Consolidating Legacy Bank Accounts Without Breaching Restricted Fund Terms

Trustees inheriting a charity with five or six bank accounts usually find that most of them are historical rather than legal: one opened for an appeal that closed years ago, one for a grant that finished, one that nobody has signed on since the last treasurer left. The restriction on that money attaches to the money and the purpose it was given for, not to the account number it sits in. Charity law sets no rule that each restricted fund needs its own bank account, so in most cases trustees can consolidate, provided the fund accounting still shows every fund separately and the underlying terms have been read first.

The Charity Commission's internal financial controls guidance points in the same direction. It asks trustees to keep a list of all the charity's accounts and to close accounts which are no longer used, while putting the fund requirement on the accounts: where a charity has restricted or endowment funds, the charity accounts should reflect each separate fund. Dormant accounts with live mandates and no oversight are a control weakness in their own right.

Does a restricted fund have to sit in its own account?

No. The restriction requires that the money is spent on the purpose it was given for and that the charity can show it was. A pooled current account holding four restricted funds and the general funds meets that test where the ledger tracks each fund's balance and movements. Separate accounts achieve the same thing, and were the practical way to do it before software made fund tracking straightforward. They are not the legal requirement.

The risk that replaces them is worth naming. With money in separate pots it is hard to spend a restricted fund by accident; with one pot it is easy, because the balance on screen is larger than the amount the charity is free to use. That is a bookkeeping control problem, solved by fund accounting and a monthly reconciliation of fund balances to cash, not by keeping accounts open.

What has to be checked before an account is closed?

Three documents settle it, and each one is read before the transfer rather than after. The first is the source of the fund: a trust deed, a legacy, an appeal leaflet or the wording used when the money was solicited. Occasionally one of these says the money is to be held in a separate or designated account, and where it does, that term binds the trustees until it is varied. The second is any live grant agreement, because funders can and do require their money to sit in an identified account, sometimes with a right to reclaim unspent amounts. The third is the governing document, which may deal with how funds are held or with who has to authorise a change to banking arrangements.

The account list itself is the starting point. Bank statements, old mandates and the last few sets of accounts usually identify every account between them, and often one no current trustee knew about. Where an account cannot be mapped to a fund and its terms, the consolidation waits for that fund rather than proceeding around it.

What if nobody knows what an old balance was for?

It stays restricted. A balance whose purpose cannot be evidenced is not unrestricted by default, and treating it as general funds because the paperwork has gone is the error the tidy-up is most likely to produce. The realistic search is the minute book, the donor correspondence, the annual report for the year the money arrived, and any appeal material the charity still holds. Often the purpose survives in the trustees' annual report of the time when nothing else does.

Where the purpose has genuinely fallen away, the routes to apply the money elsewhere run through the Charity Commission on the facts of the fund. That is a separate decision with its own evidence, and it should not be minuted as though closing the account decided it.

Three funds stay where they are

Permanent endowment is the clearest case. It is property the charity must keep rather than spend, so it cannot be poured into a general account and counted as available cash, and it keeps its own identity in the fund accounting whichever account the cash sits in. Trustees do have statutory routes to release capital from an endowment or to borrow against it, and what trustees can and cannot spend from permanent endowment sets out the tests, the thresholds and the limits. The point for a consolidation is narrower: those routes are separate decisions, taken on their own evidence, and moving the cash between accounts neither grants the permission nor removes the need for it.

An express separate-account term is the second block, and a live funder condition the third. Both are contractual or trust obligations rather than matters of general charity law, so neither is cured by good accounting. A funder will sometimes lift the condition on request; get that in writing.

What the accounts have to carry afterwards

Each restricted and endowment fund keeps its own opening balance, movements and closing balance, with the notes the applicable framework requires. Accruals accounts follow the Charities SORP, so a charity consolidating mid-year states which edition governs the period it is reporting rather than describing the position as the new rules; the commencement date sits with our note on which box each income type goes in. Bank interest earned on pooled cash is allocated to the funds that generated it on a basis the trustees can explain and apply consistently.

Two disciplines matter more after consolidation than before. Fund balances are reconciled to cash on a set cycle, so an overspent restricted fund shows up in the month it happens rather than at the year end. And no fund runs negative against another fund's money, because that is a restricted fund being spent on something else however the bank statement looks. Inside the scrutiny band the examiner will test the fund notes; what an independent examination covers sets out the scope.

Run the exercise in this order

List every account. Map each account to the funds it holds and each fund to its terms. Take the blocked funds out of the exercise. Reconcile fund balances to cash before anything moves. Decide the destination accounts and review the mandate at the same time: the Commission's guidance expects a clear record of who is on it, dual authorisation for any change, and a trustee as the second authoriser. Then move the money, close the accounts, and minute the decision fund by fund. A specialist reviews the fund mapping where the history is thin, and your accountant prepares the fund notes on the new basis.

Choosing a charity bank account covers what the destination account needs to offer, and how much a charity should hold in reserves covers the free reserves figure a consolidation often makes visible for the first time.