'Qualified' accounts misunderstood by most small charities

23 Nov 2016 News

Almost 96 per cent of small charities which say their accounts are “qualified” when filing them with the Charity Commission have wrongly answered the question, according to new research by Sheffield Hallam University.

The study by the university’s business school, found that many small charities wrongly believed “qualified” to mean there were no issues with their accounts – rather than the actual meaning that the auditor or examiner had some reservations.

The Charity Commission began asking charities whether their accounts were “qualified” by the charity’s auditor or independent examiner, as part of the filing process, in 2014. The process of independent examination is an alternative to audit for charities with an income of up to £1m.

Question is confusing

Gareth Morgan, emeritus professor of charity studies at Sheffield Hallam University, said it was “worrying” for “such a high proportion of charities to be wrongly answering a key question as part of the Charity Commission’s annual return process”.

“This study shows that large numbers of charities are inadvertently damaging their reputation and possibly prompting regulatory action,” he said. “The question was worded in a way that was very confusing.

“If the Commission needed information where the audit or independent examination report contained qualifications, they should have found a much clearer way to ask the question.”

The research was conducted on a study of charities with annual incomes of between £100,000 and £250,000.

Funders concerned

Some 1,095 charities told the Commission as part of their 2014 annual return, that their accounts had been qualified. But an examination of a random sample of almost 20 per cent of those, revealed that just 6 out of 145 charities actually had a qualified report from their auditor or independent examiner.

Ninety-six per cent of charities that said their accounts were qualified and had appropriate independently examined accounts appear to have misunderstood the question, saying that their accounts were qualified when in fact the audit or report did not include any concerns, the research reveals.

According to postgraduate charity resource management student, Juliet Kemp, who conducted the research, charity funders are likely to question funding a charity that has reported its accounts as qualified.

Several funders interviewed by Kemp were concerned to find out from her research that the Charity Commission publishes declarations made by charities regarding qualified accounts on the Register of Charities without verifying the information.

Nick Perks, trust secretary of the Joseph Rowntree Charitable Trust, one of the funders interviewed, commented: "These are some pretty shocking statistics. The problems have clearly arisen due to genuine misunderstanding, and hopefully can now be quickly corrected on the register."

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