A third of charities’ annual accounts are of unacceptable quality and two-thirds of charities fail to formally report on the public benefit they provide in their annual reports, according to the Charity Commission.
The regulator has today published two reports based on a random sample of 107 charities’ most recent annual accounts, covering the latest available financial year as of September 2014, when the sample was determined.
The Quality of Charity Accounts assesses these accounts against a commission concept of "acceptable quality" based on a number of criteria on how useful the accounts will be to their users, rather than on pure compliance with the Statements of Recommended Practice accounting standards.
The report says that 68 per cent of the accounts for financial years ending in the 12 months to 31 March 2013 were of acceptable quality, compared with 54 per cent of those for financial years ending in the previous year.
The second report, Public Benefit Reporting by Charities, looks at whether the accounts have complied with the requirement to include a report of the activities carried out to further a charity's purposes for the public benefit, and a statement as to whether the trustees have had regard to the commission’s public benefit guidance.
It says that for accounts ending in 2012/13, only 35 per cent of the charities fully met the public benefit reporting requirement, and only 27 per cent did so the year before.
It adds that 88 per cent of accounts included the required statement of the charity’s purposes in the more recent period, and 80 per cent also included the required summary of their main activities to carry out their purposes.
The report on the quality of accounts, meanwhile, shows that 69 per cent of the charities included a statement about their reserves policies in their most recent accounts.
Of the 26 sets of accounts that showed low levels of charitable expenditure, only 38 per cent included an explanation of this; and six of the seven charities with pension scheme deficits and all three of those that used restricted funds for unrestricted purposes explained this.
A correlation was discovered between size of charity and the likelihood that its accounts would be of acceptable quality – 53 per cent of the charities with incomes of less than £250,000 had acceptable accounts, compared with 65 per cent in the £250,000-£500,000 income bracket and 89 per cent of those with incomes of more than £500,000.
Paula Sussex, chief executive of the Charity Commission, said: "It is crucial that trustees take their annual reporting requirements seriously. That goes beyond getting the figures in your accounts right. It’s about using the opportunity to explain a charity’s impact, to tell its story in a way that its supporters and beneficiaries understand."