The Charity Commission has said it will step up efforts to make charities aware of their reporting duties after it found that 43 per cent of charities with unusually low expenditures had either made a mistake in their annual report or underreported their expenditure.
As part of a its accounts monitoring work the Commission identified 443 charities where the charitable expenditure was less than 10 per cent.
It scrutinised the accounts of 188 charities and found that in the majority of cases, 57 per cent, there was a reasonable explanation, such as the receipt of ‘one-off’ income like a large legacy, accumulation of reserves for specific purpose, purchase of assets, and the inclusion of trading subsidiaries in the accounts.
The other 43 per cent had made reporting errors. In no case did the Commission find that low expenditure was down to misconduct.
Michelle Russell, director of investigations at the Charity Commission, said: “We are concerned that so many charities are making basic errors in their annual reporting. Aside from being a regulatory concern and undermining public trust in charities and the information they provide about their work and finances, it is likely to impact on how they are perceived by donors and potential supporters.”
In 50 cases the annual return had been completed incorrectly with charities including charitable expenditure in other categories.
Some 28 charities had underestimated the charitable expenditure, for example service-provision charities recorded the cost of providing training and places of worship as the costs related to raising funds.
Three charities did not specify their expenditure, when they should have done so. The Commission has told two of these charities that they need to resubmit their most recent accounts with an audit report. The other is now below the £500,000 threshold, so its accounts no longer require an audit.
The report said: “The findings of this report indicate that many larger charities do not fully understand, or are failing to comply with, the reporting and accounting requirements that apply to them.
“We will therefore increase our work to promote our guidance in these areas, including through digital and social media campaigns, to help improve awareness and compliance.”
