh Kin Poh

A version of this article appeared in the print edition of The Straits Times on August 27, 2019, with the headline 'Confusion over what reserves are and why they're needed'. Print Edition | Subscribe