A report published by the Charity Commission has shown that many charities may “often overstate governance costs” in their public annual returns or accounts.

The report, published today by the Charity Commission as part of its Accounts Monitoring Review, identified 76 charities with incomes of over £500,000 that appeared to have high governance costs of more than 20 per cent of total expenditure.

The results suggest that only three of the 76 charities (4 per cent) reviewed had “a reasonable explanation for the figures they reported. Some 66 of the organisations (87 per cent) had incorrectly allocated costs to governance costs that should have been included in other categories of expenditure, including charitable expenditure."

The remaining seven charities were found to have incorrectly filled out their annual returns or accounts.

The Charity Commission found that the majority of those organisations surveyed “seemed either not to understand the difference between support costs and governance costs” or “were not fully aware of the SORP’s requirements for reporting their expenditure”.

The total governance costs of the 76 charities sampled amounted to £29.5m, which collectively amounted to 38 per cent of the organisation’s total expenditure of £78.4m. Around two-thirds of of the sample charities had an income of less than £1m and only one had an income in excess of £3m (an income of £5.8m).

The Commission said that “the findings of this review emphasise the importance of trustees having a good understanding their charity’s activities and how these are reported in annual reports, accounts and returns”.

Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said of the report: “We continue to be concerned that a large number of charities are not meeting the accounting requirements as set out in the SORP and are making basic errors in their annual reporting.

“The incorrect reporting of financial information causes confusion, has a real impact on public trust and confidence in charities and it is also likely to impact on how they are perceived by donors and potential supporters.

“The Commission provides guidance to trustees on accounting and reporting to help trustees and practitioners and we will continue to promote our guidance to improve awareness and promote compliance with the Charity SORP.”