The Charity Commission is warning that some larger charities risk losing popular support because they are under-reporting how they spend their income in their accounts, which show low charitable expenditure as a result at four out of ten charitable organisations
The regulator looked at a sample of the charities with annual incomes of over £500,000, which are required to provide a summary of their annual accounts in Part B of the annual return, and to submit fully audited accounts.
It identified over 440 charities in this category, of which it scrutinised the trustees’ annual reports and accounts of 188 charities whose annual returns suggested they had spent less than 10% of their income for the year in question on charitable activities.
The Charity Commission says the results suggest that the majority of these charities (57%) were able to provide reasonable explanations for the low expenditure against income for the year in question - such as the receipt of large ‘one-off’ donations or the accumulation of reserves for specific projects.
However, it found that the remaining 43% had made errors either in their annual returns or their trustees’ annual reports and accounts, with the effect of significantly underreporting the level of their charitable expenditure.
Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: ‘It is heartening to see that the majority of charities we looked at as part of this review were able to provide reasonable and legitimate explanations as to why their charitable expenditure was so low for the year in question.
‘But 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.’
The Charity Commission says three charities’ accounts included in the research reflected more serious non-compliance issues. Their accounts had not been audited in either the year that the commission reviewed for the study or their most recent submissions.
Two of the charities had also not recorded any value for charitable expenditure in their accounts. The commission refused to accept these returns and has insisted these charities resubmit compliant accounts for the years in question.
The commission says it now plans to increase its work to promote its guidance to help improve awareness and compliance.
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