Many large charities are mistakenly understating their charitable expenditure and making "basic errors" in their annual reporting, according to the Charity Commission.
In a report published today, in which a selection of charities with a low charitable expenditure are examined, the regulator expresses concern about the situation and says the mistakes risk alienating supporters.
The commission identified more than 443 charities with annual incomes of more than £500,000 and charitable expenditure of less than 10 per cent of their income. It selected 188 of those for review to assess whether there was a reasonable explanation for the low level of charitable expenditure, which in 57 per cent of cases there was.
But in 27 per cent of cases the charity’s annual return had been completed incorrectly, which meant the public would not understand that these charities had in fact spent an average of 89 per cent of their income on charitable activity, the report says.
And in 15 per cent of cases charities were judged to have significantly understated their charitable expenditure by reporting some of it within other categories in the statement of financial activities.
Accounting for the remaining 2 per cent of cases, three charities were found not to have stated the amount of their charitable expenditure at all and one did not include an auditor’s report.
The commission has insisted these charities resubmit compliant accounts for the years in question.
The report says the main examples of reasonable explanations for a low level of charitable expenditure were the receipt of a large "one-off" income during the year, the accumulation of reserves for a specific purpose, the purchase of assets and the inclusion of trading subsidiaries.
Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: "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 affect how they are perceived by donors and potential supporters."
The commission said it was planning to do more work on promoting its guidance to help improve awareness of accurate reporting and compliance.
The regulator stressed that it used the 10 per cent of income figure as a criterion because it produced a manageable sample size and the figure was not intended to be a benchmark for the minimum acceptable amount of charitable expenditure.