The Charity Commission must be given more money and new powers to combat “bogus charities” which support terrorism, according to a report published today by a Commons committee.

The Home Affairs Committee, chaired by Keith Vaz, Labour MP for Leicster East, says in its report Counter Terrorism that it is “deeply concerned with the potential for bogus charities to dupe the public into raising funds” to support terrorist activity.

“We recommend that the Charity Commission be granted extra resources and stronger legal powers to counter the abuse of charities by terrorists,” the report says.

The report by the committee of cross-party MPs, which scrutinises the work of the Home Office, also recommends that the Charity Commission should be able to undertake unannounced inspections of suspected terrorist organisations in order to audit their accounts.

The report also says the UK must undertake a capacity-building exercise to improve its ability to fight terrorism, and that some of the UK’s foreign aid budget could be spent on helping other charities develop their counter-terrorism capability.

It says the Independent Reviewer of Terrorism Legislation should review the scale of abuse of charity to support terrorism, as an extension of his existing review of terrorism law and its effect charities.

The report recommends that he suggests “changes which will improve the ability of the authorities to tackle terrorist financing whilst ensuring that law-abiding charities can continue their vital work”.

Davis Lewin, political director of the Henry Jackson Society, a right-wing think tank which gave evidence to the committee, said in a statement following the report that of all the recommendations in the report, the proper resourcing of the Charity Commission was “paramount”.

“The Charity Commission’s leadership is making serious efforts to address the Commission’s inadequate capabilities to limit, vet and disqualify charities suspected of associating with terrorism,” he said. “As such, we strongly support the report’s call for more resources for the Commission to advance this important aspect of its remit.”

William Shawcross, chair of the Commission and a former trustee of the Henry Jackson Society, warned last month that terrorist abuse of charities is “potentially the most deadly” problem the Charity Commission faces.

The inquiry also reported concerns from the Charity Finance Group that overseas aid was being slowed down because anti-terror legislation was making it more difficult to move funds abroad.

Caron Bradshaw, chief executive of the CFG, said today in response to the report: “CFG has long been concerned to avoid the reputation of the sector being damaged by those who would abuse their charitable status to support terrorist activity.  It’s important to stress that instances are few, as highlighted in the report."

She said if overseas aid money was used to build capacity abroad to fight terrorism then “there needs to be a clear agenda to support charities to securely move their charitable funds to do this work”.

CFG is working on these issues with the government’s steering group on cross border remittances, she said.