There are three types of funds which are specified in the Charity Commission’s regulations and which need to be clearly identified in the PCC’s annual financial statements. It should be remembered that the members of the PCC are the Trustees of all the funds under their control.
1. Unrestricted Fund
An example of an unrestricted fund would be the general fund. These are monies which are under the control of the PCC and which can be spent on any purpose it deems fit. This covers items such as income from collections, or payment of expenses, regular running costs, etc.
Designated Funds (which are a part of Unrestricted Funds)
Funds may be set aside out of an unrestricted fund for a specific purpose, such as the replacement of vestments or service books, which would then be known as a designated fund. However, this would not then prevent the PCC subsequently reallocating these sums for other uses, or returning them to unrestricted funds.
2. Restricted fund
This is money which can only be used for a specific purpose from the outset. An example would be the income from a parish fund-raising event which was clearly identified as being in aid of the repair fund. The money could thus only be spent on the purpose identified. In trying to decide if a fund is restricted, it is important to ask about the donor’s intention. Did the donor(s) give the money for a particular purpose, either because they specified a particular purpose or the church communicated verbally or in writing that funds would be used for a particular purpose? If so, the money is almost certainly a restricted fund. They cannot be added to unrestricted funds without the consent of the donor or the Charity Commission.
3. Endowment fund
This is a fund of money which has come to the church or PCC with the specific instruction that only the interest generated by the money can be spent. For example, the proceeds of a legacy which specifies that the original sum is to be used to endow funds for the replacement of service books.
You may find the New Treasurers Guide (pdf) produced by ACAT a helpful download.