The Charity Commission has warned of a deterioration the quality of charity accounts and said the sector is not doing enough to explain to the public how money is raised and spent or to demonstrate public benefit.
A random sample of 105 accounts for the year ending December 2016 were reviewed by the Commission. Seventy per cent met the Commission’s “basic benchmark of user requirements”, a fall from 74 per cent the previous year.
This is the third consecutive fall in the quality of accounts being reviewed but the first time that the drop has been described as “significant” by the Commission, which published its findings at the end of last year.
“The quality of the accounts in our samples fell slightly in each of our last two reviews, but this year is the first time we have found a significant deterioration since we began assessing accounts quality,” the review said.
The main reasons for not meeting the regulator’s standard was that accounts had not been independently scrutinised by an auditor or independent examiner, as is required by law, or that they had not properly explained the charity’s purposes and shown how its activities helped to achieve those purposes.
Public benefit reporting
The review also found that 48 per cent of charities do not adequately meet public benefit reporting requirements, though this was a slight improvement on the previous year.
Charities are required to include a public benefit statement in their accounts setting out how their activities are linked to their public benefit.
The number of charities doing this adequately has been steadily increasing since the Commission began tracking it.
Two-thirds of accounts included a public benefit statement, but the Commission’s report said this is not enough as there should also be “evidence of some reflection on the difference that the charity’s activities had made”.
The Commission has provided advice to trustees of charities in the sample but is calling more broadly for a “step-change” in attitudes to reporting.
Nigel Davies, head of accountancy services at the Commission, said: “The public want and deserve to know how charities spend their money, so this deterioration in the quality of accounts is of serious concern.
“The trustees’ annual report and accounts are a key way to build confidence among supporters, so many charities are clearly missing an opportunity.
“I would urge those charities that find reporting difficult to take advantage of the pro-forma reports and accounts available on our website.
“We also need to see a step-change in trustees’ attitudes to public benefit reporting. It is disappointing that nearly half of charities fail to explain the activities they undertake and the impact they have.
“We want to see charity thrive, so charities must be clearer about who they help and what difference they are making.”