The Charity Commission has accused auditors and independent examiners of “letting the profession and charities down” after finding that almost half of the accounts it looked at failed to meet the regulator’s minimum standards.
It assessed a sample of 296 charities’ accounts against a new external scrutiny benchmark to determine whether a minimum standard of scrutiny by auditors and independent examiners had been met.
The Commission drew the charities’ accounts, for the financial year ending in 2017, from three random samples of charities of different sizes.
Overall it found that 135 (46 per cent) of the accounts failed to meet the benchmark, with standards worse for smaller charities.
For the 100 charities the Commission looked at with an income of £25,000 to £250,000, just 37 met its benchmark.
And for the 100 charities the Commission studied with an income of £250,000 to £1m, 51 met its benchmark.
Meanwhile, for the 96 charities with an income of more than £1m, 73 met its benchmark.
The Commission’s identified failings included 77 cases of incomplete reporting of related party transactions.
It said this raises additional concerns that the failure by trustees to manage conflicts of interest is also being under-reported.
The Commission also found that many charitable companies in the sample failed to provide a separate summary income and expenditure account or to state that it was included in the statement of financial activities.
‘Letting charities down’
The Commission said it was concerned by its findings and has passed details of accounting practitioners that failed to meet the benchmark to their relevant professional bodies so that they can assist them.
It said it may also raise formal complaints with professional bodies about non-compliance with the benchmark.
Nigel Davies, head of accountancy services at the Commission, said: “We know from research we have carried out into public trust in charities that the public care deeply about transparency. It is therefore vital that charities are able to provide an accurate and clear picture of their finances.
“External scrutiny is an essential part of the checks and balances process that charity accounts go through and so it is disappointing that so many independent examiners and auditors appear to lack the necessary understanding of the external scrutiny framework.
“Those that are getting this right are playing an important role in upholding charities’ accountability to us as regulator, and the public. Clearly others are letting the profession and charities down. We are working closely with the accounting profession to tackle shortcomings and raise standards; I am encouraged by the commitments to work with us that have already been made.”
The Commission has contacted the 135 charities themselves that failed to meet the benchmark and provided guidance to help them improve the quality of future reports and accounts.
It has also updated its Independent examination of charity accounts: guidance for trustees (CC31), which it says should now be more accessible.