Charities Under-Report on their Charitable Expenditure

The latest report from the Charity Commission (published on 19 August 2015) suggests that a large number of charities fail to correctly record their charitable expenditure in both their annual accounts and annual reports. The Charity Commission analysed over 180 annual reports and accounts from charities that declared they spent less than 10% of their annual income on charitable activities and who had an annual income of over £500,000. From analysing these reports, the Commission revealed that 57% of charities had accounted correctly and were able to provide valid reasons for their lack of charitable spend. However, the remaining 43% had made errors, which lead to a significant level of under-reported charitable expenditure. To help restore the public’s confidence in charities, the Charity Commission promotes transparency and places heavy emphasis on there being a ‘reasonable’ amount of charity expenditure being used for a charitable purpose that is of benefit to the public.

The director of investigations of monitoring and enforcement at the Charity Commission, Michelle Russell, stated: ‘It is heartening to see that the majority of charities we looked at as part of this review were able to provide reasonable and legitimate explanations as to why their charitable expenditure was so low for the year in question.

‘But we are concerned that so many charities are making basic errors in their annual reporting. Aside from being a regulatory concern and undermining public trust in charities and the information they provide about their work and finances, it is likely to impact on how they are perceived by donors and potential supporters.’

From the Charity Commission’s report, three of the charities were highlighted for non-compliance issues as they failed to audit their accounts for the year in question, and two of the charities failed to report any expenditure used on charitable activities. All of these charities now have to resubmit their accounts for the year in questioned. As a result, the Commission will be promoting their guidance to ensure charities are aware of the importance of staying compliant, in the hope of preventing the above becoming a regular occurrence.

It is important to ensure that accounts are audited correctly and that your charity is compliant with charity legislation. If you require assistance or further information on this area, please contact Suda at suda.ratnam@raffingers-stuart.co.uk.